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Genkyotex — Targeting obNOXious fibrosis

Genkyotex — Targeting obNOXious fibrosis

Genkyotex is a Euronext-listed company formed by the merger of Genticel and Genkyotex focused on NOX science and its application in fibrosis and other indications. The lead asset, GKT831, will start a Phase II trial in primary biliary cholangitis (PBC) in Q217, with data expected in 2018. Positive results could justify future development in other large fibrotic diseases including non-alcoholic steatohepatitis (NASH). GKT771 will be Phase I ready in late 2017 and will focus on inflammation and angiogenesis. A partnership for immunotherapies with the Serum Institute of India (SIIL) for up to $57m in milestone payments plus royalties is also in place. Cash of €21.8m at end March 2017 should be sufficient to fund operations for two years. Our valuation is €268m.

Analyst avatar placeholder

Written by

Genkyotex

GKT831 clinical development on track

Clinical update

Pharma & biotech

6 July 2017

Price

€2.01

Market cap

€157m

Net cash (€m) at 31 March 2017

20.8

Shares in issue

77.9m

Free float

50.6%

Code

GKTX

Primary exchange

Euronext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.8)

(2.4)

16.2

Rel (local)

(1.3)

(4.5)

(7.4)

52-week high/low

€3.2

€1.3

Business description

Genkyotex is a biopharma company focused on NOX science in fibrosis and other indications. It has two main products: GKT831, in Phase II for PBC and GKT771, in preclinical stage. Additionally Genkyotex has a partnership with the Serum Institute of India.

Next events

GKT831 Phase II DKD

H217

GKT771 Phase I ready

End 2017

GKT831 Phase II interim data

H118

GKT831 Phase II full data

H218

Analysts

Juan Pedro Serrate

+44 (0)20 3681 2534

Jonas Peciulis

+44 (0)20 3077 5728

Genkyotex is a research client of Edison Investment Research Limited

As expected, Genkyotex has initiated enrolment in the Phase II trial of GKT831 in patients with primary biliary cholangitis (PBC) in the first clinical trial site in the US. The trial plans to test GKT831 in 102 patients over 24 weeks. Interim data are expected in H118 and full data in H218. Moreover, the company has announced a Phase II investigator-sponsored trial in patients with Type 1 diabetes (T1D) and kidney disease. The trial will start in Australia in H217 and will be entirely funded and run by public bodies. These new trials demonstrate that Genkyotex is executing on its clinical development plan. Our valuation is €268m.

Year end

Revenue
(€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16e

1.3

(21.7)

(27.8)

N/A

N/A

N/A

12/17e

0.0

(12.0)

(15.4)

N/A

N/A

N/A

12/18e

0.0

(13.0)

(16.7)

N/A

N/A

N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. 2016e is our pro forma estimate, based on available data.

Phase II PBC trial starts patient enrolment

Shortly after announcing that the FDA had accepted the Investigational New Drug Application, the company commenced enrolment in the US in the Phase II trial of GKT831 in PBC. The first patient will be dosed soon. The study will enrol 102 patients with PBC in over 50 centres in the US, Canada and Europe. Interim top-line data are expected in H118 and full results in H218. PBC is a rare autoimmune disease that causes liver fibrosis, cirrhosis and, eventually, liver failure. We estimate there are c 46,000 diagnosed patients in the US and EU and forecast peak sales for GKT831 of c $1.1bn. A successful clinical outcome would support development in larger liver fibrosis indications such as non-alcoholic steatohepatitis (NASH). Prevalence data suggest c 60m patients could be affected in the EU and US, and there are no approved products for NASH.

Phase II study in diabetic kidney disease planned

Furthermore, Genkyotex announced that an investigator-sponsored trial of GKT831 in T1D patients with diabetic kidney disease (DKD) will start enrolling patients in H217. The trial will be conducted at up to 15 centres in Australia led by two world renowned experts in the field, Prof Mark Cooper and Prof Jonathan Shaw. Moreover, it will be funded by the Juvenile Diabetes Research Foundation Australia and the Baker Institute; therefore, it will not represent a financial burden for Genkyotex, which will provide GKT831 under Good Manufacturing Practices (GMP). DKD is the most common cause of end-stage renal disease; it is estimated that in 2015 there were 20.2m cases of DKD in the US, Japan and EU-5.

Valuation: maintain risk-adjusted NPV of €268m

Our valuation of Genkyotex is €268m based on an rNPV and includes the PBC indication, the deal with the Serum Institute of India (SIIL) and net cash of €20.8m at 31 March 2017. As described in our initiation report, should the company pursue NASH, we estimate this could add €30m to €90m. We look to add the DKD indication to our valuation once the clinical trial has commenced.

Focus on GKT831 clinical development

Phase II in PBC starts enrolment

Genkyotex has initiated patient enrolment in the US in the Phase II trial of GKT831 in PBC. The study will enrol 102 patients with PBC in over 50 investigational centres in the US, Canada and Europe. The first patient will be dosed soon. Patients will be administered placebo or two doses of GKT831, 400mg once a day or 400mg twice daily, during 24 weeks. The primary end point will be the change in serum gamma-glutamyl transferase (GGT), a marker of liver injury. Secondary end points will explore other markers of cholestasis and liver injury, inflammation and liver fibrosis. The company anticipates interim data in H118 and full data in H218.

We estimate the number of PBC patients that could be eligible for treatment with GKT831 at c 46,000 and project peak sales of $1.1bn in this indication, with launch in 2023. We believe that the PBC trial, if successful, could also support development of GKT831 in the larger liver fibrosis opportunity, in particular NASH, which could target c 60 million people in the EU and US. Patent protection for GKT831 in the US, Europe and Japan extends until 2029.

Phase II in diabetic nephropathy: higher dose for longer time

The company has announced an investigator-sponsored Phase II study in patients with T1D and DKD (also known as diabetic nephropathy). The study is planned to start in H217 and will be conducted at up to 15 centres in Australia led by Prof Mark Cooper, head of the department of diabetes at Monash University and Prof Jonathan Shaw, deputy director at the Baker Heart and Diabetes Institute in Melbourne. Importantly, the study will be entirely funded by the Juvenile Diabetes Research Foundation and the Baker Institute. Genkyotex will provide GMP-produced GKT831. The primary end point of the study will be the change from baseline in urine albumin-to-creatinine ratio (UACR) after 48 weeks. A key secondary end point of the study will be changes in estimated glomerular filtration rate, which measure the effect of GKT831 on renal function. Patients will receive 200mg of oral GKT831 or placebo twice a day for 48 weeks.

A previous Phase II study run by Genkyotex of GKT831 in diabetic nephropathy did not meet the primary efficacy end point of reduction of proteinuria at 12 weeks, but results were statistically significant (p<0.05) in the pre-defined secondary end points of changes in liver enzymes such as GGT and markers of inflammation. We note that the new trial is testing a higher dose (200mg twice/day vs the previous 100mg/day for six weeks followed by 200mg/day for six weeks) during a longer duration of treatment (48 weeks vs 12 weeks previously). This provides rationale for an improved effect in the new trial.

DKD is one of the long-term complications of diabetes that leads to damage of the kidneys' filtering system. It is characterised by persistent albuminuria, progressive decline in the glomerular filtration rate and elevated arterial blood pressure. It is the most common cause of end-stage renal disease. According to Datamonitor Healthcare in 2015, there were 20.2m prevalent cases of DKD in the adult diabetic population in the US, EU-5, and Japan.

GKT831 has proven safe in four Phase I studies in a total of 117 healthy subjects in a single ascending dose, in multiple ascending doses as well as the food effect and drug interaction. In these studies, GKT831 showed no safety issues and there were no dose-limiting toxicities. Moreover, adverse events in the previous DKD Phase II trial were significantly lower in the GKT831 arm vs placebo.

Financials and valuation

We estimate Genkyotex had c €20.8m net cash at 31 March 2017, which should be sufficient to fund clinical development of GKT831 and GKT771 over the next two years, according to our forecasts. The company expects to receive an additional €3m in tax credits. Currently, our forecasts remain unchanged. On 27 July 2017, the company will provide a business and cash update for Q217. H117 financial results will be released on 21 September.

Taking conservative market share and pricing assumptions and using our standard 12.5% discount rate produces a risk-adjusted NPV of €268m or €3.5 per share, based on 77.85m shares. Our valuation of Genkyotex is based on GKT831 in the PBC indication and the SIIL deal, leaving all other product development opportunities and additional indications as upside. We do not typically include any contribution for indications until clinical development commences; therefore, our GKT831 estimates do not include any potential in DKD or NASH. However, a sensitivity analysis suggests NASH could add between c €30m and €90m, excluding milestones or upfront payments, depending on the commercial strategy.

Exhibit 1: Financial summary

€ 000

2016e

2017e

2018e

Year End December

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

Revenue

 

 

1,304

0

0

Cost of Sales

0

0

0

Gross Profit

1,304

0

0

R&D expenses

(12,687)

(7,000)

(10,000)

G&A expenses

(14,324)

(5,500)

(5,000)

EBITDA

 

 

(21,698)

(12,000)

(13,000)

Operating Profit (before amort. and except.)

 

(21,698)

(12,000)

(13,000)

Intangible Amortisation

0

0

0

Exceptionals

0

0

0

Other

0

0

0

Operating Profit

(21,698)

(12,000)

(13,000)

Net Interest

23

13

2

Profit Before Tax (norm)

 

 

(21,675)

(11,987)

(12,998)

Profit Before Tax (FRS 3)

 

 

(21,675)

(11,987)

(12,998)

Tax

0

0

0

Profit After Tax (norm)

(21,675)

(11,987)

(12,996)

Profit After Tax (FRS 3)

(21,675)

(11,987)

(12,997)

Average Number of Shares Outstanding (m)

77.9

77.9

77.9

EPS - normalised (c)

 

 

(27.8)

(15.4)

(16.7)

EPS - (IFRS) (c)

 

 

(27.8)

(15.4)

(16.7)

Dividend per share (c)

0.0

0.0

0.0

Gross Margin (%)

NA

NA

NA

EBITDA Margin (%)

NA

NA

NA

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

NA

NA

NA

BALANCE SHEET

Fixed Assets

 

 

11,995

11,995

11,995

Intangible Assets

11,829

11,829

11,829

Tangible Assets

167

167

167

Fixed term investments

155

155

155

Other

0

0

0

Current Assets

 

 

30,383

18,397

5,398

Stocks

0

0

0

Debtors

3,512

3,512

3,512

Cash

26,871

14,884

1,886

Other

0

0

0

Current Liabilities

 

 

(4,901)

(4,901)

(4,901)

Creditors

(4,303)

(4,303)

(4,303)

Short term borrowings

(598)

(598)

(598)

Long Term Liabilities

 

 

(1,384)

(1,384)

(1,384)

Long term borrowings

(336)

(336)

(336)

Other long term liabilities

(1,049)

(1,049)

(1,049)

Net Assets

 

 

36,093

24,106

11,108

CASH FLOW

Operating Cash Flow

 

 

(22,693)

(12,000)

(13,001)

Net Interest

23

13

2

Tax

0

0

0

Capex

(13)

0

0

Acquisitions/disposals

0

0

0

Equity Financing

13,776

0

0

Other items

(345)

(600)

(601)

Net Cash Flow

(9,252)

(12,587)

(13,600)

Opening net debt/(cash)

 

 

N/A

(25,938)

(13,951)

HP finance leases initiated

0

0

0

Other

0

600

600

Closing net debt/(cash)

 

 

(25,938)

(13,951)

(950)

Source: Edison Investment Research, Genticel and Genkyotex accounts. Note: 2016e relates to our pro forma estimates for the combined entity as described above.

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 Genkyotex 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

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 Genkyotex 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

Research: Healthcare

ReNeuron Group — Clinical pipeline progressing as planned

ReNeuron reported in December 2016 positive Phase II trial data for its CTX cells in chronic stroke patients, despite not meeting the three-month time frame of a two-point improvement in its primary outcome measure, the Action Research Arm Test (ARAT). As a result, the company has confirmed that it will progress to a pivotal controlled clinical study in 2017. Beyond CTX, we expect safety and efficacy data from its retinitis pigmentosa (RP) trial in 2017 and Phase I data from its critical limb ischaemia (CLI) trial. Our rNPV has increased to £291m.

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