BioPorto Diagnostics — Retrospective paediatric AKI study initiated

Healthcare

BioPorto Diagnostics

Retrospective paediatric AKI study initiated

Clinical update

Pharma & biotech

3 October 2018

Price	DKK5.66
Market cap	DKK880m
DKK6.38/US$
Net cash (DKKm) at 31 June 2018		22.5

Shares in issue	155.5m
Free float	83.8
Code	BIOPOR

Primary exchange	NASDAQ Copenhagen
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	65.5	79.4	74.7
Rel (local)	71.8	75.3	81.7

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DKK6.2

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Business description

BioPorto is a diagnostic company focused on the development and marketing of antibodies and other products for research and diagnostics. This includes a portfolio of products marketed for research use and The NGAL Test, which the company has submitted to the FDA for the prediction of acute kidney injury.

Next events

FDA decision on NGAL Test	H218
Launch of NGAL Test in US	Late 2018
Paediatric AKI results	H119

Analysts

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

healthcare@edisongroup.com

Edison profile page

BioPorto Diagnostics is a research client of Edison Investment Research Limited

BioPorto announced that it would be initiating a pilot study for the detection of paediatric acute kidney injury (AKI). The study will be a retrospective analysis of urine collected from paediatric ICU patients in an earlier study. We expect the results from this analysis to potentially support an additional 510(k) application for this population if The NGAL Test is approved for adults. The results are expected in H119.

Year end	Revenue (DKKm)	PBT* (DKKm)	EPS* (DKK)	DPS (DKK)	P/E (x)	Yield (%)
12/16	20.7	(22.4)	(1.57)	0.0	N/A	N/A
12/17	25.2	(33.7)	(2.03)	0.0	N/A	N/A
12/18e	29.6	(37.2)	(2.09)	0.0	N/A	N/A
12/19e	52.7	(28.1)	(1.50)	0.0	N/A	N/A

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

Low-cost pathway to adding indications

The study will examine the urine from paediatric patients who were previously enrolled in a study in 2014. Urine will be used in this case (as opposed to serum in the pivotal adult AKI study) as children have much lower rates of urinary tract infection, which can interfere with test results. The samples have already been tested using the company’s NGAL ELISA test as part of the previous study (but not the turbidimetric NGAL test under current investigation), so the company has a high degree of insight into the results. Given the samples are in hand, we expect the total cost to be very low, at less than DKK4m.

Study could be pivotal after adult approval

In most situations, the retrospective nature of the study would limit its capacity to serve as a pivotal study. However, we believe this study could potentially support paediatric approval if The NGAL test is first approved for adults. We expect the FDA to be amenable, given the limited capacity to perform clinical studies in this small population and the agency’s mandate to address paediatric indications.

Paediatric AKI population small, but important

The addressable market for this new indication is significantly smaller than for the adult indication. There are many fewer admissions of paediatrics to the ICU than adults, with only 4,000 beds in the US. We estimate approximately 240,000 patients per year. However, there is a significant need: 26.9% of paediatric ICU patients have AKI, 11.6% with severe AKI, the latter of which have a 77% increased risk of death.

Valuation: Increased to DKK1,105m or DKK7.10/share

We have increased our valuation to DKK1,105m or DKK7.10 per basic share from DKK1,078m or DKK6.93 per basic share. We have added the paediatric ICU indication as a testing market with a valuation of DKK27.0m. We have also added the cost of the study to our model, but this does not affect our financing schedule (DKK60m in 2018).

A retrospective study for a paediatric AKI application

BioPorto announced that it would be performing a study of patient samples to support an application to the FDA for the risk use with AKI in paediatric patients (ie to assist a doctor in predicting AKI risk). The company will specifically be examining a set of patient samples that were collected in paediatric ICU patients in 2014 and comparing responses from The NGAL Test to medical records. These samples were previously interrogated with the company’s ELISA NGAL test, so the content of the data set is already understood.

There are several differences between this planned paediatric study and the studies in adult AKI that the company has previously performed. First, and most significantly, the study will be retrospective in nature. This methodology carries a number of considerations. For example, retrospective studies have a lower degree of statistical rigour because their design introduces more bias than prospective studies. For this reason, most regulatory bodies require prospective clinical studies to support approval for diagnostics. However, we believe that the FDA and other regulators will likely be more amenable to a retrospective study in this case. To begin with, there are practical concerns around performing a prospective trial on paediatric AKI in the ICU. The number of clinical sites required and associated expense would be prohibitive. This is not uncommon for paediatric indications and the agency has a mandate to facilitate reasonable accommodation in this area. By comparison, we expect this retrospective study to be low cost (estimated at less than US$1m). Additionally, given the timing of this study, the results should be available after the approval of The NGAL Test in adults. It would be more difficult to convince the FDA to approve without a supporting prospective clinical study in adults.

Another practical differentiator between this study and the pivotal adult trial is that it will use urine NGAL, whereas the adult study used serum NGAL. There are a number of different considerations regarding when it is best to use urine or serum. Urine NGAL provides a more direct readout of kidney function, but urinary tract infections (UTIs) frequently give false positives. The pivotal adult study used serum NGAL precisely to avoid this confounding factor, given how common UTIs are in adults, particularly women. UTIs are much less common in children, which enables the use of urine in this population with less concern and less invasiveness. Because the product will use urine instead of serum, the company will need to file a new 510(k) application for the product following completion of the study.

The paediatric AKI testing market

As with other estimates of AKI prevalence, there has been significant variability in the rates of AKI in paediatric ICU populations. One of the most recent and comprehensive studies published in the New England Journal of Medicine found that 26.9% of patients admitted to 32 different paediatric ICUs had AKI. 1 11.6% of these patients had severe AKI, which was associated with a 77% increase in the risk of death, underlying the need for effective detection and intervention in this setting. However, the rate of AKI in children associated with hospital stays is small given the lower underlying rate of paediatric ICU admissions. Only an estimated 5% of ICU beds in the US are dedicated to paediatrics, or around 4,000 in total.2 We estimate approximately 240,000 admissions per year, based on reported occupancy of 59 patients per bed per year.3

Kaddourah A, et al. (2017) Epidemiology of Acute Kidney Injury in Critically Ill Children and Young Adults. New Eng J Med 376, 11-20.

Society of Critical Care Medicine.

Folafoluwa o, et al. (2005) A National Survey of Pediatric Critical Care Resources in the United States. Pediatrics 115, e382.

Because of these factors, we believe that revenue from the paediatric market will be incremental compared to the much larger adult markets. However, given the low cost of pursuing this approval, we believe the development is justified on its own. However, there are additional factors apart from revenue from paediatrics that we consider valuable. Approval in paediatrics will allow a unified treatment algorithm where all ICU admissions are treated similarly. We believe this has the potential to aid adoption. Moreover, there is significant value in the goodwill in treating this population. Finally, there is the potential for an approval in paediatrics to translate into a future approval for neonates. Neonates are hospitalized at significantly higher rates, accounting for 73% of all hospital admissions in patients under 18,4 and approximately 20,000 ICU beds.2 There is increasing awareness of AKI in this population and the associated risks: rates of AKI in very low birth weight infants have been measured as high as 40%.5

Healthcare Cost and Utilization Project.

Carmody JBet al. (2014) Recognition and reporting of AKI in very low birth weight infants. Clin J Am Soc Nephrol 9, 2036–2043

Valuation

We have increased our valuation to DKK1,105m or DKK7.10 per basic share from DKK1,078m or DKK6.93 per basic share. This increase is associated with the addition of the paediatric ICU detection market. Our models are similar to the adult ICU market, adjusted for the lower underlying admission rate. We model approval for this indication in 2019 and first sales in 2020. Our probability of success is 45% as we see approval in the adult population first as the biggest hurdle (50% probability of success) with a 90% chance of success if that indication receives approval. Otherwise, our valuation remains unchanged.

Exhibit 1: Valuation of BioPorto

Program	Market	Prob. of success	Peak Revenue ($m)	Valuation (DKKm)
The NGAL Test	ICU	50%	188.1	732.6
	ED	30%	179.0	341.0
	Post-surgery	30%	57.3	101.6
	Research	100%	2.6	21.8
	Paediatrics	45%	15.0	27.0
Other products	Research	100%	3.9	33.1
Unallocated costs				(174.8)
Total				1,082.3
Net cash and equivalents (Q218) (DKKm)				22.5
Total firm value (DKKm)				1,104.8
Total shares (m)				155.51
Value per share (DKK)				7.10
Dilutive warrants (m)				11.6
Total diluted shares				167.1
Value per diluted share (DKK)				6.84

Source: BioPorto reports, Edison Investment Research

Financials

We had added the clinical cost associated with the paediatric study, which we estimate at only DKK3.8m. Otherwise our model remains unchanged. We do not expect this expense to contribute significantly to the company’s funding requirement, which we currently record as DKK60m in illustrative debt in 2018.

Exhibit 2: Financial summary

	DKK000s	2016	2017	2018e	2019e
31-December		IFRS	IFRS	IFRS	IFRS
INCOME STATEMENT
Revenue		20,720	25,155	29,561	52,707
Cost of Sales		(5,027)	(6,907)	(8,095)	(11,295)
Gross Profit		15,693	18,248	21,466	41,412
Sales		(18,041)	(18,545)	(19,033)	(21,409)
R&D		(9,669)	(21,930)	(27,533)	(35,479)
Administrative		(13,030)	(14,267)	(15,923)	(16,719)
EBITDA		(22,596)	(33,134)	(37,632)	(28,803)
Normalised operating profit		(22,596)	(33,134)	(37,632)	(28,803)
Amortisation of acquired intangibles		(182)	(329)	(329)	(329)
Exceptionals		0	0	0	0
Share-based payments		(2,061)	(2,856)	(2,856)	(2,856)
Reported operating profit		(24,839)	(36,319)	(40,817)	(31,988)
Net Interest		148	(570)	462	711
Joint ventures & associates (post tax)		0	0	0	0
Exceptionals		0	0	0	0
Profit Before Tax (norm)		(22,448)	(33,704)	(37,170)	(28,092)
Profit Before Tax (reported)		(24,691)	(36,889)	(40,355)	(31,277)
Reported tax		2,099	4,821	4,160	3,229
Profit After Tax (norm)		(20,538)	(29,297)	(33,336)	(25,190)
Profit After Tax (reported)		(22,592)	(32,068)	(36,195)	(28,048)
Minority interests		0	0	0	0
Discontinued operations		0	0	0	0
Net income (normalised)		(20,538)	(29,297)	(33,336)	(25,190)
Net income (reported)		(22,592)	(32,068)	(36,195)	(28,048)

Basic average number of shares outstanding (m)		131	145	160	168
EPS - basic normalised (ore)		(157)	(203)	(209)	(150)
EPS - diluted normalised (ore)		(157)	(203)	(209)	(150)
EBITDA Margin (%)		-109.1	-131.7	-127.3	-54.6
Normalised Operating Margin		-109.1	-131.7	-127.3	-54.6

BALANCE SHEET
Fixed Assets		3,069	2,623	3,158	2,622
Intangible Assets		1,959	1,629	1,223	894
Tangible Assets		400	263	1,204	997
Investments & other		710	731	731	731
Current Assets		47,572	62,981	90,103	66,417
Stocks		3,941	3,434	2,661	3,713
Debtors		4,662	6,380	7,289	12,996
Cash & cash equivalents		35,641	47,080	72,412	41,966
Other		3,328	6,087	7,741	7,741
Current Liabilities		(5,146)	(8,653)	(9,751)	(10,927)
Creditors		(1,169)	(3,412)	(5,523)	(6,699)
Tax and social security		(242)	(182)	0	0
Short term borrowings		0	0	0	0
Other		(3,735)	(5,059)	(4,228)	(4,228)
Long Term Liabilities		(1,204)	(883)	(61,040)	(61,040)
Long term borrowings		0	0	(60,000)	(60,000)
Other long term liabilities		(1,204)	(883)	(1,040)	(1,040)
Net Assets		44,291	56,068	22,470	(2,929)
Minority interests		0	0	0	0
Shareholders' equity		44,291	56,068	22,470	(2,929)

CASH FLOW
Op Cash Flow before WC and tax		(22,596)	(33,134)	(37,632)	(28,803)
Working capital		839	2,325	918	(5,582)
Exceptional & other		(239)	(595)	462	711
Tax		2,336	2,005	2,888	3,229
Net operating cash flow		(19,660)	(29,399)	(33,363)	(30,445)
Capex		(357)	(38)	(1,148)	0
Acquisitions/disposals		0	0	0	0
Net interest		0	0	0	0
Equity financing		20,858	40,921	0	0
Dividends		0	0	0	0
Other		(67)	(45)	(157)	0
Net Cash Flow		774	11,439	(34,668)	(30,445)
Opening net debt/(cash)		(34,867)	(35,641)	(47,080)	(12,412)
FX		0	0	0	0
Other non-cash movements		0	0	0	0
Closing net debt/(cash)		(35,641)	(47,080)	(12,412)	18,034

Source: BioPorto reports, Edison Investment Research

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