MagForce — FY16: Slow NanoTherm uptake affects top line

MagForce (DB: MF6)

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Research: Healthcare

MagForce — FY16: Slow NanoTherm uptake affects top line

MagForce continues to execute the strategy originally proposed in late 2013. Domestic reimbursement discussions are ongoing within Germany but expansion in the rest of Europe remains the focus as MagForce looks to increase patient numbers. In the US, a second clinical treatment site has been established in Texas and the IDE approval process with the FDA continues. Post period the company has raised €13.4m gross through equity and debt to aid in the roll-out of devices across the broader EU.

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Healthcare

Magforce

FY16: Slow NanoTherm uptake affects top line

FY16 results

Healthcare equipment & services

13 July 2017

Price

€7.06

Market cap

€186m

Last reported net cash (€m) as of 31 December 2016

€0.6m

Shares in issue

26.3m

Free float

70%

Code

MF6

Primary exchange

Frankfurt

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.6)

22.4

46.1

Rel (local)

(7.1)

17.8

15.3

52-week high/low

€9.1

€4.0

Business description

MagForce is a German firm with a European approved nanotechnology-based therapy to treat brain tumours. NanoTherm therapy consists of nanoparticle injection into the tumour, activated by an external magnetic field, producing heat and thermally destroying or sensitising the tumour.

Next events

US prostate cancer IDE approval

H217

Start of US prostate cancer trial

H217

Further NanoActivator installations

H217

Analysts

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Dr Susie Jana

+44 (0)20 3077 5700

Magforce is a research client of Edison Investment Research Limited

MagForce continues to execute the strategy originally proposed in late 2013. Domestic reimbursement discussions are ongoing within Germany but expansion in the rest of Europe remains the focus as MagForce looks to increase patient numbers. In the US, a second clinical treatment site has been established in Texas and the IDE approval process with the FDA continues. Post period the company has raised €13.4m gross through equity and debt to aid in the roll-out of devices across the broader EU.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€
)

P/E
(x)

Yield
(%)

12/15

2.6

(4.5)

(0.18)

0.0

N/A

N/A

12/16

0.5

(7.2)

(0.28)

0.0

N/A

N/A

12/17e

3.5

(4.1)

(0.16)

0.0

N/A

N/A

12/18e

6.5

(4.6)

(0.18)

0.0

N/A

N/A

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

EU: Driving uptake through a multi-pronged strategy

Treatment of patients with NanoTherm therapy resulted in a small increase in associated FY16 revenues to €176k (2015: €155k), out of total FY16 revenues of €474k (FY15:€2.6m). MagForce plans to drive treatment through roll-out across Europe, improved cross-border reimbursement, better clinical awareness and seeking German reimbursement. Attracting cross-border patients has proven problematic; broader EU roll-out remains vital to driving EU NanoTherm revenues.

US: Awaiting an FDA decision

In FY16, MagForce USA updated its pre-clinical NanoTherm trials to meet FDA requirements and will look to continue its discussions in H217 as it aims for Investigational Device Exemption (IDE) approval. MagForce seeks to commercially launch its NanoTherm therapy for prostate cancer into the US in 2018 and in 2016 established a second clinical site in Texas (CHRISTUS Santa Rosa Hospital).

Financials: Post-period activity strengthens cash

MagForce’s cash position was strengthened post FY16 via various measures by a gross €13.4m. This was done to improve general liquidity and to enable the roll-out of devices throughout the EU. FY16 net loss increased to €7.2m for MagForce AG (FY15: €1.5m), mainly as a result of large one-off revenues in FY15 and increased other operating expenses in FY16 (mainly driven by non-cash impairment of an intercompany loan). Apart from adjusting for the fund raisings, our financial forecasts are largely unchanged.

Valuation: €226m (€8.6/share)

We value MagForce at €226m or €8.6 per MagForce AG share (previously €225m (8.8/share), based on a risk-adjusted NPV analysis. We have rolled forward our model and updated it to reflect FY16 results and post market equity & debt fundraises. Net cash now takes into account the post period gross €8.4m raised in debt and gross €5m in equity.

FY16 results and funding update

The net loss for FY16 was €7.2m for MagForce AG (FY15: €1.5m) mainly as a result of a one-off revenue gain in FY15. FY16 revenue of €474k (FY15: €2.6m) was driven by sales of the ambulatory NanoActivator device (€217k) and NanoTherm to MagForce USA (€81k). Treatment of patients with NanoTherm therapy in the EU resulted in a small increase in associated FY16 revenues to €176k (2015: €155k). Higher FY15 revenues were a result of the sale of four NanoActivators to MagForce USA for €2.4m.

MagForce AG reported other operating income of €1.1m in FY16, which was largely related to €939k in recharges to subsidies. FY15 was substantially higher as other operating income was reported at €5.1m. This was chiefly attributable to the extension of distribution rights to MagForce US (€3.03m) and appreciation in the value of loans against MT MedTech Engineering (€803k). Cost of materials decreased to €39k (FY15: €2.3m) and was mainly attributed to the sale of four NanoActivators (€2.3m) in FY15 to MagForce USA. Purchased services decreased slightly to €536k (FY15: €620k), largely due to both a decrease in the post-marketing clinical trial costs to €57k (FY15: €466k) and an increase in purchased services of €161k (FY15: €0) for development of the ambulatory NanoActivator device (for prostate cancer treatment).

Net cash as of 31 December 2016 was €614k. Post period MagForce AG raised €13.4m gross via debt and equity. In February, Lipps & Associates LLC granted a loan of €400k to MagForce. The loan is due on 30 June 2019 and has a 5% interest rate. In June, a further US$3.0m was loaned to MagForce at 4% interest, also due on 30 June 2019. In March, a €5m convertible bond was issued with a maturity of three years, an interest rate of 5% a year and a conversion price of €5/share. In June, MagForce AG raised €5m via a capital raise with M&G International Investments, placing 0.7m shares at €6.94.

Apart from adjusting for the fund raisings, our financial forecasts are largely unchanged. For details of our assumptions, see Outlook note of May 2017.

Valuation

Our updated valuation is €226m or €8.6 per MagForce AG share (previously €225m (8.8/share), based on a risk-adjusted NPV analysis. We have rolled forward our model and updated it to reflect FY16 results and post market equity & debt fundraises. Net cash now takes into account the post period gross €8.4m raised in debt and gross €5m in equity. The increase in shares as a result of the M&G capital raise has slightly diluted the per share value. The breakdown of our rNPV valuation, which uses a 12.5% discount rate, is shown in Exhibit 1. For a full breakdown of our valuation please see our outlook note published in May.

Exhibit 1: MagForce AG risk-adjusted NPV valuation

Product

Indication

Launch

Peak sales (€m)

Peak sales ($m)

NPV
(€m)

Probability

MagForce AG beneficial interest

rNPV
(€m)

rNPV/share (€)

NanoTherm EU

GBM - Germany

2015

10

11

31.2

100%

100%

31.2

1.2

GBM - broader use

2017

65

72

91.7

65%

100%

59.6

2.3

NanoTherm US

Prostate cancer

2018

191

210

241.5

70%

77%

130.0

4.9

Net cash (AG)

13.6

100%

100%

(2.8)

(0.1)

Net cash (US)

10.0

100%

77%

7.7

0.3

Valuation

375.0

225.7

8.6

Source: Edison Investment Research. Note: Peak sales are rounded to the nearest €5m/$5m for original currency.

Exhibit 2: Financial summary

€'000s

2015

2016

2017e

2018e

December

HGB

HGB

HGB

HGB

PROFIT & LOSS

Revenue

 

 

2,576

474

3,450

6,486

Cost of Sales

(2,959)

(574)

(2,756)

(4,247)

Gross Profit

(383)

(101)

694

2,239

EBITDA

 

 

(4,421)

(6,554)

(3,849)

(4,337)

Operating Profit (before amort. and except.)

(4,871)

(7,456)

(4,194)

(4,753)

Intangible Amortisation

(5)

(5)

(2)

(0)

Exceptionals

3,000

0

0

0

Other

0

0

0

0

Operating Profit

(1,876)

(7,461)

(4,197)

(4,753)

Net Interest

329

231

76

121

Profit Before Tax (norm)

 

 

(4,542)

(7,225)

(4,119)

(4,632)

Profit Before Tax (reported)

 

 

(1,547)

(7,230)

(4,121)

(4,632)

Tax

(0)

(1)

0

0

Profit After Tax (norm)

(4,542)

(7,226)

(4,119)

(4,632)

Profit After Tax (reported)

(1,547)

(7,231)

(4,121)

(4,632)

Average Number of Shares Outstanding (m)

25.6

26.0

26.3

26.3

EPS - normalised (c)

 

 

(0.18)

(0.28)

(0.16)

(0.18)

EPS - normalised and fully diluted (€)

 

(0.18)

(0.28)

(0.16)

(0.18)

EPS - (reported) (€)

 

 

(0.06)

(0.28)

(0.16)

(0.18)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

20.1

34.5

EBITDA Margin (%)

N/A

N/A

N/A

N/A

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

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

19,533

18,742

20,097

21,076

Intangible Assets

7

3

0

0

Tangible Assets

4,494

3,706

5,064

6,043

Investments

15,033

15,033

15,033

15,033

Current Assets

 

 

5,325

1,536

9,430

6,683

Stocks

81

71

226

349

Debtors

91

71

1,890

3,554

Cash

1,393

614

6,534

2,000

Other

3,760

780

780

780

Current Liabilities

 

 

(1,779)

(4,431)

(5,116)

(5,948)

Creditors

(1,779)

(4,431)

(5,116)

(5,948)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(197)

(197)

(8,146)

(10,177)

Long term borrowings

0

0

(7,948)

(9,980)

Other long term liabilities

(197)

(197)

(197)

(197)

Net Assets

 

 

22,881

15,650

16,266

11,634

CASH FLOW

Operating Cash Flow

 

 

(8,808)

(1,078)

(5,138)

(5,292)

Net Interest

329

231

76

121

Tax

(0)

(1)

0

0

Capex

(1,357)

(115)

(1,704)

(1,395)

Acquisitions/disposals

0

0

0

0

Financing

0

0

5,000*

0

Dividends

0

0

0

0

Net Cash Flow

(9,837)

(963)

(1,765)

(6,565)

Opening net debt/(cash)

 

 

(11,153)

(1,393)

(614)

1,414

HP finance leases initiated

0

0

0

0

Other

77

184

(263)

(0)

Closing net debt/(cash)

 

 

(1,393)

(614)

1,414

7,980

Source: MagForce, Edison Investment Research. Note: Historical and forecast cash flow numbers are Edison estimates as Magforce does not publish a statement of cash flows. All financial data is on an unconsolidated basis and does not include MagForce USA. *Gross equity proceeds

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

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Magforce 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 2017. “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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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

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

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Magforce 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 2017. “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

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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