CASI Pharmaceuticals — Pivotal CAR-T study initiated

CASI Pharmaceuticals (US: CASI)

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Research: Healthcare

CASI Pharmaceuticals — Pivotal CAR-T study initiated

CASI announced on 19 November 2020 that its partner Juventas has initiated pivotal studies of the CD19 CAR-T product CNCT19 for the treatment of B-cell non-Hodgkin lymphoma (B-NHL). The clinical study will be run by Juventas at its expense, which will be supported by its recent $65m financing round, and the two companies will subsequently co-market in China if the product is approved. Juventas has guided towards potential approval in Q422.

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Healthcare

CASI Pharmaceuticals

Pivotal CAR-T study initiated

Clinical update

Pharma & biotech

23 November 2020

Price

US$2.21

Market cap

US$274m

Net cash ($m) at 30 September 2020

76.4

Shares in issue

123.9m

Free float

58.5%

Code

CASI

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

37.3

20.1

(33.1)

Rel (local)

32.9

14.3

(41.6)

52-week high/low

US$3.55

US$1.44

Business description

CASI Pharmaceuticals is building a portfolio of drugs it intends to produce for Chinese and worldwide markets including Evomela launched in China, an anti-CD19 CAR-T therapy CNCT19, and the anti-CD38 drug CID-103, among others. The goal is to seek approval through new pathways that have opened in the quickly changing Chinese regulatory environment.

Next events

B-ALL Phase II initiation

Q420

Phase I CAR-T studies complete

Q121

CID-103 trial start

Q121

Analyst

Nathaniel Calloway

+1 646 653 7036

CASI Pharmaceuticals is a research client of Edison Investment Research Limited

CASI announced on 19 November 2020 that its partner Juventas has initiated pivotal studies of the CD19 CAR-T product CNCT19 for the treatment of B-cell non-Hodgkin lymphoma (B-NHL). The clinical study will be run by Juventas at its expense, which will be supported by its recent $65m financing round, and the two companies will subsequently co-market in China if the product is approved. Juventas has guided towards potential approval in Q422.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/18

0.0

(20.0)

(0.24)

0.00

N/A

N/A

12/19

4.1

(36.5)

(0.39)

0.00

N/A

N/A

12/20e

14.4

(31.0)

(0.28)

0.00

N/A

N/A

12/21e

25.3

(23.3)

(0.18)

0.00

N/A

N/A

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

Study on the heels of contract renegotiation

The partnership with Juventas was recently renegotiated at the behest of an investor in the most recent financing round to make it a more robust, standalone entity (see our earlier note). This shifted much of the financial responsibility of the program onto Juventas; CASI was originally obligated to pay a ¥70m milestone on entering pivotal studies. The two companies will co-market the product in China and have an undisclosed profit split. CASI is also a 16% shareholder of Juventas.

Moving to Phase II, but Phase I still running

Few details have been released regarding the B-NHL study. In China, a Phase II study is sufficient for approval of cell therapies, so we assume it will be relatively small (n<100). We should note that the Phase I dosing study for B-NHL is still ongoing (as well as for its other indication, acute lymphoblastic leukemia, B-ALL).

Record Evomela sales and higher guidance

CASI reported $4.2m in sales of Evomela in Q320 with a gross margin of 56.5%. This is the first quarter following the transition of manufacturing to a low-cost supplier, and CASI appears to be ramping up marketing efforts. The company raised guidance for the year to $14m in sales (from $10m previously), which we believe is achievable.

Valuation: Increased to $425m or $3.43 per share

We have increased our valuation to $425m or $3.43 per share, from $380m or $3.07. We have removed our COVID-19 risk adjustment, which had reduced valuations by 10% to account for unforeseen risks of COVID-19. We no longer believe this level of adjustment is required based on the ongoing pace of development activity since the start of the pandemic. Our valuation of Evomela is up by about 10% on the new sales trajectory, and the increased revenue has allowed us to reduce our future financing requirement to $55m from $65m.

Pivotal CAR-T program started in China

The move to initiate the pivotal Phase II of the CNCT19 study in B-NHL was taken because, according to CASI, positive results were seen in the ongoing Phase I B-NHL study by Juventas in China. The Phase I is a dosing study, so it is unclear at this time if a finalized dose of the product has been determined. The company has previously guided that the Phase I studies for B-NHL and B-ALL should be completed by Q121. We also expect the B-ALL pivotal study to be initiated shortly by Juventas.

Under a program to encourage the development of regenerative and cell therapies in China, the National Medical Products Administration (NMPA) will review these products following only two clinical studies: a Phase I dosing and pharmacokinetics study followed by a pivotal Phase II study. We do not have any information on how the Phase II B-NHL study will be run but, based on this guidance, we believe that it can be done with a relatively small patient population, presumably under 100. CASI has reiterated Juventas guidance that it believes it is targeting marketing approval in Q422, and a small patient population is likely required for the study to meet this aggressive timeline.

CASI previously restructured its agreement with Juventas in an effort to make the latter a more viable standalone company because it was raising cash to run pivotal studies. That financing has been completed and Juventas has successfully raised $65m to support these programs. The new agreement substantially shifts the financial responsibility of supporting Juventas away from CASI and onto Juventas shareholders. Juventas is responsible for the development costs associated with CNCT19, which has not changed, but under the new agreement CASI will no longer be obliged to pay development milestones associated with the program, but instead Juventas’s development program will be supported internally with its own fund-raising activities.

As a reminder, the current CEO of CASI, Wei-wu He, is a founder and current chairman of Juventas.

New guidance and financial update

The company reported record revenue of $4.2m in Q320, which was almost entirely attributable to sales of Evomela. This is a sequential increase of 59% over Q220 sales ($2.7m). The company increased guidance to $14m in sales for 2020 from $10m previously. We believe following the Q320 results that this is very reasonable, and only implies revenue of $3.7m in Q420, which is roughly the average on a quarterly basis for the year to date. We have increased our FY20 Evomela revenue estimates to $14.3m (from $11.5m) because we are similarly encouraged.

The margins on Evomela have also increased dramatically to 56.5% from a negligible 4.6% in Q220. The increase in margin is because the company has transitioned to a long-term supplier for Evomela. The original approval of the drug was associated with a different manufacturer. However, that manufacturer decided to wind down its operations as the drug was being launched. CASI was forced to subsidize the manufacturer to stay open until it could get the replacement manufacturer up and running and obtain the necessary regulatory clearances. This process has been completed, so we expect the margins to remain higher going forward.

We also suspect that some of the increase in sales is a result of an increased marketing push following the transition to a new manufacturer. Marketing costs increased to $2.1m from $1.6m in Q220 and are roughly twice what they were in Q319 when the drug was launched. Operational costs (ex-COGS) totalled $10.2m, before a $10.8m non-cash expense associated with the Juventas renegotiation. Our forecast non-adjusted operating loss for 2020 has increased to $44.3m (from $39.5m) on account of this non-cash charge (offset by increased sales). Other changes to our model have little net impact.

The company ended the quarter with $76.4m in cash and marketable investments, and we calculate pro forma cash of $64.4m after the $12m in transactions associated with BI-1206 (see below). We expect the company to need an additional $55m (from $65m previously) to reach profitability in 2024. We have lowered this financing requirement from previous estimates on account of the increased revenue estimates.

Valuation

We have increased our valuation to $425m or $3.43 per share, from $380m or $3.07. The biggest factor driving this increase is that we have removed our COVID-19 risk adjustment, which had reduced all component valuations by 10%. We have removed this parameter because both the company’s commercial and development programs are progressing faster than our expectations, even for non-pandemic times. Although COVID-19 uncertainty remains, the near-term impacts of the disease have been included in our model in other ways. Additionally, our valuation for Evomela has increased to reflect the improved sales trajectory. Additionally we have updated for new cash, and rolled our NPVs forward.

We have not increased our probability of success for CNCT19 because no data has been reported from the ongoing Phase I clinical study.

Exhibit 1: Valuation of CASI

Portfolio

Asset

Region

Peak sales ($m)

Margins

Clinical risk adjustment

Value ($m)

Hematology

Evomela

China

35.4

49%

100%

80.06

Marqibo

China

9.2

56%

90%

7.85

Zevalin

China

25.5

64%

90%

43.70

Thiotepa

China

8.8

39%

90%

4.64

CID-103

China & US & Europe

766.6

59%

5%

14.48

CNCT19

China

306.2

up to 50% profit share

10%

25.95

BI-1206

China

249.9

59%

10%

17.25

Other products

ANDA portfolio

China & US

142.0

47%

100%

175.64

Octreotide LAI

China

15.7

41%

80%

12.31

Total

381.87

Net cash and equivalents (Q320 + BI-1206 deal) ($m)

64.39

Noncontrolling interest

(21.27)

Total firm value ($m)

424.98

Total shares (m)

123.94

Value per basic share ($)

3.43

Dilutive warrants and options (m)

15.91

Value per diluted share ($)

3.35

Source: CASI Pharmaceuticals reports, Edison Investment Research

Exhibit 2: Financial summary

$'000s

2018

2019

2020e

2021e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

INCOME STATEMENT

Revenue

 

 

0.0

4,131.0

14,439.7

25,293.5

Cost of Sales

0.0

(3,935.0)

(9,332.3)

(6,288.7)

Gross Profit

0.0

196.0

5,107.4

19,004.8

EBITDA

 

 

(19,402.4)

(37,495.0)

(33,690.6)

(22,564.0)

Normalised operating profit

 

 

(19,767.9)

(38,098.0)

(34,192.6)

(23,348.9)

Amortisation of acquired intangibles

(1,305.4)

(1,550.0)

(1,511.9)

(1,511.9)

Exceptionals

0.0

0.0

(1,087.0)

0.0

Share-based payments

(6,118.1)

(7,310.0)

(7,478.0)

(7,478.0)

Reported operating profit

(27,191.4)

(46,958.0)

(44,269.5)

(32,338.8)

Net Interest

(280.1)

1,062.0

854.0

0.0

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

Exceptionals

0.0

534.0

2,292.0

0.0

Profit Before Tax (norm)

 

 

(20,048.1)

(36,502.0)

(31,046.6)

(23,348.9)

Profit Before Tax (reported)

 

 

(27,471.6)

(45,362.0)

(41,123.5)

(32,338.8)

Reported tax

0.0

0.0

0.0

6,467.8

Profit After Tax (norm)

(20,048.1)

(36,502.0)

(31,046.6)

(23,348.9)

Profit After Tax (reported)

(27,471.6)

(45,362.0)

(41,123.5)

(25,871.1)

Minority interests

0.0

(670.0)

(403.0)

0.0

Discontinued operations

0.0

0.0

0.0

0.0

Net income (normalised)

(20,048.1)

(37,172.0)

(31,449.6)

(23,348.9)

Net income (reported)

(27,471.6)

(46,032.0)

(41,526.5)

(25,871.1)

Basic average number of shares outstanding (m)

85

96

110

130

EPS - basic normalised (c)

 

 

(23.65)

(38.74)

(28.48)

(17.93)

EPS - diluted normalised (c)

 

 

(23.65)

(38.74)

(28.48)

(17.93)

EPS - basic reported (c)

 

 

(32.41)

(47.98)

(37.61)

(19.87)

Dividend (c)

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

20,845.4

41,130.0

62,826.0

60,913.0

Intangible Assets

18,784.7

16,895.0

18,015.0

16,503.1

Tangible Assets

1,750.6

985.0

11,773.0

11,372.0

Investments & other

310.0

23,250.0

33,038.0

33,038.0

Current Assets

 

 

92,564.6

61,501.0

57,526.3

41,023.8

Stocks

0.0

4,542.0

3,068.1

2,067.5

Debtors

0.0

1,293.0

2,373.6

4,157.8

Cash & cash equivalents

85,117.0

54,246.0

49,992.5

32,777.5

Other

7,447.6

1,420.0

2,092.0

2,021.0

Current Liabilities

 

 

(3,873.9)

(7,947.0)

(6,813.9)

(6,791.5)

Creditors

(968.0)

(5,113.0)

(3,955.9)

(3,933.5)

Tax and social security

0.0

0.0

0.0

0.0

Short term borrowings

(1,499.5)

0.0

0.0

0.0

Other

(1,406.4)

(2,834.0)

(2,858.0)

(2,858.0)

Long Term Liabilities

 

 

(73.6)

(1,019.0)

(4,962.0)

(4,962.0)

Long term borrowings

0.0

0.0

0.0

0.0

Other long term liabilities

(73.6)

(1,019.0)

(4,962.0)

(4,962.0)

Net Assets

 

 

109,462.5

93,665.0

108,576.4

90,183.3

Minority interests

0.0

20,670.0

21,271.0

21,271.0

Shareholders' equity

 

 

109,462.5

72,995.0

87,305.4

68,912.3

CASH FLOW

Op Cash Flow before WC and tax

(19,402.4)

(37,495.0)

(33,690.6)

(22,564.0)

Working capital

(9,780.4)

4,452.0

(1,435.9)

(806.0)

Exceptional & other

598.9

9,800.0

13,800.2

6,467.8

Tax

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(28,583.9)

(23,243.0)

(21,326.3)

(16,902.2)

Capex

(1,131.1)

(7,053.0)

(11,290.0)

(383.8)

Acquisitions/disposals

(20,642.4)

(21,005.0)

(21,978.0)

0.0

Net interest

0.0

0.0

0.0

0.0

Equity financing

92,269.8

3,545.0

45,922.0

0.0

Dividends

912.0

0.0

0.0

0.0

Other

0.0

20,000.0

2,195.0

71.0

Net Cash Flow

42,824.4

(27,756.0)

(6,477.3)

(17,215.1)

Opening net debt/(cash)

 

 

(41,991.7)

(83,617.5)

(54,245.5)

(49,992.3)

FX

(1,197.5)

(1,328.0)

587.0

0.0

Other non-cash movements

(1.0)

(288.0)

1,637.0

0.0

Closing net debt/(cash)

 

 

(83,617.5)

(54,245.5)

(49,992.3)

(32,777.2)

Source: CASI Pharmaceuticals reports, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by CASI Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by CASI Pharmaceuticals. 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 research department of Edison 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 2020 Edison Investment Research Limited (Edison).

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New Zealand

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United Kingdom

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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.

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General disclaimer and copyright

This report has been commissioned by CASI Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by CASI Pharmaceuticals. 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 research department of Edison 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 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Marble Point Loan Financing — Cash flow still strong

Marble Point Loan Financing (MPLF) is a closed-end fund that invests in leveraged loans mostly by buying the equity tranches in collateralised loan obligations (CLOs) managed by Marble Point Credit Management (Marble Point). The experienced credit investment team employs a conservative, disciplined approach. Unlike most of its peers, MPLF marks its portfolio to market, which resulted in considerable NAV volatility during the pandemic. NAV halved during Q120 but subsequently rose by nearly 50%. However, although loan defaults have risen in its underlying portfolio, cash flow generation has remained strong. After suspending its dividend in April 2020, reinstated it in August and the shares now offer a yield of 15.1%.

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