NetScientific — PDS agrees to merge with Edge Therapeutics

NetScientific — PDS agrees to merge with Edge Therapeutics

In late November 2018, NetScientific announced that its portfolio company PDS Biotechnology and Edge Therapeutics (NASDAQ: EDGE) will merge. The new entity will trade on the NASDAQ and PDS’s shareholders will maintain majority ownership with a 70% stake, whereas Edge’s shareholders will hold the remaining 30%. The transaction is expected to close in Q119 and NetScientific’s ownership is expected to decrease to 9.2% (from 13.1%). The newly formed entity says it intends to use the combined cash balance of ~$25m to initiate several Phase II clinical trials of its PDS0101 cancer vaccine and to fund operations into 2020.

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Written by

NetScientific

PDS agrees to merge with Edge Therapeutics

Merger agreement

Pharma & biotech

30 November 2018

Price

26.90p

Market cap

£21m

US$1.40/£

Net cash (£m) at 30 June 2018

7.1

Shares in issue

78.6m

Free float

20.2

Code

NSCI

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.2)

(22.0)

(59.2)

Rel (local)

(7.4)

(15.7)

(57.0)

52-week high/low

73.50p

26.50p

Business description

NetScientific is a healthcare IP commercialisation group with an investment strategy focused on sourcing, funding and commercialising technologies. Its portfolio of four core investments and one material investment is in three main sectors: digital health (Wanda), diagnostics (Vortex, ProAxsis, Glycotest) and therapeutics (PDS Biotechnology).

Next events

Regulatory approval of Series A for Glycotest

Q418

Complete PDS and Edge merger

Q119

Analysts

Maxim Jacobs

+1 646 653 7027

Briana Warschun

+1 646 653 7031

For the purposes of the Takeover Code, Edison Investment Research is deemed to be connected with NetScientific. NetScientific is a research client of Edison Investment Research Limited

In late November 2018, NetScientific announced that its portfolio company PDS Biotechnology and Edge Therapeutics (NASDAQ: EDGE) will merge. The new entity will trade on the NASDAQ and PDS’s shareholders will maintain majority ownership with a 70% stake, whereas Edge’s shareholders will hold the remaining 30%. The transaction is expected to close in Q119 and NetScientific’s ownership is expected to decrease to 9.2% (from 13.1%). The newly formed entity says it intends to use the combined cash balance of ~$25m to initiate several Phase II clinical trials of its PDS0101 cancer vaccine and to fund operations into 2020.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/16

0.5

(12.3)

(20.6)

0.0

N/A

N/A

12/17

0.4

(9.5)

(13.6)

0.0

N/A

N/A

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

PDS going public through a reverse merger

NetScientific recently announced that PDS and Edge Therapeutics have entered into a merger agreement. In accordance with the merger, Edge plans to implement a reverse stock split of 5 to 10 outstanding shares (exact ratio to be agreed between Edge and PDS) for one share. The new entity will operate under PDS and will trade on the NASDAQ under a new ticker symbol, which has not yet been disclosed. The transaction is expected to close in Q119.

Funding to initiate Phase II clinical trials

According to the companies, the merger is expected to result in a combined cash balance of ~$25m and says this should provide funding to enable the company to initiate a number of Phase II clinical trials of PDS’s cancer vaccine PDS0101 and fund operations into 2020. This includes its combination study with Merck’s checkpoint inhibitor Keytruda (pembrolizumab) in late-stage human papillomavirus (HPV)-positive head and neck cancer.

NetScientific explores strategic alternatives

On 26 November 2018, NetScientific announced that it is interested in exploring strategic alternatives to maximise value for its shareholders. Such approaches include selling the company in its entirety or selling specific holdings in its portfolio of investments. NetScientific is not in discussions with third parties at this time.

PDS reverse merges with Edge on to the NASDAQ

On 26 November 2018, NetScientific announced that PDS, a private biopharmaceutical company focused on the development of novel cancer immunotherapies and vaccines for infectious diseases, plans to undergo a reverse merger with Edge Therapeutics on to the NASDAQ. In March this year, Edge reported its lead asset EG-1962, a bio-absorbable nimodipine microparticle being developed for the prevention of delayed cerebral ischemia in patients with aneurysmal subarachnoid haemorrhage, failed its Phase III trial. In April, Edge announced it had started to investigate strategic alternatives.

Under the terms of the agreement, PDS shareholders will maintain majority ownership of the combined entity with 70% stake, while Edge shareholders will hold the remaining 30%. Moreover, Edge plans to implement a reverse stock split of between 5 and 10 outstanding shares for one share. PDS’s CEO Frank K Bedu-Addo and CSO Gregory L Conn will maintain their leadership roles in the combined entity. The boards of directors of both companies have approved the merger and the transaction is expected to close in Q119 with an anticipated cash balance of ~$25m at closing.

The focus of the newly combined entity will be on the clinical development of PDS’s Versamune-based pipeline. Versamune is a nanoparticle antigen technology based on the use of synthetic positively charged (cationic) lipids. The Versamune platform overcomes a major hurdle in immunotherapy by enabling the unique cancer proteins (antigens) to enter the cytoplasm of the immune dendritic cells directly. This leads to effective priming of tumour-specific killer (CD8+) T-cells to recognise and attack the tumours, leading to tumour cell death. The unique lipid used in the Versamune platform acts as a potent immune activator, which induces proliferation and activation of the primed T-cells. The company plans to initiate multiple Phase II clinical trials for PDS’s lead asset PDS0101 in: late-stage HPV-positive head and neck cancer in combination with Merck’s checkpoint inhibitor Keytruda (pembrolizumab); grade 2 and 3 cervical and anal neoplasia patients (AIN/CIN); and stage III cervical cancer patients.

Financials

NetScientific recently reported revenue of £0.13m in H118, down from £0.16m in H117. R&D came in at £1.9m, down 36.1% compared to H117, but down only 8.8% compared to H217. SG&A expenses fell 22.3% to £2.3m compared to the same period a year ago, but were up 1.2% sequentially. Loss from operations was £4.6m, down 24.8% compared to H117. Net cash at 30 June 2018 was £7.1m.

Exhibit 1: Financial summary

£'000s

2016

2017

Year end 31 December

IFRS

IFRS

PROFIT & LOSS

Revenue

 

518

386

Cost of Sales

(255)

(245)

Gross Profit

263

141

Research and development

(7,443)

(5,177)

Selling, general & administrative

(5,001)

(5,281)

EBITDA

 

(12,570)

(10,814)

Operating Profit (before amort. and except.)

(12,429)

(10,593)

Intangible Amortisation

0

0

Exceptionals/Other

(666)

0

Operating Profit

(13,095)

(10,593)

Net Interest

86

1,058

Other (change in fair value of warrants)

(49)

(45)

Profit Before Tax (norm)

 

(12,343)

(9,535)

Profit Before Tax (IFRS)

 

(13,058)

(9,580)

Tax

(18)

202

Deferred tax

0

0

Profit After Tax (norm)

(12,361)

(9,333)

Profit After Tax (IFRS)

(13,076)

(9,378)

Minority interest

1,881

1,060

Profit After Tax after minority interest (FRS 3)

(11,195)

(8,318)

Average Number of Shares Outstanding (m)

51.1

61.0

EPS - normalised (p)

 

(20.6)

(13.6)

EPS - IFRS (p)

 

(21.9)

(13.6)

Dividend per share (p)

0

0

BALANCE SHEET

Fixed Assets

 

4,054

3,805

Intangible Assets

0

0

Tangible Assets

779

891

Other

3,275

2,914

Current Assets

 

11,034

7,968

Stocks

0

86

Debtors

1,578

1,014

Cash

9,456

6,868

Other

0

0

Current Liabilities

 

(2,172)

(905)

Creditors

(2,044)

(777)

Short term borrowings

(128)

(128)

Long Term Liabilities

 

(80)

(70)

Long term borrowings

(80)

(70)

Other long term liabilities

0

0

Net Assets

 

12,836

10,798

Minority Interest

(3,875)

(4,573)

Shareholder Equity

 

8,961

6,225

CASH FLOW

Operating Cash Flow

 

(12,939)

(10,479)

Net Interest

43

(11)

Tax

112

(131)

Capex

(457)

(399)

Acquisitions/disposals

(1,261)

1,310

Financing

0

8,083

Dividends

0

0

Other

66

(574)

Net Cash Flow

(14,436)

(2,201)

Opening net debt/(cash)

 

(23,189)

(9,248)

HP finance leases initiated

0

0

Exchange rate movements

(603)

387

Other

1,098

(764)

Closing net debt/(cash)

 

(9,248)

(6,670)

Source: Company reports

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Schumannstrasse 34b

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London +44 (0)20 3077 5700

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New York +1 646 653 7026

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Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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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 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

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

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

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

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

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

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved 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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

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

United States

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

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 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Oxford Immunotec — Not your usual diagnostics company

Oxford Immunotec is in transition. Having passed the stage before which most diagnostic companies stall – their first approved test – it has recently restructured, with the $170m sale of its US diagnostic services business to Quest. Its diagnostic products are now the focus, while the rate of growth of its first (T-SPOT.TB) test, having reached one million tests per quarter, may moderate. Once the financial and operational dust clears on the divestment, the future direction and time to profitability for Oxford Immunotec is likely to be dependent on the use of its c $200m net cash.

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