Company Coverage Report
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Company Coverage Report th Coverage initiated June 19 , 2009 Aurgalys is contracted by Onxeo to provide equity research Mickael Dubourd, Ph.D., SFAF Paris & Evry, France Onxeo E URONEXT : ONXEO [FR0010095596 – C OMPARTMENT C] August 1st, 2014 Share Price: €7.19 Onxeo, leader in orphan oncology (as of August 1st, 2014) Onxeo resulted from the merger of French BioAlliance Estimated price: Pharma and Danish Topotarget, both involved in orphan drug development for cancer. The combined entity will benefit €11.12 from experienced teams in this field and from a strong portfolio of products in late stage development. August 1st, High/Low since 01.01.14 11.74/4.30 2014, was Onxeo’s first day of trading on both Euronext Paris (€) and Nasdaq OMX Copenhagen. We are taking this opportunity to review Onxeo’s business strategy, drug Market Cap (€m) 226.4 pipeline and valuation. Three approved products, strong cash position, late stage Estimated Cash 27.0 development product portfolio Position (€m) Originating from BioAlliance's historical product portfolio, Sitavig and Estimated market cap. 350.1 Loramyc/Oravig have both been approved in the US and Europe. These two products will help generate short term revenues through licensing deals (€m) upfront and milestone payments as well as long term revenues with royalties nd Number of Shares (m) 31.5 on sales. Moreover, Beleodaq has just been approved in the US for 2 line Peripheral T-Cell Lymphoma (PTCL) and will be marketed by Spectrum Pharmaceutical. This is the first drug in the orphan oncology product portfolio to get US approval. Obtaining three approvals in the US and two in Europe Estimated price (€) 11.12 demonstrates Onxeo’s ability to successfully develop drug and get them to the market. Approval of Beleodaq in the US will strengthen Onxeo’s cash position estimated Volume 3 months 190,000 at around €27M as of August 1st, 2014, with a $25 million payment from average Spectrum, expected at the end of the year. This should help accelerate the development of other high-added value orphan oncology drugs in late stage Free Float 84.9% development: Livatag in phase III for liver cancer, Validive in oral mucositis (phase II results at the end of 2014) and Belinostat in 1st line PTCL treatment Dividend Forecast 12 0.0 whose phase III is expected to start in 2015. months (€) Valuation of Onxeo Based on Onxeo’s drug pipeline, we value the company at €350.1M or €11.12/share, a 54.7% upside compared to August 1st, 2014 share price. Product rNPV (€M) rNPV/share % /Total rNPV Beleodaq (PTCL) 2nd Line 40.3 €1.28 11.5% BelCHOP (PTCL) 1st Line 67.6 €2.15 19.3% Livatag 90.8 €2.88 25.9% Validive 20.5 €0.65 5.9% AMEP 8.0 €0.25 2.3% Sitavig 75.3 €2.39 21.5% Loramyc/Oravig 28.3 €0.90 8.1% Belinostat (NSCLC) 19.4 €0.62 5.5% Total 350.1 €11.12 100% PAGE 2 August 1st, 2014 – Onxeo Company Coverage Report Table of Contents 1. COMPANY DESCRIPTION AND STRATEGY 3 1.1. ONXEO, THE ORPHAN ONCOLOGY INNOVATOR 3 1.2. ORPHAN DRUG MARKET 3 1.3. ONXEO’S STRATEGY 4 1.4. ONXEO’S ORPHAN DRUG PIPELINE 4 1.5. MANAGEMENT 5 1.6. CAPITAL STRUCTURE 6 2. VALUATION OF €350.1M FOR ONXEO 6 2.1. METHOD AND MAIN HYPOTHESES 6 2.2. VALUATION SUMMARY 6 2.3. UPCOMING NEWS FLOW 7 3. ORPHAN ONCOLOGY DRUGS 7 3.1. BELINOSTAT 7 3.2. LIVATAG IN HEPATOCELLULAR CARCINOMA 10 3.3. VALIDIVE IN ORAL MUCOSITIS 12 3.4. AMEP IN METASTATIC MELANOMA 13 4. MARKETED PRODUCTS (NON-ORPHAN) 14 4.1. SITAVIG FOR HERPES LABIALIS 14 4.2. LORAMYC/ORAVIG 16 5. STOCK PERFORMANCE 18 6. FINANCIALS 19 DISCLAIMER 20 August 1st, 2014 – Onxeo Company Coverage Report PAGE 3 1. Company description and strategy 1.1. Onxeo, the orphan oncology innovator Onxeo resulted from the merger of French BioAlliance Pharma and Danish Topotarget and was approved by their respective shareholders at the end of June 2014 (see company history on Table 1). Onxeo aims at becoming a leader in the development of drugs for orphan cancer diseases with high unmet medical needs. The two companies were independently developing drugs in orphan oncology and the merger will therefore benefit from the combined know-how of two experienced teams in this field. Onxeo’s pipeline consists of innovative drugs developed from three technology platforms with multiple applications (HDAC inhibitors, Lauriad muco-adhesive tablet, and Transdrug nanoparticle formulation). Onxeo has a strong track record of getting drugs to the market with three proprietary programs approved in the US by the FDA, two of which are also approved in Europe. Onxeo’s drugs in development are also independent programs at different clinical stages; hence mitigating the risks associated with the pharmaceutical business. Onxeo’s drugs are also in late development stages (phase II and III) with short to mid/long term milestones that could contribute significantly to the value of the company. Onxeo is listed on both Euronext Paris and Nasdaq OMX Copenhagen and will benefit from a larger market capitalization resulting from the combined entities, which could increase the attractiveness of Onxeo among specialized investors. Since BioAlliance was the continuating company, 2 newly issued shares of BioAlliance were exchanged for every 27 Topotarget shares held. BioAlliance shareholders hold approximately 2/3 of Onxeo while Topotarget’s shareholders, 1/3. Table 1: BioAlliance Pharma and Topotarget history BioAlliance Pharma Topotarget 1997 Foundation of BioAlliance 2000 Foundation of Topotarget 2002 Acquisition of Prolifix Ltd. Including belinostat 2005 Listing on Euronext Paris Listing on Nasdaq OMX Copenhagen 2006 Approval of Loramyc in France 2008 Belinostat pivotal trial in PTCL (BELIEF Study) 2009 FDA grants orphan drug status to belinostat in PTCL 2010 FDA approval of Loramyc in the US Collaboration agreement with Spectrum Pharmaceuticals for belinostat 2011 New CEO Judith Greciet 2012 Pivotal Phase III initiated for Livatag EMA grants orphan drug designation to belinostat in PTCL Approval of Sitavig in Europe 2013 FDA approval of Sitavig in the US Belinostat meets primary endpoint in BELIEF study NDA submitted to the FDA for belinostat 2014 Feb.: Fast Track for Validive Mar.: Acceptance to file NDA for belinostat in PTCL Apr. BioAlliance and Topotarget enter into merger agreement May: Fast Track for Livatag Jun. Merger approved by shareholders to form Onxeo Onxeo 2014 Jul.: Approval of Belinostat for 2nd line treatment of PTCL Jul.: Sitavig product launch in the US by partner Innocutis 1.2. Orphan drug market For many years, the pharmaceutical industry ignored orphan diseases because they apparently affect so few people, but the industry has come to view them as a major business opportunity. Orphan diseases PAGE 4 August 1st, 2014 – Onxeo Company Coverage Report are classified in the US as afflicting fewer than 200,000 people and in the European Union as having fewer than five cases per 10,000 people (fewer than 250,000). In the US, it is estimated that 30 million patients suffer from 7,000 disorders classified as orphan diseases. Drug development for orphan diseases is one of the major investment trends worldwide in the pharmaceutical industry. Even though patient populations with orphan diseases are small, a much higher price can be realized per patient treated and can lead to meaningful commercial opportunities. It is estimated that the market for orphan drugs was $45.5B in 2013 and is expected to grow to $80.6B in 2018 at a CAGR of 12.1% (Source: EvaluatePharma). For example, Shire’s Elaprase which costs around $375,000, generated $546M in 2013 for the treatment of Hunter syndrome, a rare genetic disease. On July 18th, 2014, Shire which is dedicated to the development of drugs for orphan diseases accepted Abbvie’s takeover bid of $55B, demonstrating the strong potential for new treatments of rare diseases for the pharmaceutical companies. In addition, there is usually more of an opportunity for longer periods of exclusivity with orphan drugs than with standard products. Drugs designated as orphan are guaranteed 7 years of marketing exclusivity in the US and 10 in Europe. Moreover, in many cases the products are produced by technologies that are more difficult to genericize. As a consequence, the orphan drug business model could offer an integrated healthcare solution that enables pharmaceutical companies to develop newer areas of therapeutics, diagnosis, treatment, monitoring, and patient support. Incentives for drug development provided by governments, as well as support from the FDA and European Union Commission in special protocols are a further boost for the companies developing orphan drugs. 1.3. Onxeo’s strategy Onxeo’s aim is to develop innovative drugs in cancer indications that meet the criteria for orphan designation. Apart from the advantages underlying the development of orphan drugs such as tax incentives, marketing exclusivity or high drug prices, Onxeo will also benefit from reduced sales and marketing costs related to promoting its drugs. Onxeo intends to market orphan drugs directly in Europe but to license them in other territories such as the US. Marketing of recently approved Beleodaq (for Peripheral T-Cell Lymphoma) in the US with Onxeo’s partner Spectrum Pharmaceuticals is an example of this strategy. With a clear focus towards orphan oncology, Onxeo intends to divest its research efforts from the BioAlliance historical specialty pharma product portfolio. Onxeo will still dedicate its business development team to secure licensing deals for its non-strategic products Loramyc/Oravig and Sitavig which are already approved in the US and Europe. 1.4. Onxeo’s orphan drug pipeline Onxeo’s drug pipeline is composed of multiple, independent drug programs at different development stages and originating from both BioAlliance’s and Topotarget’s drug development program.