Progress with FDA and first sales in the spotlight

Angle 24 February 2016 ADR Update

Angle

Progress with FDA and first sales in the spotlight

Update

Pharma & biotech

24 February 2016

ADR research

Price

US$8.2

Market cap

US$48m

ADR/ord conversion ratio 1:10

Net cash ($m) as at 30 October 2015

8.1

ADRs in issue

5.9m

ADR code

ANPCY

ADR exchange

OTCQX

Underlying exchange

AIM

Depository

Bank of New York Mellon

ADR share price performance

52-week high/low

US$15.78

US$9.37

Business description

Angle is a pure-play specialist diagnostics company. The proprietary Parsortix cell separation platform can be used for the detection and harvesting of very rare cells from a blood sample, including circulating tumor cells (CTCs). The resulting liquid biopsy enables the analysis of these cells for precision cancer care.

Next events

Results from KOL studies in other cancer indications

H216

Start of enrolment for ovarian cancer clinical trial

H216

FY16 results

July 2016

Analysts

Jonas Peciulis

+44 (0)20 3681 2527

Christian Glennie

+44 (0)20 3077 5727

Angle is a research client of Edison Investment Research Limited

Angle has achieved a significant milestone in commercializing its proprietary cell separation system, Parsortix, with first research use sales announced in December. Important development news from its H116 results included Angle’s decision to seek FDA approval for Parsortix in breast cancer, which adds the potential for a second major clinical application, and further positive key opinion leader (KOL) evaluations of Parsortix with a third peer-reviewed article accepted for publication. Our DCF-based valuation is largely unchanged at $133m.

Year end

Revenue ($m)

PTP* ($m)

EPADR ($)

DPADR ($)

P/E (x)

Gross yield (%)

04/14

0.0

(3.1)

(0.38)

0.0

N/A

N/A

04/15

0.0

(5.4)

(1.14)

0.0

N/A

N/A

04/16e

0.5

(8.3)

(1.36)

0.0

N/A

N/A

04/17e

3.1

(5.7)

(0.92)

0.0

N/A

N/A

Note: Converted at US$1.40 to £1. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws.

First research use sales reported

On 28 January Angle reported its interim results for H116; total operating costs of £2.4m ($3.4m) were largely in line with our estimates. This resulted in a gross cash position of £5.8m ($8.1m) at the end of October 2015, which has since been boosted further by £0.7m ($1m) released from an escrow account in H216 related to the sale of Geomerics. In December the company announced its first sales of Parsortix for research use had been booked in H216. This was in line with the company’s previously announced strategy and our unchanged FY16 (ending 30 April) sales estimate stands at £341k ($477k). We continue to believe that existing cash (Angle has no debt) should be sufficient to fund operations at least to the end of 2017.

Breast cancer indication for clinical use emerges

One of the key developments in the H116 report was an update on progress with the FDA authorization for Parsortix’s use in a clinical setting. Angle has agreed with the FDA that metastatic breast cancer will be the first indication to be investigated in clinical trials in the US with other indications to follow. In addition, the company has focused on ovarian cancer with a large clinical trial underway in Europe. In our view, the decision to go for a second indication represents an opportunity to expand clinical use in the near term. As Angle indicated, it has a clear view on the process for securing FDA authorization, although the timelines for approval rest with the agency. Once more details emerge; the metastatic breast cancer indication could be added to our valuation.

Valuation: DCF-based valuation of $133m

Our valuation is based on sales of Parsortix for use in research and clinical sales for the pre-surgery triaging of ovarian masses, with no contribution from other potential applications or the technology platform at this stage. Our underlying assumptions for the DCF model are unchanged following the H116 results. Angle’s lower net cash position is offset by rolling the model forward in time; therefore, our valuation is largely unchanged at $133m or $22.6/ADS (vs $145m or $24.6/ADS, difference driven largely by exchange rate).

Positive KOL evaluations continue

One of Angle’s core strategic goals is close cooperation with KOLs in investigating the efficacy of the Parsortix cell separation system in diagnosing and treating various cancers. As detailed in our last note, in 2015 a number of research publications provided increasingly convincing data supporting the use of Parsortix in ovarian, lung, breast and prostate cancers. This momentum continues, with the most recent third peer-reviewed publication by University Medical Centre Hamburg-Eppendorf (UKE) published in the International Journal of Cancer.

UKE researchers compared Parsortix to CellSearch in cell separation efficiency from blood samples spiked with tumor-derived cell lines and blood samples of various cancer patients. The study focused on cell capture rates, feasibility to harvest and viability of the cells. CellSearch is the only FDA-approved circulating tumor-cell (CTC) capturing device approved for enumeration of CTCs. It isolates CTCs using magnetic particles coated with antibodies that bind to a cell surface marker called anti-epithelial cell adhesion molecule (EpCAM). Once extracted, CTCs are enumerated and their concentration has been proven to have prognostic value for progression-free survival and overall survival in primary and metastatic disease of patients with breast, colon, prostate and lung cancers. However, CTCs are heterogeneous and may express fewer cell surface markers, like EpCAM, in a process called epithelial-to-mesenchymal transition. Therefore, such antibody-based systems limited to detecting epithelial markers could fail to detect spreading cancer. Parsortix uses a patented step-based microfluidic technology to capture CTCs on the basis of their size and compressibility, and therefore is not limited by cell marker bias.

In the UKE study, researchers evaluated Parsortix’s performance using blood samples from healthy individuals, spiked with cancerous cells. In addition, Parsortix was compared to CellSearch in cell separation efficiency from blood samples of cancer patients. Key results include:

Pre-labelled cell capture rates of Parsortix ranging from an average of 42% to 70% in blood samples spiked with various tumor cell lines: pancreatic, prostate, melanoma, lung and bladder. The main implication of these findings is that the Parsortix system is able to catch a sufficient number of tumor cells and importantly, from a wide variety of cancers.

After the separation from spiked blood samples, harvest rates (retrieval of CTCs from the Parsortix cassette) ranged from an average of 54% to 69%.

Virtually all (99%) harvested cells were shown to be viable and suitable for culture and molecular analysis.

When comparing Parsortix to CellSearch, Angle’s system captured a similar number of epithelial CTCs as CellSearch. However, Parsortix is additionally able to capture clinically-relevant mesenchymal CTCs that cannot be captured by CellSearch. Furthermore, Parsortix enabled easy harvest of CTCs for molecular analysis, while CellSearch was limited to enumeration.

Overall, the results supported findings reported in papers published previously by Cancer Research UK Manchester Institute and Barts Cancer Institute. Epitope-independent cell separation of CTCs and the possibility of harvesting viable cells for downstream analysis represent a competitive edge for Parsortix compared to other liquid biopsy methods. The harvesting of viable cells could be paradigm changing in a rapidly evolving liquid biopsy field, as this enables a plethora of downstream cytological analyses. This may eventually affect the clinical practice of managing cancer patients, such as using Parsortix to help triage women with ovarian masses before surgery, which is being evaluated in partnership with the Medical University of Vienna (detailed in our last update).

Valuation

Our valuation is largely unchanged at $133m or $22.6/ADS (vs $145m or $24.6/ADS, difference driven largely by exchange rate) with a lower net cash position offset by rolling the model forward in time. Our underlying assumptions for the DCF valuation are unchanged following H116 results and the breakdown of our valuation model is shown in Exhibit 1. We continue to include only the sales of Parsortix for use in research and clinical sales in ovarian mass triaging. As the UKE paper and the previous studies suggest, Parsortix could be applied in multiple cancer types, which offers significant upside to our valuation.

In particular, we note Angle’s decision to pursue metastatic breast cancer as the lead indication to support an FDA filing, which could add sales in another major oncology setting. We would expect to add this opportunity to our valuation once further details on timing and supportive clinical data in metastatic breast cancer become available.

Exhibit 1: Assumptions for base case DCF valuation

Key assumptions

NPV ($m)

Free cash flow model FY16-25e

25.0

Tapering growth free cash flows FY26-35e

50.9

Terminal value (2% growth rate assumed)

49.0

Total NPV

124.9

Net cash (FY15)

8.2

Valuation ($m)

133.1

Valuation/ADS ($)

22.6

Discount rate

10%

Tax rate

20%

Source: Edison Investment Research

Financials

Angle’s H116 results largely met our expectations; therefore, changes to our 2016 and 2017 estimates are minimal. First research use sales were announced in December 2015, which will be a key focus area in the H216 report, although we expect initial revenues to be modest. Multiple new and existing customers have bought Parsortix instruments and consumable cassettes. The company also indicated that in total there are now over 80 Parsortix instruments in active use, with some 6,000 separations performed this financial year to date (since 1 May 2015). Ahead of the H216 results, we expect first research sales of £341k ($477k). Our model continues to suggest that net cash of £5.8m ($8.1m) should be sufficient to fund operations through to 2017. We estimate £1.3m ($1.8m) of illustrative financing included nominally as long-term debt on the balance sheet in 2018 (as per our policy) and we anticipate profitability in 2019.


Exhibit 2: Financial summary

USD:GBP

1.4

$'000s

2013

2014

2015

2016e

2017e

Year end April

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,357

0

0

477

3,060

Cost of Sales

0

0

0

(143)

(908)

Gross Profit

1,357

0

0

334

2,152

Research and development

(420)

(1,260)

(2,240)

(4,312)

(3,441)

EBITDA

 

 

(944)

(2,792)

(4,833)

(7,130)

(4,283)

Operating Profit (before amort. and except.)

(971)

(2,871)

(4,988)

(7,359)

(4,556)

Intangible Amortisation

(431)

(139)

(286)

(502)

(529)

Share-based payments

(99)

(85)

(155)

(487)

(672)

Other

0

0

0

0

0

Operating Profit

(1,501)

(3,095)

(5,429)

(8,348)

(5,757)

Net Interest

58

18

13

46

21

Pre-tax Profit (norm)

 

 

(912)

(2,853)

(4,976)

(7,312)

(4,535)

Pre-tax Profit (FRS 3)

 

 

(1,443)

(3,077)

(5,417)

(8,301)

(5,736)

Tax

0

0

0

280

280

Discontinued operations

0

1,344

(25)

0

0

Net Income (norm)

(912)

(1,509)

(5,001)

(7,032)

(4,255)

Net Income (FRS 3)

(1,443)

(1,733)

(5,442)

(8,021)

(5,456)

0

0

0

0

0

Average Number of Shares Outstanding (m)

41

45

48

59

59

Average Number of ADRs Outstanding (m)

4

5

5

6

6

EPS - normalised ($)

 

 

(0.02)

(0.03)

(0.10)

(0.12)

(0.07)

EPS - normalised and fully diluted ($)

 

(0.02)

(0.03)

(0.10)

(0.12)

(0.07)

EPS - (IFRS) ($)

 

 

(0.04)

(0.04)

(0.11)

(0.14)

(0.09)

Earnings per ADS - normalized ($)

 

 

(0.22)

(0.33)

(1.05)

(1.19)

(0.72)

Earnings per ADS - normalized and fully diluted ($)

(0.22)

(0.33)

(1.05)

(1.19)

(0.72)

Earnings per ADS - (IFRS) ($)

 

 

(0.36)

(0.38)

(1.14)

(1.36)

(0.92)

Dividend per ADS ($)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

70.0

70.3

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

 

 

5,011

2,635

2,201

1,778

1,315

Intangible Assets

1,512

1,598

1,609

1,258

853

Tangible Assets

194

195

592

520

462

Investments

3,305

841

0

0

0

Current Assets

 

 

5,337

5,989

13,507

6,404

2,528

Stocks

87

73

276

274

350

Debtors

636

459

1,411

680

838

Cash

2,559

5,457

11,820

5,449

1,340

Other

2,055

0

0

0

0

Current Liabilities

 

 

(846)

(903)

(1,583)

(1,307)

(1,752)

Creditors

(846)

(903)

(1,583)

(1,307)

(1,752)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

0

0

0

0

0

Long term borrowings

0

0

0

0

0

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

9,502

7,721

14,125

6,875

2,091

CASH FLOW

Operating Cash Flow

 

 

(1,891)

(2,659)

(4,778)

(6,346)

(4,071)

Net Interest

154

(6)

7

46

21

Tax

0

0

0

210

280

Capex

(195)

(116)

(455)

(157)

(214)

Acquisitions/disposals

216

6,056

176

0

0

Financing

2,891

(378)

11,413

0

0

Dividends

0

0

0

0

0

Net Cash Flow

1,175

2,898

6,363

(6,247)

(3,984)

Opening net debt/(cash)

 

 

(1,385)

(2,559)

(5,457)

(11,820)

(5,449)

HP finance leases initiated

0

0

0

0

0

Other

0

0

0

(125)

(125)

Closing net debt/(cash)

 

 

(2,559)

(5,457)

(11,820)

(5,449)

(1,340)

Source: Company accounts, Edison Investment Research. Note: Historic reported revenues relate to the legacy business which has now been divested. FY14 has been restated to exclude discontinued operations.

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New Zealand

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

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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