Crossject — Update 9 December 2016

Crossject — Update 9 December 2016

Crossject

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Crossject

Timeline adjustments

Development update

Pharma & biotech

9 December 2016

Price

€4.54

Market cap

€33m

Net cash (€m) at 30 September 2016

2.0

Shares in issue

6.9m

Free float

72.3%

Code

ALCJ

Primary exchange

Euronext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(27.8)

(42.7)

(46.5)

Rel (local)

(31.5)

(44.5)

(47.0)

52-week high/low

€11.1

€4.5

Business description

Crossject has several programmes in development based on its proprietary needle-free injection system, ZENEO. The first to market will be ZENEO Sumatriptan, which the company expects to be commercialised in 2019. Over the course of 2019 and 2020, the company expects to launch proprietary versions of six other products on its ZENEO platform.

Next events

Fast-track manufacturing line available

Q217

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Crossject is a research client of Edison Investment Research Limited

As part of its revised strategic plan, Crossject has expanded its partnership with CENEXI to fill and finish all of Crossject’s products in all regions for a period of five years, with a potential extension up to 10 years. Also, the timelines for its expected regulatory submissions have shifted across the board; most notably, the EU filing for ZENEO Methotrexate has been pushed back from H216 to H218 due to its non-emergency nature and higher requirement for manufacturing resources than other products. As a result, we reduce our valuation to €9.91 per share (from €12.07).

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14

1.7

(5.3)

(0.66)

0.0

N/A

N/A

12/15

2.4

(6.7)

(0.85)

0.0

N/A

N/A

12/16e

3.1

(6.3)

(0.81)

0.0

N/A

N/A

12/17e

0.0

(10.7)

(1.26)

0.0

N/A

N/A

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

CENEXI deal expanded

Originally, the CENEXI agreement was for three years and focused on ZENEO Methotrexate for the Indian and Chinese markets. It has now expanded to cover all products in all regions for a period of five years with a potential extension up to 10 years. Manufacturing of clinical batches should begin in Q217, with a mass production line capable of filling up to 10m units (a number greater than our peak estimates) available in H118.

Timeline delays

The timelines for the submission and approval of Crossject’s products have been pushed back across the board. Five products that had originally been expected to have applications submitted by the end of 2017 will now have their applications submitted by the end of 2018, with some US submissions not occurring until 2020.

Reprioritising the pipeline

The pipeline has been prioritised in favour of emergency products that will require fewer resources and with a focus on the US market. ZENEO Methotrexate for rheumatoid arthritis, a chronic indication, would tie up a disproportionate amount of manufacturing resources to produce multiple dose strengths, so its EU submission date has been moved from H216 to H218, with US filing in H120.

Valuation

We are decreasing our valuation from €81.9m or €12.07 per share to €68.2m or €9.91 per share, mainly due to timeline delays and a reduction in the probability of success of the ZENEO Methotrexate programme from 60% to 30% due to its de-prioritisation. This was mitigated partly by the addition of the naloxone and apomorphine products into our valuation model. As of 30 September, Crossject had €2.0m in cash, indicating a near-term capital requirement. The company expects to receive an additional €11m in grants, subsidies, tax credits and warrant exercises over the next 18 months. Between now and projected profitability in 2020 (previously 2018), we forecast a total funding need of €35m (previously €15m).

Increased capacity but longer timelines

Crossject has announced that it has expanded its partnership with CENEXI, which currently has around €160m in annual revenue and manufactures 15m syringes per year for its customers. It has three sites covering 27,000m2 that are approved by the FDA, the French National Agency for Medicines and Health Products Safety (ANSM) and the French Federal Agency for Medicines and Health Products (AFMPS).

In exchange for five years of exclusivity (extendable to 10 years), CENEXI will provide over €5m worth of capital expenditures, 15 full-time equivalents (duties divided among 25 employees), a fast-track line to handle clinical batches by Q217 and a scale-up line with a maximum capacity of 10m units per year by H118. The original partnership with CENEXI was for three years, was focused on ZENEO methotrexate and would have led to a maximum capacity of 1-2m units. Following this agreement, Crossject will be responsible for the immersion and preparation of tubes (washing, siliconizing, sterilisation) and actuator assembly, while CENEXI will be responsible for formulation, filling, final assembly and packaging. Based on our estimates, Crossject should be able to handle all of its manufacturing needs for all current pipeline products and regions, which is likely to be viewed positively by potential partners.

Crossject has also announced that the fast-track line to handle clinical batches will not be available until Q217 and that its original timelines for expected EU submission have to be pushed out (see Exhibit 1). Its first submission for a product approval is now likely to be ZENEO Sumatriptan in H118.

Exhibit 1: Pipeline timeline changes

Product

Indication

Initial expectation for submission (EU)

New expectation for submission (EU)

Expectation for US submission

Sumatriptan

Acute migraine

H117

H118

H218

Midazolam

Epilepsy

H217

H218

H119

Adrenaline

Anaphylactic shock

H217

H218

H119

Methotrexate

Rheumatoid arthritis

H216

H218

H120

Hydrocortisone

Acute adrenal insufficiency

H117

H218

H119

Naloxone

Opioid overdose

H118

H218

H119

Apomorphine

Parkinson’s disease

H218

H119

H120

Source: Crossject

Notably, ZENEO Methotrexate, which previously had been the lead product, has been de-prioritised, with EU submission expected to come in H218 instead of H216. This was due to the company deciding to prioritise pipeline products based on four criteria. Priority was given to products that are life-saving, are attractive to US partners, require fewer resources for submission and have consistent submission requirements for the US and EU. As ZENEO Methotrexate is for rheumatoid arthritis, a chronic and not life-threatening indication, and would take a lot of capacity from the fast-track line due to the need to manufacture multiple dosage strengths, its development has been pushed back. ZENEO Sumatriptan is also for a non-life-threatening condition but its ease of manufacture and lower level of investment needed versus ZENEO Methotrexate has made Crossject decide to prioritise that product.

Valuation

We are decreasing our valuation from €81.9m or €12.07 per share to €68.2m or €9.91 per share, mainly due to timeline delays and a reduction in the probability of success of the ZENEO Methotrexate programme from 60% to 30% due to its de-prioritisation. This was mitigated partly by the addition of the naloxone and apomorphine products into our valuation model, which we now include due to indications from the company that these products are becoming increasingly attractive.

Naloxone is an opioid antagonist that is able to reduce respiratory and mental depression due to opioids and hence can be very useful in saving lives when available. The need is clear; according to the Drug Abuse Warning Network, in 2011 there were 258,482 emergency room visits in the United States due to heroine and another 488,004 due to nonmedical use of prescription opioids. Naloxone is available in traditional intramuscular, intramuscular/subcutaneous auto-injector and intranasal forms, all of which work within six to eight minutes of administration. Our model assumes a 60% probability of success, a launch in 2020, with peak penetration of 8% in both markets and total peak sales of €14m.

Apomorphine is a dopamine agonist and is used to treat/manage sudden and unexpected bouts of hypomobility associated with Parkinson’s disease (PD). According to the Parkinson’s Disease Foundation, the prevalence of Parkinson’s is one million people in the US, with 7-10 million people worldwide suffering from the disease. Once patients are on standard PD drug treatments for four to five years, they experience bouts of hypomobility, including the inability to rise from a chair, speak or walk. Often these can be treated by changing their treatment regimen. However, according to BlueShield of Northeastern New York, approximately 12,000 patients have severe hypomobility that requires apomorphine, which reverses symptoms in 7-14 minutes. As a month’s supply is typically ~$2,000/month, this could be a potentially lucrative market. Our model assumes launch in 2020 with peak penetration of 8% in the US and 6% in the EU, with total peak sales of €53m. We have assigned a 30% chance of success as its profile is similar to that of methotrexate. It is a non-emergency product that will use a disproportionate amount of manufacturing resources due to the need of multiple dosage strengths.

Exhibit 2: Crossject valuation table

Product

Main indication

Prob. of success

Launch year

WW peak sales (€m)

Patent protection

Royalty

rNPV
(€m)

Methotrexate

Rheumatoid arthritis

30%

2020

€100

2034

20%

€8.0

Sumatriptan

Acute migraine

60%

2019

€82

2034

20%

€10.7

Adrenaline

Anaphylactic shock

60%

2020

€133

2034

25% US/20% EU

€28.5

Midazolam

Acute epileptic seizures

60%

2020

€58

2034

20%

€7.9

Hydrocortisone

Acute adrenal crisis

60%

2020

€9

2034

20%

€0.5

Naloxone

Opioid overdose

60%

2020

€14

2034

20%

€0.8

Apomorphine

Parkinson’s disease

30%

2020

€53

2034

20%

€9.7

Total

 

 

 

 

€66.2

Cash and cash equivalents (H116) (€m)

€2.00

Total firm value (€m)

€68.20

Total basic shares (m)

6.88

Value per basic share (€)

€9.91

Stock options (3/2016e, m)

0.62

Weighted average exercise price (€)

€2.68

Cash on exercise (€m)

€1.67

Total firm value (€m)

€69.86

Total number of shares (m)

7.5

Diluted value per share (€)

€9.31

Source: Edison Investment Research


Financials

As of 30 September, the company had €2.0m in cash, indicating a need for the company to raise additional capital in the very short term. Based on its H116 cash outflow from operations of €2.55m, its runway with current funds probably extends into Q117. Crossject expects to receive an additional €11m in grants, subsidies, tax credits and warrant exercises over the next 18 months, with €2.8m in repayable grants expected to come in early 2017. However, we are not assuming recurring grants and subsides (other than R&D credits) at this stage for FY18e and beyond.

Due to the delayed development timelines as mentioned above, we have pushed out our R&D expenditure assumptions for 2017 and 2018 by €2m and €2.3m per year, respectively. As we now expect the company will not break even until 2020 (previously 2018), we forecast an additional funding need of €20m, resulting in a total funding gap of €35m (previously €15m).

Exhibit 3: Financial summary

2014

2015

2016e

2017e

2018e

Year end 31 December

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

PROFIT & LOSS

Revenue

 

 

1,744

2,370

3,100

0

0

Cost of Sales

0

(0)

(501)

0

0

Gross Profit

1,744

2,369

2,599

0

0

R&D Expenses

(2,421)

(3,077)

(2,421)

(4,800)

(5,520)

SG&A and Other Expenses

(3,388)

(4,808)

(4,354)

(4,702)

(5,079)

EBITDA

 

 

(4,066)

(5,516)

(4,176)

(9,502)

(10,599)

Operating Profit (before GW and except.)

 

(5,108)

(7,013)

(5,926)

(9,502)

(10,599)

Intangible Amortisation

0

0

0

0

0

Other

(0)

0

0

0

0

Exceptionals

0

0

0

0

0

Operating Profit

(5,108)

(7,013)

(5,926)

(9,502)

(10,599)

Net Interest

(36)

(19)

(400)

(1,200)

(1,999)

Other

(160)

299

0

0

0

Profit Before Tax (norm)

 

 

(5,334)

(6,720)

(6,326)

(10,702)

(12,598)

Profit Before Tax (FRS 3)

 

 

(5,304)

(6,732)

(6,326)

(10,702)

(12,598)

Tax

968

1,045

726

1,440

1,656

Deferred tax

0

0

0

0

0

Profit After Tax (norm)

(4,366)

(5,675)

(5,600)

(9,262)

(10,942)

Profit After Tax (FRS 3)

(4,336)

(5,687)

(5,600)

(9,262)

(10,942)

Average Number of Shares Outstanding (m)

6.7

6.7

6.9

7.4

7.7

EPS - normalised (c)

 

 

(65.64)

(85.33)

(80.59)

(125.75)

(142.83)

EPS - FRS 3 (€)

 

 

(0.65)

(0.86)

(0.81)

(1.26)

(1.43)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

5,521

5,936

6,103

7,513

8,585

Intangible Assets

2,327

2,330

2,344

2,344

2,344

Tangible Assets

888

1,727

2,366

3,776

4,848

Other

2,305

1,878

1,393

1,393

1,393

Current Assets

 

 

12,853

7,943

7,647

6,975

4,961

Stocks

0

761

961

961

961

Debtors

1,926

1,991

1,826

1,826

1,826

Cash

10,927

5,139

4,860

4,188

2,174

Other

0

52

0

0

0

Current Liabilities

 

 

(2,907)

(3,261)

(2,131)

(2,131)

(2,131)

Creditors

(2,907)

(3,261)

(2,131)

(2,131)

(2,131)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(982)

(1,820)

(6,712)

(16,712)

(26,712)

Long term borrowings

0

0

(5,000)

(15,000)

(25,000)

Other long term liabilities

(982)

(1,820)

(1,712)

(1,712)

(1,712)

Net Assets

 

 

14,484

8,797

4,907

(4,355)

(15,297)

CASH FLOW

Operating Cash Flow

 

 

(3,163)

(4,796)

(4,898)

(8,695)

(10,035)

Net Interest

0

0

0

0

0

Tax

0

0

0

0

0

Capex

(4,770)

(1,805)

(1,978)

(1,978)

(1,978)

Acquisitions/disposals

0

0

0

0

0

Financing

17,873

0

1,709

0

0

Dividends

0

0

0

0

0

Other

0

483

(1,249)

0

0

Net Cash Flow

9,940

(6,118)

(6,416)

(10,673)

(12,013)

Opening net debt/(cash)

 

 

(2,468)

(10,927)

(5,139)

140

10,812

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

0

0

0

0

0

Other

(1,481)

330

1137

0

0

Closing net debt/(cash)

 

 

(10,927)

(5,139)

140

10,812

22,826

Source: Crossject accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Crossject and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “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.

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Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Crossject and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “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.

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United Kingdom

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Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Healthcare

Oryzon Genomics — Update 9 December 2016

Oryzon Genomics

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