Paion — Update 9 February 2016

Paion (DE: PA8)

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Research: Healthcare

Paion — Update 9 February 2016

Paion

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Healthcare

Paion

A setback in Europe, but US on track

EU Phase III stopped

Pharma & biotech

10 February 2016

Price

€1.99

Market cap

€101m

Net cash (€m) at 30 September 2015

40.5

Shares in issue

50.7m

Free float

78%

Code

PA8

Primary exchange

Frankfurt

Secondary exchange

Xetra

Share price performance

%

1m

3m

12m

Abs

(16.0)

(8.4)

(0.2)

Rel (local)

(6.8)

11.6

19.9

52-week high/low

€2.88

€1.85

Business description

Paion is an emerging specialty pharma company developing anaesthesia products. Lead product remimazolam is undergoing US Phase III trials and is partnered with Yichang (China), Hana Pharma (South Korea), Pendopharm (Canada) and R-Pharm (CIS, Turkey, MENA).

Next events

Pre-NDA meeting PMDA (Japan)

Q116

Complete patient recruitment into US Phase III colonoscopy study

Q116

Complete US Phase III bronchoscopy study

2016/17

Analysts

Dennis Hulme

+61 (0)2 9258 1161

Christian Glennie

+44 (0)20 3077 5727

Paion is a research client of Edison Investment Research Limited

Paion has discontinued its European Phase III trial of remimazolam for general anaesthesia in patients undergoing cardiac surgery due to slow recruitment. The US Phase III in colonoscopy is still on track to complete recruitment in the current quarter, but completion of the bronchoscopy Phase III may be pushed into 2017. Paion remains on track for a potential US filing in 2017, while a pre-NDA meeting with Japanese regulators in Q116 could clear the way for a filing in Japan, ideally with a partner. We delay our forecast launch date for general anaesthesia in Europe by two years to 2020 and lower our valuation to €182m from €230m.

Year end

Revenue (€m)

PBT* (€m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

12/13

4.2

(2.6)

(7.2)

0.0

N/A

N/A

12/14

3.5

(11.6)

(22.9)

0.0

N/A

N/A

12/15e

0.0

(33.8)

(55.9)

0.0

N/A

N/A

12/16e

1.0

(30.8)

(52.2)

0.0

N/A

N/A

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

We see potential two-year delay in Europe

Paion announced that the Phase III trial of the ultrashort-acting anaesthetic remimazolam in patients undergoing cardiac surgery faced recruitment challenges due to the complex study design. The discontinuation of the trial, initiated in August 2015, will allow additional resources to be allocated to the development of remimazolam in the US. Paion will work to design an alternative trial in general surgery patients, allowing it to develop a clinical plan in Europe once funding is available. We assume that the revised plan will enable approval for general anaesthesia in Europe in 2020 vs 2018 previously.

US Phase III trials on track, results in 2016

The US colonoscopy trial is expected to complete recruitment this quarter, with data in mid-2016, but moderate recruitment may see completion of the bronchoscopy Phase III pushed into 2017. Management cautioned that filing for approval in procedural sedation in the US by the end of 2017 is contingent on the success of ongoing measures to improve recruitment in the bronchoscopy trial, including opening new sites and increased support and training at existing centres. A pre-NDA meeting with the Japanese regulator (PMDA), scheduled for Q116, could clear the way for a filing for general anaesthesia in Japan, preferably in conjunction with a partner.

Valuation: Trimmed to €182m; trials fully funded

We have pushed back our launch date for remimazolam in Europe by two years to 2020, which reduces our sum-of-the-parts DCF valuation to €182m or €3.59/share (vs €230m). Cash at 30 September of €40.5m is sufficient to complete the ongoing Phase III studies. Savings from the discontinuation of the Phase III trial in Europe will be used to support and enhance the US clinical programme. Paion is evaluating the prospect of self-commercialisation of remimazolam in the US, which could lead to 45% profit margins in some regions, subject to further fund-raising (our current base case assumes a 23% blended royalty rate).

Exhibit 1: Financial summary

€000s

2013

2014

2015e

2016e

Year end 31 December

PROFIT & LOSS

Revenue

 

 

4,228

3,456

0

1,000

Cost of sales

0

(4)

0

0

Gross profit

4,228

3,452

0

1,000

R&D expenditure

(4,583)

(11,799)

(28,000)

(25,000)

General, administrative & selling

(3,314)

(3,702)

(6,000)

(7,000)

Other

860

411

50

51

Operating profit

(2,810)

(11,639)

(33,950)

(30,949)

Depreciation and amortisation

(390)

(93)

(100)

(100)

Share-based payments

0

0

0

0

Exceptionals

0

0

0

0

EBITDA

 

 

(2,420)

(11,546)

(33,850)

(30,849)

Operating profit (before GW and except)

 

(2,420)

(11,546)

(33,850)

(30,849)

Net interest

(170)

(66)

50

50

Profit before tax (norm)

 

 

(2,590)

(11,612)

(33,800)

(30,799)

Profit before tax (reported)

 

 

(2,980)

(11,704)

(33,900)

(30,899)

Tax

768

2,468

5,500

4,375

Profit after tax (norm)

(1,822)

(9,143)

(28,300)

(26,424)

Profit after tax (reported)

(2,212)

(9,236)

(28,400)

(26,524)

Average number of shares outstanding (m)

25.4

39.9

50.7

50.7

EPS - normalised (c)

 

 

(7.2)

(22.9)

(55.9)

(52.2)

EPS - reported (c)

 

 

(8.7)

(23.2)

(56.1)

(52.4)

Dividend per share (c)

 

 

0.0

0.0

0.0

0.0

Gross margin (%)

N/A

N/A

N/A

N/A

EBITDA margin (%)

N/A

N/A

N/A

N/A

Operating margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed assets

 

 

3,583

3,516

3,416

3,316

Intangible assets

3,494

3,440

3,365

3,290

Tangible assets

89

76

51

26

Refund from assumption of dev costs

0

0

0

0

Other

0

0

0

0

Current assets

 

 

14,433

63,032

38,140

11,717

Stocks

0

0

0

0

Debtors

0

467

25

25

Cash

13,292

58,912

33,115

6,692

Other

1,141

3,653

5,000

5,000

Current liabilities

 

 

(4,659)

(3,924)

(6,157)

(6,157)

Trade payables

(1,914)

(3,338)

(5,400)

(5,400)

Short-term borrowings

0

0

0

0

Provisions

(2,508)

(306)

(500)

(500)

Finance lease liabilities

0

0

0

0

Other current liabilities

(225)

(254)

(235)

(235)

Current deferred income

(11)

(26)

(22)

(22)

Long-term liabilities

 

 

(28)

(17)

(8)

(8)

Long-term borrowings

0

0

0

0

Provisions

0

0

0

0

Long-term deferred income

(28)

(17)

(8)

(8)

Deferred taxes

0

0

0

0

Other long-term liabilities

0

0

0

0

Net assets

 

 

13,329

62,607

35,391

8,868

CASH FLOW

Operating cash flow

 

 

(1,746)

(12,044)

(31,346)

(30,849)

Net interest

(170)

(66)

50

50

Tax

75

0

5,500

4,375

Capex

0

0

0

0

Purchase of intangibles

(5)

(26)

0

0

Acquisitions/disposals

0

0

0

0

Financing

(7,164)

57,618

0

0

Dividends

0

0

0

0

Other

0

0

0

0

Net cash flow

(9,010)

45,482

(25,796)

(26,424)

Opening net debt/(cash)

 

 

(22,336)

(13,292)

(58,912)

(33,116)

Effect of exchange rate changes

(130)

(72)

0

0

Other

96

210

0

0

Closing net debt/(cash)

 

 

(13,292)

(58,912)

(33,116)

(6,691)

Source: Edison Investment Research, company accounts

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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

Wellington 6011

New Zealand

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