Astex Pharmaceuticals

Transcription

1 Astex Pharmaceuticals SGI-110 moving along Pipeline update Pharma & biotech Astex has expanded its Phase II trial of SGI-110 to 200 patients, by adding a new cohort of relapsed/refractory (r/r) myelodysplastic syndromes (MDS) patients to the existing front-line acute myeloid leukemia (AML), MDS and r/r AML groups. Enrolment in the study is now over half complete and data from the r/r AML cohort should be available for presentation at the American Society of Hematology (ASH) meeting in December. We have reviewed our valuation in the light of separately reported preclinical data on SGI-110 in ovarian cancer, and now value Astex at $678m (including cash), equivalent to $7.25 per share basic or $6.24 per share (fully diluted). 16 April 2013 Price $5.50 Market cap $513m Net cash ($m) as at end Dec 2013e $102.1 Shares in issue 93.3m Free float 100% Code ASTX Year end Revenue ($m) PBT* ($m) EPS* ($) 12/ N/A 12/ N/A 12/13e 55.0 (23.3) (0.19) 0.0 N/A N/A 12/14e 21.0 (62.8) (0.58) 0.0 N/A N/A Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. DPS ($) P/E (x) Yield (%) Primary exchange Secondary exchange Share price performance NASDAQ N/A Progress of SGI-110 is now driving share value SGI-110, Astex s second-generation hypomethylating agent (HMA), is receiving renewed investor interest because of its proven mechanism of action and potential advantages over first-generation HMAs. Astex expects to determine its registration strategy for the product on completion of the ongoing Phase II trial in MDS/AML. Assuming a Phase III start in a haematological indication in 2014, SGI-110 could reach the market by With the global HMA market exceeding $1bn per year, SGI-110 could generate a significant revenue stream for Astex. Data on SGI-110 in ovarian cancer boosts valuation Despite an early clinical study being underway, ovarian cancer had previously not been included as supportive data had been generated with Dacogen, rather than SGI-110, albeit showing an impressive overall response rate (ORR) (35%) in platinum-resistant or -refractory patients. The recent publication of data from preclinical studies of SGI-110 in ovarian cancer now justifies adding this indication in our valuation model. SGI-110 is in a Phase I/II trial in a group that could produce proof-of-concept data in It is also in an exploratory Phase I/II trial in hepatocellular carcinoma and this indication is not yet included in our valuation. Valuation: Upside remains The addition of a contribution for SGI-110 in ovarian cancer adds $80m to our valuation, which rises to $678m (including cash), equivalent to $7.25 per share basic or $6.24 per share (fully diluted). We contend that our approach remains conservative, principally valuing only Dacogen, SGI-110 (in haematology and ovarian cancer) and AT13387 (in ALK+ NSCLC), with a modest contribution from Astex s partnered compounds. We see significant potential value increases as SGI- 110 and AT13387 advance into later stages of development in the next 12 to 18 months. % 1m 3m 12m Abs Rel (local) week high/low $5.6 $1.6 Business description Astex Pharmaceuticals is a US-UK oncologyfocused drug discovery company. Its lead programmes are AT13387 (Hsp90 inhibitor) and SGI-110 (hypomethylating agent). It also has collaborations with pharma companies. Next events SGI-110 data New IND SGI-110 Phase III indication selection Analysts ASH (December) Q413 Q413 Jason Zhang PhD Robin Davison +44 (0) healthcare@edisoninvestmentresearch.co.uk Edison profile page Astex Pharmaceuticals is a research client of Edison Investment Research Limited

2 SGI-110 moving along Astex has expanded its ongoing Phase II trial of the second-generation hypomethylating agent, SGI-110, from 160 to 200 patients, by adding a cohort of r/r MDS patients, in addition to existing cohorts of front-line elderly AML, MDS and r/r AML. Enrolment into the expanded trial is halfway through and data from the r/r AML cohort should be available in time to submit an abstract for the ASH meeting (7-10 December). The company also expects to determine its registration indication for SGI-110 by year end. Exhibit 1: SGI-110 study details Inclusion of r/r MDS gives more options The first-generation HMAs, Dacogen (decitabine) and Vidaza (azacitabine, Celgene) are approved for intermediate-2 (INT-2) and high-risk MDS patients. Currently, there are no approved drugs for r/r MDS. In the part A portion of the Phase II trial, it was shown that SGI-110 even had activity in MDS patients previously treated with Vidaza, suggesting that SGI-110 had activity in HMA-treated patients. As r/r MDS is a late addition to the study, we do not believe it is likely to be Astex s first registration indication. However, if the data produced in this trial are robust they could drive real world practice, even if formal approval is not immediately obtained. Ovarian cancer is a likely first solid tumour indication Astex initiated SGI-110 into a Phase I/II trial in platinum-resistant and -refractory ovarian cancer in October last year, based on preclinical data and previous clinical data with Dacogen in combination with carboplatin in heavily pre-treated platinum-resistant ovarian cancer patients. This combination produced an impressive 35% overall response rate and 10.2 months median PFS 1 ; the data are discussed in depth in our recent Outlook note. Data presented at the American Association for Cancer Research has shown that in established ovarian cancer xenograft models, SGI-110, in combination with a platinum agent, can significantly delay tumour growth compared to platinum alone. These data, together with the clinical data of Dacogen and carboplatin, provide sufficient confidence to conclude that a SGI-110/Carboplatin combination could be a viable treatment option for platinum-resistant and -refractory ovarian cancer; therefore, we have decided to include it in our valuation. The Phase I/II ovarian cancer trial is currently in the Phase I stage and we expect that proof-of-concept Phase II stage data will be available some time in Indication Study Endpoints MDS/AML 250-pt study of SGI-110 in three regimens (QD SQx5, QD SQx10, or QW SQx3) Part A in r/r MDS or AML is complete. Part B will randomise pts of first-line AML or MDS, r/r AML and r/r MDS to 60 or 90 mg/m 2 QDx5 or r/r AML to 60 mg/m 2 QDx10. The primary endpoints are MTD and biologically effective dose (BED) for part A and overall remission rate Platinum-resistant ovarian cancer HCC, Nexavar failure 116-pt study in combination with carboplatin vs treatment choice 46-pt study, monotherapy, daily X5 Q4W Source: Edison Investment Research for part B (results: December 2013). Part A (c 20 pts) tests the combination to establish MTD of AT13387; part B (96 pts) randomises pts to SGI- 110/carboplatin vs physicians choice (paclitaxel, topotecan or Doxil). The primary endpoint is progression free survival (PFS) for part B (results: June 2013). An open-label, single-arm, non-randomised study. Part A (15 pts) will establish MTD and part B (31 pts) will test the drug for efficacy. The primary endpoint is disease control rate (DCR) at 16 weeks (results: Oct 2013). 1 Matei et al, Cancer Res 2012; 72: Astex Pharmaceuticals 16 April

3 Sensitivities Astex is subject to the risks typically associated with biotech company drug development, including the possibility of unfavourable or ambiguous outcomes in clinical trials, the success of competitors and commercial decisions by partners or potential partners. Since the company s revenue mainly consists of Dacogen royalties, its shares are subject to the drug s commercial exclusivity in the US and its launch trajectory in Europe. The clinical data read-outs of SGI-110 and AT13387 can, based on the outcome, significantly positively or negatively affect the company s valuation. Furthermore, Astex can be negatively affected if its corporate partners delay or discontinue developments of licensed drugs. Valuation We have revised our valuation to include a contribution for SGI-110 in ovarian cancer. This adds $80m to our previously published valuation, which is now $678m (including cash), equivalent to $7.25 p/s basic or $6.24 p/s (fully diluted). This figure includes Dacogen at $168m ($1.54 per diluted share), SGI-110 at $227m ($2.09 per diluted share), AT13387 at $96m ($0.89 per diluted share), other pipeline assets at $85m ($0.78 per diluted share) and cash (end 2013) of $102m ($0.94 per diluted share). We forecast declining Dacogen royalty revenue in the US due to generic competition, and forecast future revenue mainly from the drug s sales in Europe for elderly AML and sales from other territories. For SGI-110, we have chosen elderly AML as the lead indication and assigned a probability of success of 35%, and added platinum-resistant and -refractory ovarian cancer as the second indication with a probability of success of 25%. Our model considers only the ALK+ NSCLC indication for AT13387, given that other Hsp90 inhibitors have shown interesting activity at this setting. Our probability of success is assumed to be 25%, appropriate for a Phase I/II drug candidate. We assume a nominal $85m for all other pipeline assets, including the four licensed to pharmaceutical partners (net of the $12m remaining deferred obligation to former Astex Therapeutics shareholders). We consider the valuation assumptions to be very conservative on Dacogen, SGI-110 and AT13387 and believe there is significant upside in valuation once the latter two drugs move into later stages of clinical development. We value cash flows using a 12.5% WACC in common with other biotech companies. Exhibit 2: Astex valuation model ($m except for per share data) Product Main Indication Stage Probability of Year of launch Peak sales ($m) PV ($) success Dacogen MDs, AML Market 100% SGI-110 AML, MDS Phase II 35% SGI-110 Ovarian cancer Phase I/II 25% AT13387 ALK+ NSCLC, Phase I/II mcrpc, GIST 25% Other pipeline value, less obligation Phase I 15% > Total 576 Cash and cash equivalents (year-end 2013) 102 Total firm value 678 Total basic shares (m) 93.5 Total diluted shares (m, year-end 2013) Firm value per diluted share 6.24 Source: Edison Investment Research Astex Pharmaceuticals 16 April

4 Financials Astex reported net income of $8.2m, based on total revenue of $83.2m and total operating expenses of $91.5m in It ended the year with cash, cash equivalents and current and noncurrent marketable securities at $138.3m. The company has guided that 2013 royalty revenue from Dacogen would be $55m and total operating expense would be $90m. We expect the cash burn in 2013 to be approximately $36m, ending 2013 with cash at c $102m. After several years of producing a profit, the company will swing back to losses because of R&D investment in its maturing pipeline and reduced Dacogen royalty. However, the company is well financed with enough cash to support its operation until a major product partnership is established or one of the two key products is approved, possibly starting from Astex Pharmaceuticals 16 April

5 Exhibit 3: Financial summary US$000s e 2014e Year end 31 December IFRS IFRS IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue 41,253 52,972 66,914 83,159 55,000 21,000 Cost of sales Gross profit 41,253 52,972 66,914 83,159 55,000 21,000 Research and (29,689) (28,394) (43,895) (60,419) (67,000) (72,000) development General and (8,994) (9,442) (16,842) (15,661) (15,500) (16,500) administration EBITDA 5,426 18,636 12,097 11,974 (21,965) (61,465) Operating profit (before GW and except.) 5,426 17,436 10,660 10,439 (23,500) (63,000) Intangible amortisation (106) (300) (4,465) (8,005) (8,000) (8,000) Exceptionals (700) (6,126) 0 0 Share-based payment (2,750) (2,000) (3,083) (3,360) (4,000) (4,500) Operating profit 3,165 15,886 2,412 (7,052) (35,500) (75,500) Net interest (158) 2, Other Profit before tax (norm) 6,112 17,862 10,502 12,706 (23,250) (62,750) Profit before tax 3,851 16,312 2,254 (4,785) (35,250) (75,250) (reported) Tax 886 (39) 3,288 13,031 5,000 8,001 Profit after tax (norm) 6,998 17,823 13,790 25,737 (18,250) (54,749) Profit after tax (reported) 4,737 16,273 5,542 8,246 (30,250) (67,249) Average number of shares outstanding (m) EPS - normalised (c) (19.4) (58.2) EPS - FRS 3 (c) (32.2) (71.5) BALANCE SHEET Fixed assets 11,266 12, , , , ,119 Intangible assets , , , ,987 Tangible assets 4,205 3,932 7,013 6,278 5,543 4,808 Restricted cash & marketable 5,825 7,258 1,819 1,819 1,819 1,819 securities Trade investment & others Current assets 99, , , , ,410 56,396 Stocks Debtors Cash/near cash 97, , , , ,126 48,112 Other 2,054 1,370 10,338 8,284 8,284 8,284 Current liabilities (6,573) (5,039) (34,670) (20,034) (17,821) (11,425) Creditors (5,771) (5,548) (13,466) (13,933) (13,933) (13,933) Other creditors 0 0 (3,342) (3,379) (3,379) (3,378) Short-term borrowings 0 0 (17,353) (2,213) 0 0 Deferred income (802) Long-term liabilities (1,958) (1,429) (21,356) (18,582) 0 0 Long-term borrowings Other long-term liabilities (1,958) 0 (21,356) (18,582) 0 0 Net assets 101, , , , , ,090 CASH FLOW Operating cash flow 5,092 18,859 (13,174) 26,647 (19,752) (61,465) Net interest (158) 2, Tax 886 (39) 3,288 13,031 5,000 8,001 Capex (989) (927) (800) (800) (800) (800) Purchase of intangibles Acquisitions/disposals Financing 5, Net cash flow 11,175 18,655 (10,410) 41,145 (15,302) (54,014) Opening net debt/(cash) (86,695) (97,197) (115,253) (87,523) (117,428) (102,126) Other (673) (599) (17,320) (11,240) 0 0 Closing net debt/(cash) (97,197) (115,253) (87,523) (117,428) (102,126) (48,112) Source: Astex Pharmaceuticals accounts, Edison Investment Research Astex Pharmaceuticals 16 April

6 Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Berlin, Sydney and Wellington. Edison is authorised and regulated by the Financial Services 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 ) 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 not regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [ ] 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 [ ]. DISCLAIMER Copyright 2013 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Astex Pharmaceuticals 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 not 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). It is not intended for retail clients. 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. 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 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. Berlin +49 (0) Astex Friedrichstrasse Pharmaceuticals April High Holborn Park Avenue, 39th Floor Level 33, Australia Square Level 15, 171 Featherston St Berlin Germany London +44 (0) London, WC1V 7EE United Kingdom New York , New York US Sydney +61 (0) George St, Sydney NSW 2000, Australia Wellington +64 (0) Wellington 6011 New Zealand