Embarking on the next phase: Deals and data

e-Therapeutics 16 January 2017 Update

e-Therapeutics

Embarking on the next phase: Deals and data

New CEO appointed

Pharma & biotech

16 January 2017

Price

8.5p

Market cap

£23m

Net cash (£m) at end-July 2016

19.9

Shares in issue

268.4m

Free float

10.5%

Code

ETX

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.6

(8.1)

(68.7)

Rel (local)

(0.4)

(12.3)

(74)

52-week high/low

27.1p

7.4p

Business description

e-Therapeutics is a UK-based drug discovery company that has developed a proprietary network pharmacology discovery platform. Its focus is now on commercialisation: securing partners for its discovery and development projects.

Next events

FY17 results

April 2017

New CEO starts

By 1 May 2017

Preclinical data

H217/H118

Partnering deal(s)

2017 onwards

Analysts

Lala Gregorek

+44 (0)20 3681 2527

Daniel Wilkinson

+44 (0)20 3077 5734

e-Therapeuticse-Therapeutics is a research client of Edison Investment Research Limited

e-Therapeutics (ETX) has appointed a new CEO, Dr Raymond Barlow, who will join the company by 1 May 2017. He brings significant R&D and business development experience, which will be invaluable in driving ETX to the next stage of its evolution. Following its 2016 strategic review, ETX’s near- to mid-term focus is on deriving value from its proprietary network pharmacology discovery platform. Potential deals from late 2017 would provide external validation for the platform and differentiated discovery approach, and generate revenues. Portfolio rationalisation secures ETX’s funding runway into early 2019; deal flow would extend this. Preclinical data on the five core discovery assets should stimulate interest from potential partners/collaborators. Deals and data are the next key catalysts.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/15

0.0

(9.7)

(2.9)

0.0

N/A

N/A

01/16

0.0

(11.1)

(3.2)

0.0

N/A

N/A

01/17e

0.0

(13.2)

(4.0)

0.0

N/A

N/A

01/18e

0.0

(8.9)

(2.7)

0.0

N/A

N/A

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

Commercial expertise to open doors for ETX

Dr Barlow’s international pharma and biotech background, experience and contacts should provide added impetus to achievement of ETX’s strategic objectives. Prior roles include senior business development positions at Amgen, J&J/Crucell and AstraZeneca, where he also worked in drug discovery/development. Dr Barlow has a stated intention of continued development of the network pharmacology platform, generation of further supporting data for internal discovery programmes, and also raising the profile of both ETX and its discovery approach across the industry.

Core assets: Pipeline and platform

ETX’s ability to discover drugs targeting complex disease more efficiently and cost effectively than alternative methods should attract potential partners. Its platform enables analysis of multiple, often interconnected disease pathways providing new insights to complement traditional discovery approaches. Phased investment will be made into improving ETX’s discovery capabilities and into the downsized portfolio (five core assets, from 17). 2017 could mark the next wave of discovery activity.

Financials & valuation: Focused investment

Cash of £19.9m (end-July 2016), future tax credits of c £6m and reduced cash burn should fund ETX through to 2019. R&D costs will fall as spend is focused on a core five product candidates in discovery (down from 17 at end-July); we model £0.6m higher FY17 R&D costs, as legacy assets ETS6103 and ETS2101 wind down. Deals (out-licensing, collaborations or JVs) will be pivotal in unlocking platform value. Execution is key; first deals should catalyse further business development activity and provide more clarity on potential future deal terms or format. Analysis of disclosed deal metrics for preclinical/research stage assets indicates a broad range of upfront payments ($5m to $30m) with a historical industry modal value of $10m.

Exhibit 1: Financial summary

£'000s

2015

2016

2017e

2018e

Year ending 31 January

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

0

R&D

(8,549)

(9,965)

(14,100)

(7,500)

G&A

(1,520)

(1,375)

(1,434)

(1,475)

EBITDA

 

 

(9,997)

(11,267)

(13,353)

(8,895)

Operating profit (pre GW and except.)

 

 

(10,069)

(11,340)

(13,433)

(8,975)

Share-based payment

(106)

(215)

(250)

(250)

Operating profit

(10,175)

(11,555)

(15,784)

(9,225)

Net interest

357

271

200

110

Profit before tax (norm)

 

 

(9,712)

(11,069)

(13,233)

(8,865)

Profit before tax (as reported)

 

 

(9,818)

(11,284)

(15,584)

(9,115)

Tax

2,041

2,570

2,700

1,500

Profit after tax (norm.)

(7,671)

(8,499)

(10,533)

(7,365)

Profit after tax (as reported)

(7,777)

(8,714)

(12,884)

(7,615)

Average number of shares outstanding (m)

264.3

264.4

266.4

268.3

EPS - normalised (p)

 

 

(2.9)

(3.2)

(4.0)

(2.7)

EPS - as reported (p)

 

 

(2.9)

(3.3)

(4.8)

(2.8)

Dividend per share (p)

0.0

0.0

0.0

0.0

EBITDA margin (%)

N/A

N/A

N/A

N/A

Operating margin (before GW and except) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed assets

 

 

733

804

909

1,014

Intangible assets

637

740

835

930

Tangible assets

96

64

74

84

Current assets

 

 

37,424

28,783

16,877

10,653

Stocks

0

0

0

0

Debtors

3,602

3,941

3,600

2,400

Cash

33,822

24,842

13,277

8,253

Other

0

0

0

0

Current liabilities

 

 

(1,133)

(1,156)

(1,500)

(1,500)

Creditors

(1,133)

(1,156)

(1,500)

(1,500)

Other creditors

0

0

0

0

Short-term borrowings

0

0

0

0

Long-term liabilities

 

 

0

0

0

0

Long-term borrowings

0

0

0

0

Deferred taxation

0

0

0

0

Other long-term liabilities

0

0

0

0

Net assets

 

 

37,024

28,431

16,286

10,167

CASH FLOW

Operating cash flow

 

 

(10,942)

(11,204)

(12,668)

(7,695)

Net interest

642

329

236

155

Tax

1,087

2,027

2,570

2,700

Capex

(31)

(6)

(50)

(50)

Purchase of intangibles

(158)

(138)

(135)

(135)

Acquisitions/disposals

0

0

(1,517)

0

Financing

77

12

0

0

Dividends

0

0

0

0

Other

0

0

0

0

Net cash flow

(9,325)

(8,980)

(11,565)

(5,025)

Opening net debt/(cash)

 

 

(43,147)

(33,822)

(24,842)

(13,277)

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(33,822)

(24,842)

(13,277)

(8,253)

Source: Edison Investment Research, e-Therapeutics accounts

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, Frankfurt and Sydney. 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 e-Therapeutics 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.

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

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, Frankfurt and Sydney. 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 e-Therapeutics 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

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