PharmaMar — Full year 2017 results

PharmaMar

Full year 2017 results

Financial update

Pharma & biotech

14 March 2018

Price	€1.75
Market cap	€390m
$1.22/€
Net debt (€m) at end December 2017		67.3

Shares in issue	222.7m
Free float	80%
Code	PHM

Primary exchange	BME
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	7.8	(29.1)	(35.3)
Rel (local)	7.3	(25.0)	(33.3)

52-week high/low

€4.2

€1.6

Business description

PharmaMar is a Spanish biopharmaceutical company with a core focus on the development of marine-based drugs for cancer. Yondelis is approved in the US, EU and Japan, and is partnered with Janssen (J&J) in the US and Taiho in Japan. The group also has consumer chemicals, molecular diagnostics and RNAi operations.

Next events

SCLC Phase III trial enrolment completion	June/July 2018
Endometrial trial Phase III initiation	Mid-2018

Analysts

Maxim Jacobs	+1 646 653 7027
Nathaniel Calloway	+1 646 653 7036

healthcare@edisongroup.com

Edison profile page

PharmaMar is a research client of Edison Investment Research Limited

PharmaMar recently reported financial results for 2017. Sales for the year were down 0.9% to €162.6m compared to 2016. Yondelis sales fell 4.1% to €84.6m, mainly due to pricing erosion in Europe. However, the consumer chemicals division continues to grow and was up 3.4% for the year to €72.0m. Importantly, the company’s Phase III trial testing Zepsyre® in small cell lung cancer (SCLC) patients is around 75% enrolled and expected to be fully enrolled in the middle of this year with data in H119.

Year end	Sales revenue (€m)	PBT* (€m)	EPS* (c)	DPS (c)	P/E (x)	Yield (%)
12/16	164.0	(24.7)	(10.8)	0.0	N/A	N/A
12/17	162.6	(22.7)	(12.0)	0.0	N/A	N/A
12/18e	168.8	5.8	2.6	0.0	67.3	N/A
12/19e	177.3	7.2	2.7	0.0	64.8	N/A

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

ATLANTIS trial in SCLC patients progressing nicely

PharmaMar announced that the 600-patient ATLANTIS trial of Zepsyre in relapsed SCLC patients is around 75% enrolled, with enrolment expected to complete in June/July. With this timing in mind, top-line data are expected around H119. As a reminder, in previous data at the same dose being used in ATLANTIS, Zepsyre demonstrated PFS of 5.3 months, which is higher than the three to four months typically seen with Topotecan, the current standard of care.

SCLC could be a significant opportunity

There is a significant unmet medical need in SCLC and there are very limited options, with the last FDA approval coming in 1996. It is an extremely aggressive disease with median survival from diagnosis at only two to four months without treatment. Also, even those who do get treated usually relapse. Overall survival at five years is only 5-10%, according to the National Cancer Institute. Around 80,000 patients are diagnosed with the cancer every year in the US and Europe.

Zepsyre endometrial cancer trial on deck

Beyond SCLC, PharmaMar is also about to embark on a 500-patient Phase III trial in second-line endometrial cancer. Zepsyre had previously demonstrated a 44% response rate and median progression-free survival (PFS) of 7.8 months in this patient population, which is noteworthy as these patients are typically chemo-resistant with PFS closer to 3.2 months. We expect the Phase III to be initiated around the middle of this year.

Valuation: Decreased to €1.12bn or €5.04 per share

We are decreasing our valuation to €1.12bn or €5.04/share from €1.35bn or €6.06/share as we have removed Zepsyre in breast cancer from our model following company comments on its earnings call regarding de-emphasis of the programme due to a shifting treatment paradigm. We have also lowered our estimates for Yondelis due to continued pricing pressure. This was partly mitigated by rolling forward our NPVs.

Results for 2017

PharmaMar reported that sales fell by 0.9% €162.6m in 2017 to from €164.0m in 2016. Sales in the biopharmaceutical area fell 4.0% to €90.6m. This was mainly due to a 4.1% decline in Yondelis sales to €84.6m caused by price erosion in Europe. Sales in the consumer chemical segment grew by 3.4% to €72.0m, mainly thanks to chalky finish paints and other Rust-Oleum products.

R&D expenditure in 2017 rose slightly by 0.2% to €78.5m, mainly due to a 0.3% rise in R&D related to the oncology segment (mainly Zepsyre clinical trials). Marketing and commercial expenses fell by 6% to €44.8m. This was mainly due to lower spending in the oncology segment, partly as a result of in-sourcing distribution logistics, as well as fewer commercial actions.

Adjusted EBITDA for the group was a loss of €7.4m compared to a loss of €11.0m in 2016, a relative improvement of 33%. The improvement is due to cost containment of commercial and R&D expenses.

Clinical updates

PharmaMar also provided a slew of clinical updates related to its pipeline. It announced that the 600-patient ATLANTIS trial of Zepsyre in relapsed SCLC patients is around 75% enrolled, with enrolment expected to complete in June/July. Data are expected in H119. The primary endpoint is PFS comparing patients treated with the combination of Zepsyre and doxorubicin to the control arm where patients are treated with either Topotecan or the CAV regimen, a combination of cyclophosphamide, Adriamycin (the brand name for doxorubicin) and vincristine. We have increased confidence in the success of the SCLC trial compared to the recently failed CORAIL ovarian trial because in previous data at the same dose being used in ATLANTIS, Zepsyre demonstrated PFS of 5.3 months, which is higher than the three to four months typically seen with Topotecan, the current standard of care. In CORAIL, Zepsyre was being tested in a new body surface area-based dosing regimen, which had been untested in the Phase II in ovarian cancer patients.

PharmaMar also expects to initiate a 500-patient Phase III trial in second-line endometrial cancer around mid-2018. It expects data to be available around three years from the first patient enrolled. Patients will either receive 2.0mg/m2 of Zepsyre plus 40mg/m2 of doxorubicin or 60mg/m2 of doxorubicin with a primary endpoint of overall survival. In previous data, which combined 2.0mg/m2 of Zepsyre with 40mg/m2 of doxorubicin, the combination demonstrated a 44% response rate and a PFS of 7.8 months. These data are encouraging as PFS is typically closer to 3.2 months in similar patients.1

Nagao et al., Applicability of the concept of “platinum sensitivity” to recurrent endometrial cancer., Gynecologic Oncology 2013 Dec; 131(3):567-73.

The company was planning a registrational trial in 116 BRCA2 mutated, HR-positive, HER2-negative metastatic breast cancer patients but, due to a shifting treatment landscape in breast cancer, it has decided to de-emphasise the programme. Also in breast cancer, PM184, which is also a marine-derived drug, did not attain the necessary efficacy threshold in the first stage of the Phase II trial in HR-positive advanced breast cancer patients, and the trial is being concluded. A dose-escalation trial of PM184 with gemcitabine in multiple cancers is continuing to enrol patients.

PharmaMar also expects a response to its appeal on the negative CHMP recommendation in Europe for Aplidin for treating multiple myeloma in the next two months.

Valuation

We are decreasing our valuation to €1.12bn or €5.04/share from €1.35bn or €6.06/share as we have removed Zepsyre in breast cancer from our model following company comments on the conference call regarding its de-emphasis due to a shifting treatment landscape. We have also decided to make our Yondelis projections more conservative across the board due to continued pricing pressure and other commercial challenges. In Europe, the area where Yondelis sales have the most direct impact on PharmaMar’s top line, we have lowered our peak sales estimates for Yondelis in STS to €80m from €87m and have lowered our third-line ovarian cancer peak sales estimate to €30m from €37m. This was partly mitigated by rolling forward our NPVs.

Exhibit 1: PharmaMar sum-of-the-parts DCF

Product	rNPV (€m)	rNPV/ share (€)	Assumptions
Chemicals business FCF	136.0	0.61	7.5% WACC, 3% growth rate from 2019 onwards, accounts for 45% of group capex.
Yondelis (Europe)	512.2	2.30	Second-line soft-tissue sarcoma (STS) peak sales of €80m with 35% penetration; third-line ovarian cancer peak sales of €30m with 8% penetration into addressable platinum sensitive market. First potential generics in 2024. 10% WACC.
Yondelis (US)	112.4	0.50	STS (second-line) peak sales of $100m, launched 2016; peak sales in platinum-sensitive ovarian cancer of $50m, 65% risk adjustment, 2020 launch; both assume 15% royalty from J&J.
Yondelis (Japan)	24.6	0.11	STS only: peak sales of €34m; 15% royalty from Taiho. 10% WACC.
Aplidin (multiple myeloma)	54.9	0.25	Global peak sales of $300m assuming 40% of MM patients ultimately receive fourth-line therapy and 25% penetration; pricing of $25k in EU with 25% US premium; 30% success probability in Europe, 30% in the US; launch in 2021 in the US and EU; sold by Chugai in eight European territories (assume effective royalty of 25%) and direct in other EU regions, assume 25% royalty in US; includes €20m regulatory milestones out of €30m total Chugai milestones. No milestones included for other territories at this stage.
Zepsyre (SCLC)	712.5	3.20	Peak sales of €680m; US and EU: 65% success probability, 2020 launch sold direct in Europe and US; Japan: 50% success probability, 2022 launch, 20% royalty.
Zepsyre (endometrial cancer)	218.0	0.98	Peak sales of €198m; US and EU: 65% success probability, 2022 launch sold direct in Europe and US; Japan: 50% success probability, 2023 launch, 20% royalty.
Zepsyre upfront and milestones	17.9	0.08	Chugai upfront €30m, plus Chugai Japan development milestones assumed to be €35m of ~€70m total potential Chugai milestone payments (assumed to average €7m/year over 2017-21), risked at 50-90%; no Chugai sales-based milestones or milestones for other territories included in our forecasts at this stage.
Sylentis	7.3	0.03	Cumulative peak sales of $200m, with 20% probability of success, potential launch 2021, 10% royalty.
Genomica	57.5	0.26	Conservative 2% growth rate.
R&D	(348.4)	(1.56)	12.5% WACC.
SG&A	(299.2)	(1.34)	10% WACC.
Capex	(16.4)	(0.07)	55% of group capex for biopharma business.
Net cash/(debt)	(67.3)	(0.30)	At Q417
Total	1,122.0	5.04

Source: Edison Investment Research. Note: WACC of 12.5% used except where indicated otherwise.

Financials

As mentioned above, we have lowered our Yondelis forecasts across the board which, coupled with lower than expected 2017 Yondelis sales, has led us to lower our 2018 sales estimate (which includes biopharmaceuticals and the consumer chemicals business) from €184.0m to €168.8m. We have made slight adjustments to our R&D and SG&A expense estimates. Our 2018 R&D estimate has increased by approximately €0.8m and our SG&A estimate has decreased by €1.5m. We have also introduced our 2019 estimates, in which we expect continued slow growth for the base business (which will change if Zepsyre is successful in SCLC) and continued expense control.

Exhibit 2: Financial summary

	€'000s	2015	2016	2017	2018e	2019e
Year end 31 December		IFRS	IFRS	IFRS	IFRS	IFRS
PROFIT & LOSS
Sales (Bipharmaceutical and Consumer Chemicals)		161,992	164,035	162,618	168,816	177,307
Cost of Sales		(45,705)	(43,971)	(45,688)	(46,832)	(48,630)
Gross Profit		116,287	120,064	116,930	121,984	128,678
R&D Expenses (net)		(60,291)	(78,423)	(78,541)	(77,651)	(65,951)
Sales, General and Administrative Expenses		(74,067)	(71,550)	(65,501)	(58,840)	(59,888)
Other (milestones and royalties)		31,825	16,913	16,765	38,333	22,799
EBITDA		17,578	(11,463)	(8,219)	17,743	19,494
Operating Profit (before amort. and except.)		11,297	(18,706)	(17,681)	10,573	12,109
Depreciation & Amortisation		(6,281)	(7,243)	(9,462)	(7,170)	(7,385)
Exceptionals		0	0	0	0	0
Operating Profit		11,297	(18,706)	(17,681)	10,573	12,109
Net Interest		(5,388)	(5,993)	(5,002)	(4,806)	(4,865)
Other		0	0	(177)	0	0
Profit Before Tax (norm)		5,909	(24,699)	(22,683)	5,767	7,244
Profit Before Tax (as reported)		5,909	(24,699)	(22,860)	5,767	7,244
Tax		654	592	(3,904)	0	(1,304)
Deferred tax		0	0	0	0	0
Profit After Tax (norm)		6,563	(24,107)	(26,587)	5,767	5,940
Profit After Tax (FRS 3)		6,563	(24,107)	(26,764)	5,767	5,940
Minority interests		25	25	19	0	0
Discontinued operations		0	0	(48)	0	0
Net income (normalised)		6,588	(24,082)	(26,745)	5,767	5,940
Net income (FRS3)		6,588	(24,082)	(26,793)	5,767	5,940

Average Number of Shares Outstanding (m)		222.2	222.2	222.2	222.7	222.7
EPS - normalised (c)		3.0	(10.8)	(12.0)	2.6	2.7
EPS - FRS 3 (c)		0.03	(10.8)	(12.1)	2.6	2.7
Dividend per share (c)		0.00	0.00	0.00	0.00	0.00

Gross Margin (%)		71.8%	73.2%	71.9%	72.3%	72.6%
EBITDA Margin (%)		10.9%	-7.0%	-5.1%	10.5%	11.0%
Operating Margin (before GW and except.) (%)		7.0%	-11.4%	-10.9%	6.3%	6.8%

BALANCE SHEET
Fixed Assets		99,804	100,145	94,544	92,382	89,688
Intangible Assets		29,377	27,448	22,760	24,560	26,060
Tangible Assets		30,624	31,141	31,207	27,245	23,051
Other		39,803	41,556	40,577	40,577	40,577
Current Assets		112,135	120,992	93,176	90,948	94,829
Stocks		22,990	22,158	23,904	25,661	26,646
Debtors		40,200	62,652	31,388	39,313	41,291
Cash and current financial assets		45,625	32,367	31,759	19,848	20,766
Other		3,320	3,815	6,125	6,125	6,125
Current Liabilities		(70,623)	(87,164)	(83,110)	(75,320)	(68,761)
Creditors		(41,994)	(59,258)	(56,715)	(48,925)	(42,366)
Short term borrowings		(28,629)	(27,906)	(26,395)	(26,395)	(26,395)
Long Term Liabilities		(68,280)	(85,478)	(81,626)	(74,392)	(74,392)
Long term borrowings		(64,973)	(67,583)	(73,607)	(73,607)	(73,607)
Other long term liabilities		(3,307)	(17,895)	(8,019)	(785)	(785)
Net Assets		73,036	48,495	22,984	33,618	41,363

CASH FLOW
Operating Cash Flow		10,195	(3,040)	543	(2,097)	11,779
Net Interest		252	(5,000)	(5,002)	(4,806)	(4,865)
Tax		654	(374)	3,000	0	(1,304)
Capex		(9,221)	(6,093)	(4,580)	(5,008)	(4,692)
Acquisitions/disposals		0	129	0	0	0
Financing		6,169	(632)	769	0	0
Other		0	0	0	0	0
Net Cash Flow		8,049	(15,010)	(5,270)	(11,910)	918
Opening net debt/(cash)		54,886	46,910	61,984	67,266	79,177
Exchange rate movements		0	0	0	0	0
Other		(73)	-64	-12	0	0
Closing net debt/(cash)		46,910	61,984	67,266	79,177	78,259

Source: Company 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by PharmaMar 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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.

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

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

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

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

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Equities

Equities by Sector

Sectors

Thematics

Latest

ConsumerWatch – Don’t look down

A net zero perspective – Investing in sustainability, technology & innovation

Banco Angolano de Investimentos (BAI) – Money-centre bank with lending optionality

Audiovisual

Latest

UIL in 60 seconds

JPMorgan European Discovery Trust in 60 seconds

Baillie Gifford US Growth Trust in 60 seconds

About Edison

About Edison

Careers

PharmaMar — Full year 2017 results

Latest

Electro Optic Systems — Growth from defence

Smiths News — FY24 trading good, special dividend proposed

IRLAB Therapeutics — Progress across the pipeline in Q324

Sylvania Platinum — Healthy production recovery

Braemar — Robust trading, but UK budget adds to costs

TXT e-solutions — Cash proceeds support ambitious growth plans

Subscribe to Edison