Light at the end of the funnel

e-Therapeutics 18 February 2016 Update

e-Therapeutics

Light at the end of the funnel

Clinical data

Pharma & biotech

18 February 2016

Price

21.5p

Market cap

£57m

Net cash (£m) at 31 July 2015

30.2

Shares in issue

264.5m

Free float

78%

Code

ETX

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(20.7)

(23.2)

(35.8)

Rel (local)

(23.0)

(19.9)

(27.8)

52-week high/low

43.5p

21.5p

Business description

e-Therapeutics is a drug discovery and development company with a proprietary network pharmacology discovery platform and a clinical pipeline (with potential to be out-licensed post- Phase II proof of concept trials).

Next events

FY16 results

March 2016

Discovery pipeline: start of preclinical studies

H116

Discovery pipeline: potential deals

2016+

Analysts

Lala Gregorek

+44 (0) 20 3681 2527

Christian Glennie

+44 (0)20 3077 5727

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

e-Therapeutics’ (ETX) share price fell c 30% on news that the ETS6103 Phase IIb trial as a second-line therapy for major depressive disorder (MDD) failed to meet its primary efficacy endpoint. However, this does not necessarily equate to a negative read-across for the network pharmacology platform and remaining pipeline (ETS2101 in cancer). Significant investment in expansion of discovery capabilities and infrastructure has generated 10 active discovery projects, with potential for early-stage out-licensing deals or discovery collaborations in the near term. Deal execution would provide robust validation to this approach, and unlocking valuation upside.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/14

0.0

(6.1)

(2.0)

0.0

N/A

N/A

01/15

0.0

(9.7)

(2.9)

0.0

N/A

N/A

01/16e

0.0

(12.0)

(3.5)

0.0

N/A

N/A

01/17e

0.0

(12.2)

(3.5)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items.

ETS6103: Depressing news in MDD

Top-line data from the 164-pt eight-week Phase IIb study in MDD patients refractory to SSRI (selective serotonin reuptake inhibitor) therapy showed low-dose ETS6103 was not non-inferior to amitriptyline. Further analysis, particularly given a higher dose had shown non-inferiority in 2009, should determine whether development/ out-licensing potential remains; full data will be presented at prelims in March.

Not a negative read-across to platform and pipeline

Since identifying ETS6103 and ETS2101, sizeable investment and progress has been made in expanding ETX’s platform’s discovery capabilities and infrastructure. Positively, despite missing its primary endpoint, ETS6103’s expected overall profile was confirmed. It showed efficacy, with responders in both arms (albeit with fewer remissions than amitriptyline) and a more benign side effect/tolerability profile.

Discovery pipeline: A funnel of opportunity

ETX’s discovery platform has to date generated 10 ongoing projects in cancer immunotherapy and targeted cancer resistance rescue. At last disclosure, two preclinical projects were in lead optimisation, with formal preclinical development expected to begin before end H116. The value inherent in these discovery projects and platform could be unlocked via preclinical out-licensing deals or discovery collaborations, providing important validation and portfolio diversification.

Valuation: Risk-adjusted rNPV of £114m

Pending confirmation of next steps, conservatively removing ETS6103 from our pipeline rNPV lowers our valuation to £114m from £125m. However, with ETX’s stated intention to commercialise its discovery platform, potential deals would represent upside, as would positive Phase II ETS2101 data due in 2017 and discovery projects moving into preclinical development. Our model suggests that ETX is fully funded into FY19, beyond these potential valuation inflection points.

Exhibit 1: Financial summary

£000s

2014

2015

2016e

2017e

2018e

Year ending 31 January

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

0

0

EBITDA

 

 

(6,633)

(9,997)

(12,210)

(12,384)

(10,848)

Operating profit (pre GW and except.)

 

 

(6,684)

(10,069)

(12,282)

(12,449)

(10,893)

Share-based payment

(35)

(106)

(120)

(140)

(150)

Operating profit

(6,719)

(10,175)

(12,402)

(12,589)

(11,043)

Net interest

617

357

250

200

150

Profit before tax (norm)

 

 

(6,067)

(9,712)

(12,032)

(12,249)

(10,743)

Profit before tax (FRS 3)

 

 

(6,102)

(9,818)

(12,152)

(12,389)

(10,893)

Tax

1,063

2,041

2,832

2,916

2,208

Profit after tax (norm.)

(5,004)

(7,671)

(9,200)

(9,333)

(8,535)

Profit after tax (FRS3)

(5,039)

(7,777)

(9,320)

(9,473)

(8,685)

Average number of shares outstanding (m)

252.4

264.3

264.8

264.8

264.8

EPS - normalised (p)

 

 

(2.0)

(2.9)

(3.5)

(3.5)

(3.2)

EPS - FRS 3 (p)

 

 

(2.0)

(2.9)

(3.5)

(3.6)

(3.3)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

EBITDA margin (%)

N/A

N/A

N/A

N/A

N/A

Operating margin (before GW and except) (%)

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed assets

 

 

617

733

820

914

1,028

Intangible assets

496

637

766

895

1,024

Tangible assets

121

96

54

19

4

Current assets

 

 

45,004

37,424

27,410

17,864

9,808

Stocks

0

0

0

0

0

Debtors

1,857

3,602

3,602

3,602

3,602

Cash

43,147

33,822

23,808

14,262

6,206

Other

0

0

0

0

0

Current liabilities

 

 

(1,003)

(1,133)

(1,133)

(1,133)

(1,133)

Creditors

(1,003)

(1,133)

(1,133)

(1,133)

(1,133)

Other creditors

0

0

0

0

0

Short-term borrowings

0

0

0

0

0

Long-term liabilities

 

 

0

0

0

0

0

Long-term borrowings

0

0

0

0

0

Deferred taxation

0

0

0

0

0

Other long-term liabilities

0

0

0

0

0

Net assets

 

 

44,618

37,024

27,097

17,645

9,703

CASH FLOW

Operating cash flow

 

 

(6,550)

(11,013)

(12,210)

(12,384)

(10,848)

Net interest

222

642

314

165

35

Tax

830

1,087

2,041

2,832

2,916

Capex

(22)

(31)

(30)

(30)

(30)

Purchase of intangibles

(150)

(158)

(129)

(129)

(129)

Acquisitions/disposals

0

0

0

0

0

Financing

39,400

77

0

0

0

Dividends

0

0

0

0

0

Other

(358)

71

0

0

0

Net cash flow

33,372

(9,325)

(10,014)

(9,546)

(8,056)

Opening net debt/(cash)

 

 

(9,775)

(43,147)

(33,822)

(23,808)

(14,262)

HP finance leases initiated

0

0

0

0

0

Other

0

0

(0)

0

0

Closing net debt/(cash)

 

 

(43,147)

(33,822)

(23,808)

(14,262)

(6,206)

Source: Company accounts, Edison Investment Research

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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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New Zealand

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