Probiodrug — Focusing on further PQ912 development strategy

Probiodrug — Focusing on further PQ912 development strategy

Operating costs in H117 were largely in line with our expectations, while a one-off payment was a welcome resolution of Probiodrug’s long-outstanding potential tax liability. Following the overall positive Phase IIa data with PQ912 for Alzheimer’s disease (AD) released in June 2017, Probiodrug reiterated in its H117 report that all strategic options for further development are on the table. Depending on available funding, the company could initiate the next study looking at the long-term treatment of AD patients (the Phase IIa SPAHIR treatment period was three months) or, if a suitable partner emerges, a deal could alleviate the late stage PQ912 development. Our valuation has increased slightly to €496m or €61/share.

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Written by

Probiodrug

Focusing on further PQ912 development strategy

H117 company results

Pharma & biotech

18 September 2017

Price

€13.7

Market cap

€111m

Net cash (€m) at end Q217

14.4

Shares in issue

8.2m

Free float

50%

Code

PBD

Primary exchange

Euronext Amsterdam

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.8)

(20.8)

(29.3)

Rel (local)

(8.3)

(22.0)

(41.1)

52-week high/low

€23.8

€13.2

Business description

Probiodrug is a German biopharmaceutical company developing its clinical pipeline for the treatment of Alzheimer’s disease. Lead product candidate PQ912 has just completed a Phase IIa study with encouraging results. PQ912 is a small molecule inhibitor of glutaminyl cyclase (QC), which is essential for the formation of pGlu-Abeta. Two further products are in preclinical stages.

Next events

Q217 results

30 November 2017

Full Phase IIa SAPHIR results

H217/H118

Analyst

Jonas Peciulis

+44 (0)20 3077 5728

Probiodrug is a research client of Edison Investment Research Limited

Operating costs in H117 were largely in line with our expectations, while a one-off payment was a welcome resolution of Probiodrug’s long-outstanding potential tax liability. Following the overall positive Phase IIa data with PQ912 for Alzheimer’s disease (AD) released in June 2017, Probiodrug reiterated in its H117 report that all strategic options for further development are on the table. Depending on available funding, the company could initiate the next study looking at the long-term treatment of AD patients (the Phase IIa SPAHIR treatment period was three months) or, if a suitable partner emerges, a deal could alleviate the late stage PQ912 development. Our valuation has increased slightly to €496m or €61/share.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

0.0

(13.5)

(1.96)

0.0

N/A

N/A

12/16

0.0

(13.8)

(1.81)

0.0

N/A

N/A

12/17e

0.0

(9.6)

(1.04)

0.0

N/A

N/A

12/18e

0.0

(8.7)

(1.06)

0.0

N/A

N/A

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

All options on table for further PQ912 development

Probiodrug reported R&D and G&A costs of €4.9m and €1.3m respectively in H117 compared to €4.7m and €1.3m in H116. These results are largely in line with our expectations; our FY17 R&D estimate stands at €7.7m implying H217 should be less costly, as the results from the Phase IIa SAPHIR trial (main cost driver) were announced in June 2017. Probiodrug reported cash of €14.4m (no debt) versus €21.9m at end FY16. Cash reach and additional funding requirements for the near term depend on the PQ912 development strategy. Probiodrug has indicated that it is open to exploring all options from running the next proof-of-concept trial on its own to establishing a partnership. Input from the full analysis of the SAPHIR trial will be important for the design of the next trial and is due in several months.

Long-outstanding potential tax liability issue solved

In its H117 report Probiodrug revealed that it has resolved the potential tax liability of €2.7m (end-2016) which has been outstanding since 2008 when the tax authorities retrospectively increased taxable profits for 2004. Probiodrug contested and ultimately settled to pay €775k. As a result, the company released the remaining provision of €2.0m, which was reflected as €856k in financial income and €1.1m in gains from income taxes in H117 – the main deviation from our estimates.

Valuation: A slight increase to €496m or €61/share

We value Probiodrug at €496m or €61/share, up from €487m or €60/share due to rolling our model forward, which offsets the lower cash position of €14.4m at the end of Q217 (no debt). Our R&D assumption is unchanged and we look ahead to how Probiodrug might shape the further development of PQ912.

Valuation

We value Probiodrug at €496m or €61/share, up from €487m or €60/share previously due to rolling our model forward, which offsets the lower cash position of €14.4m at the end of Q217. We note that our valuation includes a licensing deal in 2017. We include €35m in income from the partner in our risk-adjusted NPV, but do not show it in our financial summary table as the deal has yet to be completed. The timing of the partnering is also uncertain (normally it takes 9-12 months in order to establish a partnership) and Probiodrug could initiate the next study on its own, depending on available funding. The breakdown of our rNPV valuation, which uses a discount rate of 12.5%, is shown in Exhibit 1. Our valuation only includes PQ912, with no value assigned to the preclinical pipeline given its earlier stage of development. Full details are discussed in our last outlook report.

Exhibit 1: Probiodrug rNPV valuation

Product

Indication

Launch

Peak sales (€m)

Value (€m)

Probability

rNPV (€m)

NPV/share (€/share)

PQ912

Alzheimer’s disease

2022

6,200

1,325.8

35%

481.5

58.8

Net cash

14.4

100%

14.4

1.8

Valuation

 

 

 

1,340.2

495.9

60.6

Source: Edison Investment Research. Note: Peak sales are rounded to the nearest €100m.

Exhibit 2: Financial summary

€'000s

2012

2013

2014

2015

2016

2017e

2018e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

6

0

0

0

0

0

0

Cost of Sales

0

0

0

0

0

0

0

Gross Profit

6

0

0

0

0

0

0

Research and development

(9,255)

(8,004)

(8,008)

(10,158)

(10,951)

(7,669)

(5,669)

EBITDA

 

 

(10,206)

(9,387)

(11,173)

(13,337)

(13,680)

(10,508)

(8,632)

Operating Profit (before amort. and except.)

(10,521)

(9,675)

(11,241)

(13,363)

(13,700)

(10,534)

(8,658)

Intangible Amortisation

(37)

(26)

(26)

(30)

(77)

(106)

(134)

Exceptionals

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

Operating Profit

(10,558)

(9,701)

(11,267)

(13,393)

(13,777)

(10,640)

(8,793)

Net Interest

(314)

(106)

(170)

(112)

(114)

900

0

Profit Before Tax (norm)

 

 

(10,835)

(9,781)

(11,411)

(13,475)

(13,814)

(9,634)

(8,658)

Profit Before Tax (FRS 3)

 

 

(10,872)

(9,807)

(11,437)

(13,505)

(13,891)

(9,740)

(8,793)

Tax

(656)

0

0

0

0

1,100

0

Profit After Tax (norm)

(11,491)

(9,781)

(11,411)

(13,475)

(13,814)

(8,534)

(8,658)

Profit After Tax (FRS 3)

(11,528)

(9,807)

(11,437)

(13,505)

(13,891)

(8,640)

(8,793)

Average Number of Shares Outstanding (m)

4.1

4.3

4.9

6.9

7.6

8.2

8.2

EPS - normalised (EUR)

 

 

(2.84)

(2.30)

(2.35)

(1.96)

(1.81)

(1.04)

(1.06)

EPS - normalised and fully diluted (EUR)

 

(2.84)

(2.30)

(2.35)

(1.96)

(1.81)

(1.04)

(1.06)

EPS - (IFRS) (EUR)

 

 

(2.85)

(2.30)

(2.35)

(1.97)

(1.82)

(1.06)

(1.07)

Dividend per share (EUR)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

n/a

n/a

n/a

n/a

n/a

n/a

EBITDA Margin (%)

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Operating Margin (before GW and except.) (%)

n/a

n/a

n/a

n/a

n/a

n/a

n/a

BALANCE SHEET

Fixed Assets

 

 

996

425

186

140

167

152

109

Intangible Assets

67

101

82

56

96

107

90

Tangible Assets

926

321

101

81

68

42

16

Investments

3

3

3

3

3

3

3

Current Assets

 

 

9,009

5,856

21,294

21,726

22,199

9,932

1,528

Stocks

18

0

0

0

0

0

0

Debtors

5

0

0

0

0

0

0

Cash

7,726

4,421

20,920

21,361

21,897

9,630

1,226

Other

1,260

1,435

374

365

302

302

302

Current Liabilities

 

 

(3,570)

(9,320)

(4,580)

(4,911)

(5,140)

(1,249)

(1,344)

Creditors

(3,570)

(3,974)

(4,580)

(4,911)

(5,140)

(1,249)

(1,344)

Short term borrowings

0

(5,346)

0

0

0

0

0

Long Term Liabilities

 

 

(1,070)

(1,265)

(929)

(822)

(850)

(850)

(850)

Long term borrowings

0

0

0

0

0

0

0

Other long term liabilities

(1,070)

(1,265)

(929)

(822)

(850)

(850)

(850)

Net Assets

 

 

5,365

(4,304)

15,971

16,133

16,376

7,986

(557)

CASH FLOW

Operating Cash Flow

 

 

(12,090)

(8,477)

(10,540)

(12,149)

(13,255)

(13,875)

(8,562)

Net Interest

22

9

(54)

0

0

900

0

Tax

28

9

5

2

0

825

275

Capex

(64)

(4)

(2)

(6)

(7)

0

0

Acquisitions/disposals

0

0

0

0

0

0

0

Financing

9,516

(188)

32,436

12,594

13,798

(117)

(117)

Dividends

0

0

0

0

0

0

0

Net Cash Flow

(2,588)

(8,651)

21,845

441

536

(12,267)

(8,404)

Opening net debt/(cash)

 

 

(10,314)

(7,726)

925

(20,920)

(21,361)

(21,897)

(9,630)

HP finance leases initiated

0

0

0

0

0

0

0

Other

0

0

0

(0)

0

0

0

Closing net debt/(cash)

 

 

(7,726)

925

(20,920)

(21,361)

(21,897)

(9,630)

(1,226)

Source: Probiodrug’s accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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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280 High Holborn

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Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Probiodrug 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.
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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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