The benefits of partnerships and cost control

e-Therapeutics 5 March 2019 Update
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e-Therapeutics

The benefits of partnerships and cost control

FY19 results

Pharma & biotech

5 March 2019

Price

4.7p

Market cap

£13m

Net cash (£m) at 31 January 2019

5.9

Shares in issue

268.6m

Free float

44.6%

Code

ETX

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.5)

(29.1)

(46.3)

Rel (local)

(11.9)

(30.6)

(46.6)

52-week high/low

8.8p

4.7p

Business description

e-Therapeutics is a UK-based drug discovery company that has developed an in silico network-driven drug discovery platform. Following a strategic review by the new CEO, the focus is now on commercialisation: securing partners for its platform, discovery and development projects.

Next events

Further partnering announcements

Ongoing

H1 results

September 2019

FY20 results

March 2020

Analyst

Andy Smith

+44 (0)20 3077 5700

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

e-Therapeutics’ (ETX) FY19 results demonstrated continued financial prudence and its focus on partnering, out-licensing and non-dilutive financing. The FY19 operating loss was £5.1m, which is the same as our estimate. The cash outflow was £3.7m, resulting in a cash balance of £5.9m at the end of FY19. Both R&D and administrative expenses had been reduced from FY18 and the recently announced Novo collaboration generated £0.04m in FY19.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/18

0.00

(6.7)

(2.0)

0.0

N/A

N/A

01/19

0.04

(5.1)

(1.5)

0.0

N/A

N/A

01/20e

0.48

(3.5)

(0.9)

0.0

N/A

N/A

01/21e

0.00

(3.0)

(0.8)

0.0

N/A

N/A

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

FY19 financials

ETX’s FY19 operating loss was £5.1m vs £6.8m at the end of FY18 and our estimate of £5.1m. This was softened by a £1.1m R&D tax credit (£1.4m in FY17) and the revenue from the recently announced collaboration with Novo, which added £0.04m in revenues in FY19. The cash outflow was also lower at £3.7m against £4.4m for FY18. This was as a result of lower R&D and administrative spend (£3.7m and £1.5m vs £5.0m and £1.7m for FY18, respectively). ETX ended FY19 with £5.9m in cash and equivalents (vs £9.6m at the end of FY18 and our previous YE19 estimate of £5.5m). There were three moving parts to this higher cash balance: the continued financial prudence, the recent collaboration with Novo in type II diabetes and the slowed investment in the self-funded assets. We estimate that ETX’s cash runway will reach through 2021, before which time further collaborative inflows are expected.

Detailed discussions with potential partners

In the current challenging financing environment for UK-based life science companies, ETX is firstly conserving resources. FY19 was the latest in a three-year trend of sequentially declining six-monthly losses and the lowest half-yearly loss since 2012. In addition, a range of partnering activities are being explored. These two facets come together with the metered investment in the self-funded NDD-derived assets, the board exploring alternative sources of capital that could include non-dilutive funding and also potentially the earlier partnering and cost-sharing for assets and partnerships that may reduce the long-term upside to ETX, but enable nearer-term value creation.

Valuation: Unchanged ahead of more collaborations

We have updated our valuation to £69.4m or 26p/share, from £63.5m (24p/share), due to the impact of a stronger dollar on the dollar-based comparative transactions. All underlying assumptions remain unchanged. ETX expects more collaborations, and more visible transactions than the Novo collaboration and we would expect these to be incorporated into ETX’s valuation when they occur.

Partnering to parry funding challenges

ETX’s FY19 results announcement pulled no punches on the current financing challenges in the UK for smaller life science companies. However, ETX’s results included commentary on the range of partnering and cost-sharing opportunities to address this challenge, which the chairman’s statement suggested could include M&A, if appropriate.

New partnering opportunities

As well as the potential partnering of the two network-driven drug discovery (NDD) derived assets and collaborations, like the one recently announced with Novo, which use the NDD platform for specific disease indications, ETX announced a new partnering approach. The collaboration with C4X Discovery, which started last year and uses C4X’s human genetic data to feed into ETX’s NDD platform, has already generated potentially novel mechanisms of addressing Parkinson ’s disease. This approach linking the NDD platform is generically applicable to other indications and will be marketed to potential partners as Genome Associated Interaction Networks (GAINs).

Changes to our financial model

We have associated the recent announcement on the collaboration with Novo Nordisk on type II diabetes with the revenues reported in FY19. We estimate that the revenues received in FY19 reflected the first month of a one-year contract in the first instance. We have therefore included the £0.5m remaining revenues from this first phase in FY20.


Exhibit 1: Financial summary

£000s

2017

2018

2019

2020e

2021e

Year ending 31 January

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

44

484

0

R&D

(10,911)

(5,019)

(3,673)

(3,000)

(2,500)

G&A

(2,641)

(1,749)

(1,485)

(1,000)

(500)

EBITDA

 

 

(14,200)

(6,696)

(5,093)

(3,459)

(2,954)

Operating Profit (before amort. and except.)

 

(14,256)

(6,768)

(5,166)

(3,517)

(3,001)

Share-based payment

(99)

(105)

52

(50)

(50)

Operating profit

(16,456)

(6,873)

(5,114)

(3,566)

(3,050)

Net interest

132

49

29

15

10

Profit Before Tax (norm)

 

 

(14,124)

(6,719)

(5,137)

(3,502)

(2,991)

Profit Before Tax (reported)

 

 

(16,324)

(6,824)

(5,085)

(3,551)

(3,040)

Tax

3,073

1,360

1,086

1,100

917

Profit after tax (norm.)

(11,051)

(5,359)

(4,051)

(2,401)

(2,072)

Profit after tax (as reported)

(13,251)

(5,464)

(3,999)

(2,451)

(2,123)

Average Number of Shares Outstanding (m)

267.1

268.5

268.5

268.5

268.5

EPS - normalised (p)

 

 

(4.1)

(2.0)

(1.5)

(0.9)

(0.8)

EPS - as reported (p)

 

 

(5.0)

(2.0)

(1.5)

(0.9)

(0.8)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed assets

 

 

207

206

161

131

112

Intangible assets

156

135

119

110

106

Tangible assets

51

71

42

21

5

Current assets

 

 

18,225

11,556

7,348

4,904

2,851

Stocks

0

0

0

0

0

Debtors

3,749

1,455

1,116

1,116

1,116

Cash

13,975

9,597

5,904

3,788

1,736

Other

501

504

328

0

0

Current liabilities

 

 

(1,951)

(1,024)

(707)

(452)

(451)

Creditors

(1,951)

(1,024)

(707)

(452)

(451)

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

 

 

16,481

10,738

6,802

4,583

2,512

CASH FLOW

Operating cash flow

 

 

(12,509)

(7,373)

(5,054)

(3,203)

(2,952)

Net interest

194

86

26

15

10

Tax

3,073

2,968

1,352

1,100

917

Capex

(22)

(66)

(8)

(8)

(8)

Purchase of intangibles

(143)

(5)

(20)

(20)

(20)

Acquisitions/disposals

(1,473)

0

0

0

0

Financing

13

12

11

0

0

Dividends

0

0

0

0

0

Other

0

0

0

0

0

Net cash flow

(10,867)

(4,378)

(3,693)

(1,116)

(2,054)

Opening net debt/(cash)

 

 

(24,842)

(13,975)

(9,597)

(5,904)

(3,788)

HP finance leases initiated

0

0

0

0

0

Other

0

0

0

0

0

Closing net debt/(cash)

 

 

(13,975)

(9,597)

(5,904)

(3,788)

(1,735)

Source: e-Therapeutics and Edison Investment Management

General disclaimer and copyright

This report has been commissioned by e-Therapeutics and prepared and issued by Edison, in consideration of a fee payable by e-Therapeutics . Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

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New Zealand

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. 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 (i.e. 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.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

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Frankfurt +49 (0)69 78 8076 960

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New York +1 646 653 7026

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by e-Therapeutics and prepared and issued by Edison, in consideration of a fee payable by e-Therapeutics . Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, 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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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