Cerulean Pharma — Update 17 May 2016

Cerulean Pharma — Update 17 May 2016

Cerulean Pharma

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Cerulean Pharma

Phase II renal data pushed to Q3 from Q2

Full year results

Pharma & biotech

17 May 2016

Price

US$2.29

Market cap

US$63m

Net cash ($m) at end March 2016

42.0

Shares in issue

27.4m

Free float

90%

Code

CERU

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(30.6)

12.8

(62.8)

Rel (local)

(30.1)

3.5

(61.8)

52-week high/low

US$6.4

US$1.9

Business description

Cerulean is a US-based cancer company with a proprietary platform utilizing nanoparticle-drug conjugates. Lead product CRLX101 combined with Avastin is in Phase II clinical trials in third- and fourth-line RCC and second- and third-line ovarian cancer. Second compound CRLX301 with its payload docetaxel will enter Phase IIa in solid tumors.

Next events

Phase IIa start CRLX301 solid tumors

Q216

Phase Ib/II trial start CRLX101 collaboration with Astra Zeneca

Q216

Top-line data CRLX101 in mRCC

Q316

Analysts

Katherine Genis, CFA

+1 646 653 7026

Max Jacobs, CFA

+1 646 653 7027

Cerulean Pharma is a research client of Edison Investment Research Limited

Cerulean reported first quarter results and provided a pipeline update on 2 May, while confirming an expected cash runway for the company into 2017. Management has pushed back its timing for an announcement on the highly awaited top-line data for CRLX101 in renal cancer. Critical Phase II top-line data in RCC are now expected in Q316 (changed from end-June), due to an apparent slowing of the rate of disease progression in patients.

Year end

Revenue
($m)

PBT*
($m)

EPS*
($
)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

0.0

(21.4)

(1.64)

0.0

N/A

N/A

12/15

0.0

(39.6)

(1.56)

0.0

N/A

N/A

12/16e

0.0

(40.4)

(1.48)

0.0

N/A

N/A

12/17e

0.0

(42.7)

(1.52)

0.0

N/A

N/A

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

Phase II top-line data in renal now in Q316

Cerulean will now report highly awaited top-line data (progression-free survival and overall response rates) from its Phase II trial of CRLX101 with Avastin in advanced renal cell carcinoma (mRCC) in Q316. Up until a few weeks ago, results were expected by the end of June, with management reporting the change on an apparent recent slowdown in the rate of disease progression. Positive results would lead to the initiation of a Phase III study in mRCC by year end. Meanwhile, upcoming news in Q216 includes the dosing of first patients in a Phase Ib/II trial for the Cerulean-AZ-NCI collaboration and the initiation of a Phase IIa trial of CRLX301 in solid tumors.

Positive results in ovarian cancer and solid tumors

Recently Cerulean announced encouraging results from two ongoing studies in platinum resistant ovarian cancer. On 19 April, Phase II stage 1 results showing greater benefit for CRLX101 with Avastin than CRLX101 alone on all observed parameters were reported, including primary endpoint of PFS6 as well as overall response rate and stable disease rate. On 25 April, preliminary Phase Ib results were reported for CRLX101 paclitaxel in ovarian cancer, a trial conducted in collaboration with the GOG foundation. Partial response and stable disease were seen in 56% (5/9) and 11% (1/9) of patients. Additionally, promising clinical proof data was published in Q116 in The Proceedings of the National Academy of Sciences showing CRLX101 localizes selectively in human tumors, sparing adjacent tissue.

Valuation: $250m ($9.12 per share)

In Q116 Cerulean reported a net loss of $13.5m with a rise in R&D costs to $9.8m (from $5.0m in Q115) to fund its growing clinical development programs. Cash holdings were $60.5m at end Q116 and Cerulean continues to guide sufficient cash to fund operations into 2017. We value Cerulean at $250m ($9.12 per share), down from $264m ($9.65/share) in our last note in March 2016 as we roll our valuation forward one quarter. Our fair value offers significant upside on the current share price of $2.32. Cerulean market cap is now just circa $21m above net cash.

Financial summary

Exhibit 1: Financial summary

$000s

2013

2014

2015

2016e

2017e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

6

80

0

0

0

Cost of Sales

0

0

0

0

0

Gross Profit

6

80

0

0

0

Research and development

(9,700)

(11,772)

(25,948)

(27,500)

(28,500)

General & administrative

(6,166)

(8,587)

(11,224)

(12,346)

(13,581)

EBITDA

 

 

(16,057)

(20,405)

(37,364)

(40,019)

(42,287)

Operating Profit (before GW and except.)

 

 

(15,860)

(20,279)

(37,172)

(39,846)

(42,081)

Intangible Amortization

0

0

0

0

0

Exceptionals/Other

0

0

0

0

0

Operating Profit

(15,860)

(20,279)

(37,172)

(39,846)

(42,081)

Net Interest

(1,485)

(1,074)

(2,422)

(602)

(612)

Other (includes change in fair value of warrants)

202

(1,989)

0

0

0

Profit Before Tax (norm)

 

 

(17,345)

(21,353)

(39,594)

(40,449)

(42,693)

Profit Before Tax (FRS 3)

 

 

(17,143)

(23,342)

(39,594)

(40,449)

(42,693)

Tax

0

0

0

0

0

Deferred tax

0

0

0

0

0

Profit After Tax (norm)

(17,345)

(21,353)

(39,594)

(40,449)

(42,693)

Profit After Tax (FRS 3)

(17,143)

(23,342)

(39,594)

(40,449)

(42,693)

Average Number of Shares Outstanding (m)

0.7

14.5

25.4

27.3

28.1

EPS - normalized fully diluted (c)

 

 

(25.35)

(1.64)

(1.56)

(1.48)

(1.52)

EPS - FRS 3 (c)

 

 

(25.35)

(1.64)

(1.56)

(1.48)

(1.52)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

380

557

923

1,034

1,119

Intangible Assets

0

0

0

0

0

Tangible Assets

245

342

576

687

772

Other

135

215

347

347

347

Current Assets

 

 

6,447

52,836

77,302

39,020

38,914

Stocks

0

0

0

0

0

Debtors

959

1,662

1,394

1,394

1,394

Cash

5,488

51,174

75,908

37,626

37,520

Other

0

0

0

0

0

Current Liabilities

 

 

(15,146)

(8,061)

(16,337)

(16,337)

(16,337)

Creditors

(12,012)

(4,937)

(8,685)

(8,685)

(8,685)

Short term borrowings

(3,134)

(3,124)

(7,652)

(7,652)

(7,652)

Long Term Liabilities

 

 

(85,980)

(7)

(13,145)

(13,346)

(53,549)

Long term borrowings

(3,124)

0

(12,672)

(12,873)

(53,076)

Other long term liabilities

(82,856)

(7)

(473)

(473)

(473)

Net Assets

 

 

(94,299)

45,325

48,743

10,370

(29,853)

CASH FLOW

Operating Cash Flow

 

 

(17,202)

(19,477)

(31,915)

(37,706)

(39,868)

Net Interest

588

416

0

610

616

Tax

0

0

0

0

0

Capex

(7)

(225)

(277)

(284)

(291)

Acquisitions/disposals

0

40

23

0

0

Equity Financing

35

60,002

39,813

0

0

Dividends

0

0

0

0

0

Other

8,236

8,064

(412)

(1,035)

0

Net Cash Flow

(8,350)

48,820

7,232

(38,415)

(39,543)

Opening net debt/(cash)

 

 

(7,580)

770

(48,050)

(55,584)

(17,100)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

0

0

0

0

0

Other

0

0

302

(69)

288

Closing net debt/(cash)

 

 

770

(48,050)

(55,584)

(17,100)

22,155

Source: Cerulean Pharma accounts, Edison Investment Research

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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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

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NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

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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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