19 December 2016 NOXXON Pharma NV. FIRST BERLIN Equity Research. Cooperation

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1 FIRST BERLIN Equity Research NOXXON Pharma NV RATING Germany / Biotechnology Cooperation Paris PRICE TARGET Bloomberg: ALNOX FP agreement closed Return Potential 81.9% ISIN: NL Risk Rating High DEAL WITH MERCK VALIDATES NOX-A12 S POTENTIAL Christian Orquera, Tel (0) N O BUY On 15 December, Noxxon closed a collaboration agreement with the US pharmaceutical company Merck & Co (known as MSD outside the US/Canada). Merck will provide Noxxon with its marketed checkpoint inhibitor Keytruda (pembrolizumab) for testing purposes free of charge. Noxxon will conduct Phase II studies of its lead drug candidate NOX-A12 in combination with Merck s drug Keytruda in 20 metastatic cancer patients of which half are expected to be colorectal cancer patients and half pancreatic cancer patients. In-vivo pre-clinical data has demonstrated that NOX-A12 in combination with a checkpoint inhibitor significantly reduces tumour growth. The deal with Merck is a very important milestone for Noxxon, as it validates the potential of NOX-A12. Merck has already provided valuable input and approved the trial design which in our view increases the probability of success. Merck possesses leading expertise in immunooncology (IO) and is one of three pharmaceutical companies worldwide with a marketed checkpoint inhibitor (the other two are Bristol Myers and Roche). The agreement is in line with our expectations and underscores management s ability to deliver results. Noxxon is on track to initiate the Phase II combination studies in solid tumours during the next few months. We reiterate our Buy rating and price target. Two-stage, phase II combination study in advanced cancer patients The open label phase II trial will include approximately 10 patients for each cancer indication, 20 patients in total. In the first stage of the trial NOX-A12 will be administered as a monotherapy for up to two weeks, with the main goal being to evaluate the effect of the drug on the number of tumour-infiltrating killer T-cells. In order to measure the number of infiltrating T-cells, the company will conduct a biopsy to collect cancer tissue specimens before and after the application of NOX-A12. The second stage will continue with the NOX-A12/Keytruda combination treatment. This second part of the study aims to provide information on the safety and efficacy of the NOX-A12/Keytruda combination in a small number of patients. (p.t.o.) FINANCIAL HISTORY & PROJECTIONS E 2017E 2018E 2019E Revenue ( m) Y-o-y growth n.a. 72.0% -7.0% % n.a % EBIT ( m) EBIT margin n.a. n.a. n.a. n.a. 59.8% n.a. Net income ( m) EPS (diluted) ( ) DPS ( ) FCF ( m) Net gearing n.a. n.a. n.a. n.a % % Liquid assets ( m) RISKS Risks include, but are not limited to development, regulatory, competition and financing risks. COMPANY PROFILE Noxxon Pharma NV is an immuno-therapeutic biotech company focused on the research and development of new drugs to treat cancer based on its proprietary Spiegelmer technology platform. The company is based in Berlin and currently has two drugs in phase I and phase II clinical trials to treat several types of cancer. MARKET DATA As of 16 Dec 2016 Closing Price Shares outstanding 2.01m Market Capitalisation 44.11m 52-week Range / Avg. Volume (12 Months) 51 Multiples E 2017E P/E n.a. n.a. n.a. EV/Sales EV/EBIT n.a. n.a. n.a. Div. Yield 0.0% 0.0% 0.0% STOCK OVERVIEW Sep 16 Oct 16 Nov 16 NOXXON Pharma NV Next Biotech Index COMPANY DATA As of 30 Jun 2016 Liquid Assets 1.82m Current Assets 2.14m Intangible Assets 0.03m Total Assets 2.53m Current Liabilities 10.74m Shareholders Equity m SHAREHOLDERS Kreos Capital IV Ltd. 17.8% TVM Capital GmbH 16.0% Sofinnova Capital V FCPR 15.8% Other investors 36.7% Freefloat 13.7% Analyst: Christian Orquera, Tel (0)

2 Since participating patients will have advanced-stage, metastised tumours which are nonresponsive to Keytruda monotherapy, even a small proportion of responders would be highly significant. The company believes a positive outcome of this proof-of- mechanism trial would be sufficient to support the conduct of a registration-pivotal double-blind, randomized trial of NOX-A12 in combination with Keytruda against placebo. Assuming a successful Phase II study, under the current agreement with Merck multiple scenarios for potential collaboration in the registration-pivotal trials can be envisaged. However, the company has not disclosed further details. First top-line data evaluating NOX-A12 alone (first stage) will likely be published in mid We also anticipate publication of final proof of mechanism data for NOX-A12 as monotherapy (first stage), as well as initial data for the combination with Keytruda (second stage) in Q4/17 or Q1/18. For more detailed information on Noxxon, we refer readers to our initiating coverage report of Buy reiterated at unchanged price target In our view, the agreement with Merck promotes Noxxon to the top league of IO. This deal validates NOX-A12 s potential and we expect it to attract attention from investors and also from industry with regard to further potential co-development deals. Management is delivering as promised. Based on unchanged estimates, our sum-of-the-parts valuation model still yields a price target for Noxxon of 40.00, which represents a return potential of 81.9% from the current level. We reiterate our Buy rating. VALUATION MODEL Figure 1: Sum-of-the-parts valuation model Compound Project 1) Present Patient Treatment Market Market Peak PACME Discount Patent Time to Value Pop Cost Size Share Sales Margin 2) Factor Life 3) Market NOX-A12 Pancreatic cancer 37.9M 94K 65,913 6,195.9M 6% 714M 18% 21% 9 6 Years NOX-A12 Colorectal cancer 54.7M 360K 65,913 23,729M 3% 958M 18% 21% 9 6 Years NOX-A12 Multiple Myeloma 11.2M 150K 65,913 9,887M 2% 261M 18% 21% 7 7 Years NOX-A12 Brain & lung cancer 19.3M 431K 65,913 28,409M 1% 450M 18% 21% 7 8 Years PACME PV 123.0M 68,220M 2,337M Costs PV 4) 35.3M NPV 87.8M Milestones PV 9.0M Net cash (pro-forma) 23.1M Fair Value 119.8M Share Count (fully diluted) Price Target 2,996K ) A project typically refers to a specific indication or, where necessary or relevant, a combination between indication and geographic market 2) PACME (Profit After Costs and Marketing Expenses) reflects the company's profit share on future revenues. This share may be derived in the form of royalties (outsourced marketing/manufacturing) or operating EBITDA margin (in-house model), or some mix of both (depending on the specific parameters of partnership agreements) 3) Remaining patent life after the point of approval 4) Includes company-level R&D, G&A, Financing Costs and CapEx; COGS and S&M are factored into the PACME margin for each project Source: First Berlin Equity Research Page 2/8

3 INCOME STATEMENT All figures in EUR ' E 2017E 2018E 2019E 2020E Revenue Upfront & milestone payments , Total revenue , General and administrative 3,107 7,319 3,832 1,000 1,050 1,103 1,158 Research and development 10,154 7,587 5,435 4,000 5,000 6,000 6,400 Other operating inc ome (expense) Operating income (EBIT) -13,166-14,830-9,207-4,980 8,970-7,083-7,538 Net financial result ,294-2, Pre-tax income (EBT) -13,795-16,124-11,834-4,984 8,975-7,072-7,531 Income taxes Net income / loss -13,798-16,102-11,834-4,984 8,975-7,072-7,531 Diluted EPS EBITDA -12,887-14,612-9,057-4,880 9,020-7,003-7,438 Ratios EBIT-Margin on total revenue n.a. n.a. n.a. n.a. 59.8% n.a. n.a. EBITDA margin on total revenue n.a. n.a. n.a. n.a. 60.1% n.a. n.a. Net Margin on total revenue n.a. n.a. n.a. n.a. 59.8% n.a. n.a. Expenses as % of Revenues General and administrative n.a. n.a. n.a. n.a. 7.0% n.a. n.a. Research and development n.a. n.a. n.a. n.a. 33.3% n.a. n.a. Y-Y Growth Total revenue n.a. 72.0% -7.0% % n.a % n.a. Operating income n.a. n.a. n.a. n.a. n.a. n.a. n.a. Net income/ loss n.a. n.a. n.a. n.a. n.a. n.a. n.a. Page 3/8

4 BALANCE SHEET All figures in EUR ' E 2017E 2018E 2019E 2020E Assets Current Assets, Total 2,067 5,364 2,778 1,874 25,849 18,777 11,246 Cash and Cash Equivalents 1,527 4,093 2,000 1,079 25,022 17,912 10,347 Receivables Inventories Other Current Assets 502 1, Financial Assets Non-Current Assets, Total 1, Property, Plant & Equipment Goodwill & Other Intangibles Total Assets 3,090 6,041 3,325 2,341 26,316 19,244 11,713 Shareholders' Equity & Debt Current Liabilities, Total 5,177 6,783 5,103 2,503 2,503 2,503 2,503 Short-Term Debt 2,167 2,591 2, Accounts Payable 2,485 3,174 1,600 1,600 1,600 1,600 1,600 Other current liabilities 525 1, Longterm Liabilities, Total 4,156 6, Long Term Debt 4,152 6, Other Liabilities Shareholders Equity -6,243-7,032-1, ,812 16,740 9,209 Total Consolidated Equity and Debt 3,090 6,041 3,325 2,341 26,316 19,244 11,713 Ratios Current ratio (x) Quick ratio (x) Net gearing n.a. n.a. n.a. n.a % % % Book value per share ( ) n.a. n.a. n.a. n.a Net debt 4,792 4, ,079-25,022-17,912-10,347 Equity ratio % % -53.5% -7.0% 90.5% 87.0% 78.6% Page 4/8

5 CASH FLOW STATEMENT All figures in EUR ' E 2017E 2018E 2019E 2020E Net income -13,798-16,102-11,834-4,984 8, 975-7,072-7, 531 Depreciation and amortization Interest, net 629 1,294 2, Tax provision Changes in Working Capital , Other Adjustments Cash interest net Operating cash flow -13,005-14,397-10,588-4,901 8, 994-7,030-7, 465 CapEx Investments in Intangibles Free cash flow -13,052-14,405-10,608-4,921 8, 944-7,110-7, 565 Debt Financ ing, net 6,429 1, Equity Financing, net 0 9,328 7,795 4,000 15, Other financing ac tivities 3,039 5, Cash flow from financing 9,468 16,971 8,515 4,000 15, Net cash flows -3,584 2,566-2, , 944-7,110-7, 565 Cash, s tart of the year 5,111 1,527 4,093 2,000 1, ,022 17, 912 Cash, end of the year 1,527 4,093 2,000 1,079 25, ,912 10, 347 EBITDA/share Y-Y Growth Operating Cashflow n.a. n.a. n.a. n. a. n.a. n. a. n.a. Free cas hflow n.a. n.a. n.a. n. a. n.a. n. a. n.a. EBITDA/ share n.a. n.a. n.a. n. a. n.a. n. a. n.a. Page 5/8

6 FIRST BERLIN Equity Research FIRST BERLIN RECOMMENDATION & PRICE TARGET HISTORY Report No.: Initial Report Date of publication Previous day closing price Recommendation Price target 30 November Buy Today Buy Authored by: Christian Orquera, Analyst Company responsible for preparation: First Berlin Equity Research GmbH Mohrenstraße Berlin Tel (0) Fax +49 (0) info@firstberlin.com Person responsible for forwarding or distributing this financial analysis: Martin Bailey Copyright 2016 First Berlin Equity Research GmbH No part of this financial analysis may be copied, photocopied, duplicated or distributed in any form or media whatsoever without prior written permission from First Berlin Equity Research GmbH. First Berlin Equity Research GmbH shall be identified as the source in the case of quotations. Further information is available on request. INFORMATION PURSUANT TO SECTION 34B OF THE GERMAN SECURITIES TRADING ACT [WPHG], TO REGULATION (EU) NO 596/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF APRIL 16, 2014, ON MARKET ABUSE (MARKET ABUSE REGULATION) AND TO THE GERMAN ORDINANCE ON THE ANALYSIS OF FINANCIAL INSTRUMENTS [FINANV] First Berlin Equity Research GmbH (hereinafter referred to as: First Berlin ) prepares financial analyses while taking the relevant regulatory provisions, in particular the German Securities Trading Act [WpHG], Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014, on market abuse (market abuse regulation) and the German Ordinance on the Analysis of Financial Instruments [FinAnV] into consideration. In the following First Berlin provides investors with information about the statutory provisions that are to be observed in the preparation of financial analyses. CONFLICTS OF INTEREST In accordance with Section 34b Paragraph 1 of the German Securities Trading Act [WpHG] and Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014, on market abuse (market abuse regulation) financial analyses may only be passed on or publicly distributed if circumstances or relations which may cause conflicts of interest among the authors, the legal entities responsible for such preparation or companies associated with them are disclosed along with the financial analysis. First Berlin offers a range of services that go beyond the preparation of financial analyses. Although First Berlin strives to avoid conflicts of interest wherever possible, First Berlin may maintain the following relations with the analysed company, which in particular may constitute a potential conflict of interest (further information and data may be provided on request): The author, First Berlin, or a company associated with First Berlin holds an interest of more than five percent in the share capital of the analysed company; The author, First Berlin, or a company associated with First Berlin provided investment banking or consulting services for the analysed company within the past twelve months for which remuneration was or was to be paid; The author, First Berlin, or a company associated with First Berlin reached an agreement with the analysed company for preparation of a financial analysis for which remuneration is owed; The author, First Berlin, or a company associated with First Berlin has other significant financial interests in the analysed company; In order to avoid and, if necessary, manage possible conflicts of interest both the author of the financial analysis and First Berlin shall be obliged to neither hold nor in any way trade the securities of the company analyzed. The remuneration of the author of the financial analysis stands in no direct or indirect connection with the recommendations or opinions represented in the financial analysis. Furthermore, the remuneration of the author of the financial analysis is neither coupled directly to financial transactions nor to stock exchange trading volume or asset management fees. If despite these measures one or more of the aforementioned conflicts of interest cannot be avoided on the part of the author or First Berlin, then reference shall be made to such conflict of interest. PRICE TARGET DATES Unless otherwise indicated, current prices refer to the closing prices of the previous trading day. AGREEMENT WITH THE ANALYSED COMPANY AND MAINTENANCE OF OBJECTIVITY The present financial analysis is based on the author s own knowledge and research. The author prepared this study without any direct or indirect influence exerted on the part of the analysed company. Parts of the financial analysis were possibly provided to the analysed company prior to publication in order to avoid inaccuracies in the representation of facts. However, no substantial changes were made at the request of the analysed company following any such provision. Page 6/8

7 FIRST BERLIN Equity Research ASSET VALUATION SYSTEM First Berlin s system for asset valuation is divided into an asset recommendation and a risk assessment. ASSET RECOMMENDATION The recommendations determined in accordance with the share price trend anticipated by First Berlin in the respectively indicated investment period are as follows: STRONG BUY: An expected favourable price trend of more than 50% combined with sizeable confidence in the quality and forecast security of management. BUY: An expected favourable price trend of more than 25% percent. ADD: An expected favourable price trend of between 0% and 25%. REDUCE: An expected negative price trend of between 0% and -15%. SELL: An expected negative price trend of more than -15%. RISK ASSESSMENT The First Berlin categories for risk assessment are low, average, high and speculative. 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