Third clinical application emerges

Angle 19 April 2016 ADR Update

Angle

Third clinical application emerges

Company update

Pharma & biotech

19 April 2016

ADR research

Price

US$11.19

Market cap

US$66m

ADR/Ord conversion ratio 1:10

Net cash ($m) as at 31 October 2015

8.4

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

H116

FY16 results

July 2016

Analysts

Jonas Peciulis

+44 (0)20 3077 5728

Lala Gregorek

+44 (0)20 3681 2527

Angle is a research client of Edison Investment Research Limited

Angle has announced results from a metastatic breast cancer research study carried out by its KOL partner University of Southern California (USC) Norris Comprehensive Cancer Center. Headline data potentially prove that circulating cancer cells (CTCs) captured using Parsortix have the same biology compared to invasive tissue biopsy and can be used to guide the treatment. While this will have to be replicated in larger-scale trials, it represents a potential third clinical application, in which Parsortix can establish a new standard of care.

Year end

Revenue
($m)

PTP*
($m)

EPADR
($)

DPADR
($)

P/E
(x)

Gross Yield
(%)

04/14

0.0

(2.9)

(0.34)

0.0

N/A

N/A

04/15

0.0

(5.1)

(1.07)

0.0

N/A

N/A

04/16e

0.5

(7.5)

(1.22)

0.0

N/A

N/A

04/17e

3.1

(4.6)

(0.73)

0.0

N/A

N/A

Converted at US$1.43 to £1. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws. *PTP and EPS are normalized. Changes compared to our last note are solely due to foreign exchange rate changes.

Metastatic breast cancer is potential third application

Yesterday Angle has announced yet another successful outcome in its strategy to investigate the efficacy of the Parsortix cell separation system in diagnosing and treating various cancers through closely cooperating with key opinion leaders (KOL). Angle’s partner USC presented patient data from its metastatic breast cancer study at the American Association for Cancer Research Annual Meeting (AACR) yesterday. While only headline data were released with the peer-reviewed paper likely to be published in coming months, the results demonstrate a statistically significant correlation between gene expression profiles of CTCs and the tissue samples from secondary sites of the metastatic breast cancer. Although the findings need to be replicated in larger-scale studies, these new data imply that Parsortix could replace invasive biopsy in managing breast cancer patients and adds a potential third clinical application for the system after ovarian and prostate cancers.

Parsortix could replace mainstay tissue biopsy test

The study involved eight patients with metastatic breast cancer, who underwent metastatic tissue biopsy. Parsortix was able to capture CTCs from all the patients. To understand whether CTCs are similar to metastases, researchers used RNA sequencing (RNA-Seq) to compare expression signature of 192 genes. Gene signature is the combined expression pattern of a specific group of genes and is unique to a specific medical condition. The correlation of gene signature obtained from CTCs was significantly similar to that obtained from metastases, thus confirming that CTCs actually reflect the biology of the metastases, which can be different to the primary tumor.

Valuation: DCF-based valuation of $136m

Angle will now focus on implementing a clinical trial in partnership with USC and other centers. When there is more clarity about commercialization in terms of timelines and positioning, we will review our financial forecasts and the assumptions underlying our DCF-based valuation, which is unchanged at $136m or $23.0/share.

Metastatic breast cancer: Potential third application

The research study took metastatic biopsy samples from a variety of different locations: skin, pleural and pericardial effusion (fluid around the lungs and the heart), breast, cerebrospinal fluid and bone tissue. Cancers have the ability to spread to many different parts of the body, but typically spread to certain locations more than others. In addition, they can metastasise to many target organs or just a few. Breast cancer tends to spread to a number of organs; the most common ones are bone, brain, liver, lung, adrenal glands and pleura. 1,2 Therefore the consistent results when comparing Parsortix versus biopsy from different tissues in various locations adds robustness to the study.

B. Weigelt et al. Breast cancer metastasis: markers and models. Nature Reviews Cancer 5, 591-602 (August 2005).

cancer.org, accessed on 18 April 2016.

Positioning in the clinic

More data is needed to better understand the positioning of Parsortix in the management of breast cancer patients. However, if the efficacy is replicated in future clinical studies, Parsortix could potentially replace tissue biopsy. Non-invasive, blood-based tests offer many advantages over tissue biopsy with the most important being patient comfort, ability to follow up during the treatment and cost. In addition, it is not always possible to access a metastatic lesion.

Historically initial treatment decisions were based on the biology of the primary tumour, when the patient is first diagnosed with the disease. However, growing evidence suggest that the cancerous tissue may change its biological properties as it spreads, meaning that initial treatment may no longer be optimal. Recently updated American Society of Clinical Oncology (ASCO) guidelines recommend a biopsy of a metastatic site to guide the decision for treatment.3

C. Van Poznak et al. “Use of Biomarkers to Guide Decisions on Systemic Therapy for Women With Metastatic Breast Cancer: American Society of Clinical Oncology Clinical Practice Guideline. J Clin Oncol 33. 2015 by American Society of Clinical Oncology.

Typically tissue biopsy is used to obtain breast tumour biomarkers (oestrogen and progesterone receptors, HER2 oncogene) to decide on the most suitable therapy. While there a number of ways to assess the biomarkers, the USC researchers were able to demonstrate similarly significant correlation of expression of clinically actionable genes comparing CTCs to tissue biopsy samples. These genes code targets, for which a drug is already available or in late-stage development, therefore could be used in guiding the treatment for the patients.

Breast cancer is the most common cancer among women

We keep our valuation of Angle unchanged at $136m or $23.0/share. Although we can see a substantial opportunity for Parsortix in metastatic breast cancer, this application is still at an early stage, but yesterday’s news is a clear initial proof of concept, in our view. We believe that Angle will provide more details about the development strategy in this direction in the upcoming months. When more information becomes available, we will revisit our forecasts and valuation model. As a reminder, this is a third clinical application gaining momentum. The trial with Parsortix helping to triage women with ovarian masses before surgery is due to start in partnership with the Medical University of Vienna in H116 (our expectation). Recently, another KOL, Barts Cancer Institute (BCI), published initial evidence demonstrating that Parsortix potentially performs as well as or better than current standard of care in terms of detecting early-stage prostate cancer and assessing its severity.

In our valuation, we continue to include only the sales of the Parsortix system for use in research and clinical sales in ovarian mass triaging for operation. For comparison, we estimate c 600 thousand women underwent an operation due to adnexal masses globally. The metastatic breast cancer population is substantially larger with c 247 thousand new invasive breast cancer cases in the US alone each year, of which an estimated 20-30% can become metastatic (cancer.org, Metastatic Breast Cancer Network).

Exhibit 1: DCF valuation

Key assumptions

NPV ($m)

Free cash flow model FY16-25e

25.6

Tapering growth free cash flows FY26-35e

52.0

Terminal value (2% growth rate assumed)

50.1

Total NPV

127.6

Net cash (Oct 31 2015)

8.3

Valuation ($m)

135.9

Valuation/share ($)

23.0

Discount rate

10%

Tax rate

20%

Key assumptions

Free cash flow model FY16-25e

Tapering growth free cash flows FY26-35e

Terminal value (2% growth rate assumed)

Total NPV

Net cash (Oct 31 2015)

Valuation ($m)

Valuation/share ($)

Discount rate

Tax rate

NPV ($m)

25.6

52.0

50.1

127.6

8.3

135.9

23.0

10%

20%

Source: Edison Investment Research


Exhibit 2: Financial summary

US$:GBP

1.43

$000s

2013

2014

2015

2016e

2017e

Year-end April

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,386

0

0

487

3,126

Cost of Sales

0

0

0

(146)

(927)

Gross Profit

1,386

0

0

341

2,198

Research and development

(429)

(1,287)

(2,288)

(4,404)

(3,515)

EBITDA

 

 

(964)

(2,851)

(4,936)

(7,283)

(4,375)

Operating Profit (before amort. and except.)

(991)

(2,933)

(5,095)

(7,516)

(4,653)

Intangible Amortization

(440)

(142)

(292)

(512)

(541)

Share-based payments

(102)

(87)

(159)

(498)

(686)

Other

0

0

0

0

0

Operating Profit

(1,533)

(3,162)

(5,546)

(8,526)

(5,880)

Net Interest

59

19

13

47

21

Pre-tax Profit (norm)

 

 

(932)

(2,914)

(5,082)

(7,469)

(4,632)

Pre-tax Profit (FRS 3)

 

 

(1,474)

(3,143)

(5,533)

(8,479)

(5,859)

Tax

0

0

0

286

286

Discontinued operations

0

1,373

(25)

0

0

Net Income (norm)

(932)

(1,542)

(5,108)

(7,183)

(4,346)

Net Income (FRS 3)

(1,474)

(1,770)

(5,558)

(8,193)

(5,573)

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 - normalized ($)

 

 

(0.02)

(0.03)

(0.11)

(0.12)

(0.07)

EPS - normalized and fully diluted ($)

 

(0.02)

(0.03)

(0.11)

(0.12)

(0.07)

EPS - (IFRS) ($)

 

 

(0.04)

(0.04)

(0.12)

(0.14)

(0.09)

Earnings per ADS - normalized ($)

 

 

(0.23)

(0.34)

(1.07)

(1.22)

(0.73)

Earnings per ADS - normalized and fully diluted ($)

(0.23)

(0.34)

(1.07)

(1.22)

(0.73)

Earnings per ADS - (IFRS) ($)

 

 

(0.36)

(0.39)

(1.17)

(1.39)

(0.94)

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

 

 

5,118

2,692

2,248

1,816

1,343

Intangible Assets

1,544

1,633

1,643

1,285

872

Tangible Assets

198

199

605

531

472

Investments

3,376

859

0

0

0

Current Assets

 

 

5,451

6,118

13,797

6,541

2,582

Stocks

89

74

282

280

357

Debtors

649

469

1,441

695

856

Cash

2,614

5,574

12,073

5,566

1,369

Other

2,099

0

0

0

0

Current Liabilities

 

 

(864)

(922)

(1,617)

(1,335)

(1,790)

Creditors

(864)

(922)

(1,617)

(1,335)

(1,790)

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

 

 

9,705

7,887

14,427

7,022

2,136

CASH FLOW

Operating Cash Flow

 

 

(1,931)

(2,716)

(4,881)

(6,482)

(4,158)

Net Interest

157

(6)

7

47

21

Tax

0

0

0

215

286

Capex

(199)

(119)

(465)

(160)

(219)

Acquisitions/disposals

220

6,186

180

0

0

Financing

2,953

(386)

11,657

0

0

Dividends

0

0

0

0

0

Net Cash Flow

1,200

2,960

6,499

(6,381)

(4,070)

Opening net debt/(cash)

 

 

(1,414)

(2,614)

(5,574)

(12,073)

(5,566)

HP finance leases initiated

0

0

0

0

0

Other

0

0

0

(127)

(127)

Closing net debt/(cash)

 

 

(2,614)

(5,574)

(12,073)

(5,566)

(1,369)

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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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

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New Zealand

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