Acacia Pharma — BARHEMSYS NDA refiling Q319, launch in Q120

Acacia Pharma (EU: ACPH)

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1.28

0.04 (3.23%)

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Research: Healthcare

Acacia Pharma — BARHEMSYS NDA refiling Q319, launch in Q120

Following guidance from the US FDA, Acacia Pharma has now outlined the regulatory pathway for its lead asset, BARHEMSYS, and plans to resubmit the new drug application (NDA) in Q319. This could enable a launch in H120 if approved by the FDA. Ongoing deficiencies with Acacia’s chosen contract manufacturing organisation (CMO), which led to two complete response letters (CRL), have resulted in the appointment of a new CMO. With increased visibility on the strategy, we have reintroduced our previously withdrawn forecasts and adjusted our launch timelines for BARHEMSYS in the US. We now forecast a launch in H120 (previously H119). We have also reduced our cost expectations in 2019 as Acacia delays its marketing operations. We now value Acacia at €631m.

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Written by

Healthcare

Acacia Pharma

BARHEMSYS NDA refiling Q319, launch in Q120

Regulatory update

Pharma & biotech

11 July 2019

Price

€2.23

Market cap

€119m

$/£0.80, $/€0.89, £/€1.11

Gross cash ($m) at 31 May 2019

23.9

Shares in issue

53.3m

Free float

70.0%

Code

ACPH

Primary exchange

Euronext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

47.2

(36.6)

(30.9)

Rel (local)

42.8

(33.3)

(26.8)

52-week high/low

€4.02

€1.23

Business description

Acacia Pharma is a hospital pharmaceutical company focused on the development and commercialisation of new nausea and vomiting treatments for surgical and cancer patients. Its main product, BARHEMSYS, is for the treatment of PONV and could be approved by the FDA in 2020.

Next events

BARHEMSYS resubmission with the US FDA

Q319

H119 results

Q319

FDA approval and US launch

H120

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Dr Sean Conroy

+44 (0)20 3681 2534

Acacia Pharma is a research client of Edison Investment Research Limited

Following guidance from the US FDA, Acacia Pharma has now outlined the regulatory pathway for its lead asset, BARHEMSYS, and plans to resubmit the new drug application (NDA) in Q319. This could enable a launch in H120 if approved by the FDA. Ongoing deficiencies with Acacia’s chosen contract manufacturing organisation (CMO), which led to two complete response letters (CRL), have resulted in the appointment of a new CMO. With increased visibility on the strategy, we have reintroduced our previously withdrawn forecasts and adjusted our launch timelines for BARHEMSYS in the US. We now forecast a launch in H120 (previously H119). We have also reduced our cost expectations in 2019 as Acacia delays its marketing operations. We now value Acacia at €631m.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

0.0

(6.5)

(2.32)

0.00

N/A

N/A

12/18

0.0

(16.2)

(0.35)

0.00

N/A

N/A

12/19e

0.0

(16.8)

(0.30)

0.00

N/A

N/A

12/20e

1.1

(48.3)

(0.88)

0.00

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Confidence placed in a new CMO for BARHEMSYS

The receipt of two CRLs from the US FDA in the past nine months has weighed heavily on Acacia’s share price. However, both CRLs related to problems at Acacia’s CMO and not the clinical data package. The recent appointment of a new CMO for BARHEMSYS means the approval pathway is clearer. The new CMO has a track record in manufacturing amisulpride (the active pharmaceutical ingredient of BARHEMSYS) and has regularly undergone successful FDA inspections, most recently in September 2018 when its facility was rated ‘no action indicated’, the best possible outcome.

Capital raise likely after potential approval

Following the delay to approval of BARHEMSYS, we have reduced our forecast 2019 SG&A to reflect delayed sales activities. While Acacia has halted the hiring of sales reps, key senior sales personnel are being retained and will continue to educate and prepare the market for the potential BARHEMSYS launch in 2020. We have also reduced our forecast 2019 R&D spend (on development of BARHEMYS in chemotherapy-induced nausea and vomiting) as cost controls take effect. We forecast c £40m will need to be raised in H120 (following potential approval) to fund operations, with additional future funding dependent on sales execution.

Valuation: €631m or €11.8/share

Our revised valuation of €631m or €11.8/share (vs €635m or €11.9/share previously) is based on a risk-adjusted NPV model. We have updated our model to reflect the delay in the US launch to H120 (from H119 previously). We have also rolled our model forward, updated for FX rates and adjusted for net cash of 31 May, which we calculate at £12.6m. We note FX rates have had a significant positive impact on our valuation.

Exhibit 1: Financial summary

Accounts: IFRS, year-end: December, £m

 

 

2016

2017

2018

2019e

2020e

PROFIT & LOSS

 

 

Revenue

 

 

0.0

0.0

0.0

0.0

1.1

Operating revenues

 

 

0.0

0.0

0.0

0.0

1.1

Cost of sales

 

 

0.0

0.0

0.0

0.0

(0.1)

Gross profit

 

 

0.0

0.0

0.0

0.0

1.1

Gross margin %

 

 

n/a

n/a

n/a

n/a

0.9

SG&A (expenses)

 

 

(0.8)

(1.5)

(11.3)

(13.4)

(41.1)

R&D costs

 

 

(13.6)

(1.5)

(3.8)

(1.2)

(5.6)

Other income/(expense)

 

 

0.0

0.0

0.0

0.0

0.0

EBITDA (reported)

 

 

(14.4)

(3.0)

(15.0)

(14.6)

(45.6)

Depreciation and amortisation

 

 

0.0

0.0

0.0

0.0

0.0

Reported Operating Income

 

 

(14.4)

(3.0)

(15.0)

(14.6)

(45.6)

Operating Margin %

 

 

n/a

n/a

n/a

n/a

n/a

Finance income/(expense)

 

 

(1.8)

(3.5)

(1.1)

(2.2)

(2.6)

Exceptionals and adjustments

 

 

0.0

0.0

0.0

0.0

0.0

Reported PBT

 

 

(16.3)

(6.5)

(16.2)

(16.8)

(48.3)

Income tax expense (includes exceptionals)

 

 

2.8

0.3

0.7

0.6

1.5

Reported net income

 

 

(13.5)

(6.2)

(15.5)

(16.2)

(46.8)

Basic average number of shares, m

 

 

2.7

2.7

44.1

53.3

53.3

Year-end number of shares, m

 

 

2.7

2.7

53.3

53.3

53.3

Basic EPS (€)

 

 

(5.06)

(2.32)

(0.35)

(0.30)

(0.88)

Adjusted EPS (€)

 

 

(5.06)

(2.32)

(0.35)

(0.30)

(0.88)

Dividend per share (€)

 

 

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

 

 

 

 

 

 

 

Property, plant and equipment

 

 

0.0

0.0

0.0

0.0

1.2

Goodwill

 

 

0.0

0.0

0.0

0.0

0.0

Intangible assets

 

 

0.0

0.0

0.0

0.0

0.0

Other non-current assets

 

 

0.0

0.0

0.0

0.0

0.0

Total non-current assets

 

 

0.0

0.0

0.0

0.0

1.2

Cash and equivalents

 

 

6.9

3.1

29.4

10.1

6.8

Inventories

 

 

0.0

0.0

0.0

0.0

0.0

Trade and other receivables

 

 

0.5

0.2

0.3

0.0

0.2

Other current assets

 

 

2.8

0.3

0.7

0.7

0.7

Total current assets

 

 

10.2

3.6

30.4

10.8

7.7

Non-current loans and borrowings

 

 

5.0

0.0

7.0

7.0

47.0

Other non-current liabilities

 

 

0.0

0.0

0.0

0.0

0.0

Total non-current liabilities

 

 

5.0

0.0

7.0

7.0

47.0

Trade and other payables

 

 

5.1

1.0

3.7

0.7

5.6

Current loans and borrowings

 

 

2.7

5.2

0.3

0.0

0.0

Other current liabilities

 

 

9.1

15.2

0.0

0.0

0.0

Total current liabilities

 

 

17.0

21.4

4.1

0.7

5.6

Equity attributable to company

 

 

(11.7)

(17.8)

19.3

3.1

(43.7)

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Operating Profit

 

 

(16.3)

(6.5)

(16.2)

(16.8)

(48.3)

Depreciation and amortisation

 

 

0.0

0.0

0.0

0.0

0.0

Share based payments

 

 

0.0

0.0

0.0

0.0

0.0

Other adjustments

 

 

1.9

3.7

1.6

2.2

2.6

Movements in working capital

 

 

2.0

(3.8)

2.6

(2.7)

4.7

Interest paid/received

 

 

0.0

0.0

0.2

(2.2)

(2.6)

Income taxes paid

 

 

2.2

2.8

0.3

0.6

1.5

Cash from operations (CFO)

 

 

(10.2)

(3.7)

(11.6)

(19.0)

(42.1)

Capex

 

 

0.0

0.0

0.0

0.0

(1.2)

Acquisitions & disposals net

 

 

0.0

0.0

0.0

0.0

0.0

Other investing activities

 

 

0.0

0.0

0.2

0.1

0.1

Cash used in investing activities (CFIA)

 

 

0.0

0.0

0.2

0.1

(1.1)

Net proceeds from issue of shares

 

 

4.5

3.4

34.2

0.0

0.0

Movements in debt

 

 

7.1

(3.4)

1.5

(0.3)

40.0

Other financing activities

 

 

0.0

0.0

0.0

0.0

0.0

Cash from financing activities (CFF)

 

 

11.7

0.0

35.7

(0.3)

40.0

Cash and equivalents at beginning of period

 

 

5.5

6.9

3.1

29.4

10.1

Increase/(decrease) in cash and equivalents

 

 

1.4

(3.8)

26.3

(19.2)

(3.3)

Cash and equivalents at end of period

 

 

6.9

3.1

29.4

10.1

6.8

Source: Company data, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Acacia Pharma and prepared and issued by Edison, in consideration of a fee payable by Acacia Pharma, Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

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New York +1 646 653 7026

1,185 Avenue of the Americas

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Acacia Pharma and prepared and issued by Edison, in consideration of a fee payable by Acacia Pharma, Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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