Vernalis — FDA issues CCP-07 complete response letter

Vernalis — FDA issues CCP-07 complete response letter

FDA has issued a complete response letter (CRL) to Vernalis’ CCP-07 NDA following its 20 April PDUFA date, outlining questions that need to be addressed in an NDA resubmission for potential FDA approval. Given limited disclosure regarding possible timelines for dealing with these questions and the probable class of resubmission, we conservatively push back our CCP-07 approval assumption by one year, delaying launch into the 2018/19 cough cold season. However, we acknowledge that there are scenarios under which CCP-07 could still be launched into the 2017/18 season, albeit later than previously anticipated. Separately, Vernalis has received a $2m milestone relating to an existing research collaboration.

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Written by

Vernalis

FDA issues CCP-07 complete response letter

FDA approval decision

Pharma & biotech

24 April 2017

Price

22.13p

Market cap

£117m

US$1.28/£

Net cash (£m) end-December 2016

74.2

Shares in issue

526.4m

Free float

12.4%

Code

VER

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.6)

(31.7)

(56.3)

Rel (local)

(8.3)

(31.8)

(61.0)

52-week high/low

50.9p

22.1p

Business description

Vernalis is a UK speciality pharma company with an FDA-approved, prescription-only cough cold treatment, Tuzistra XR; an FDA-approved amoxicillin, Moxatag; and a late-stage US cough cold pipeline of four products. It also has an early- to mid-stage R&D pipeline of CNS and cancer projects. Its primary focus is on commercialising Tuzistra XR in the US.

Next events

Tuzistra XR: end 2016/17 season update

June/July

CCP-08: PDUFA date

4 August

FY17 prelims

September

CCP-07: NDA resubmission

2017

Analysts

Lala Gregorek

+44 (0)20 3681 2527

Daniel Wilkinson

+44 (0)20 3077 5734

Vernalis is a research client of Edison Investment Research Limited

FDA has issued a complete response letter (CRL) to Vernalis’ CCP-07 NDA following its 20 April PDUFA date, outlining questions that need to be addressed in an NDA resubmission for potential FDA approval. Given limited disclosure regarding possible timelines for dealing with these questions and the probable class of resubmission, we conservatively push back our CCP-07 approval assumption by one year, delaying launch into the 2018/19 cough cold season. However, we acknowledge that there are scenarios under which CCP-07 could still be launched into the 2017/18 season, albeit later than previously anticipated. Separately, Vernalis has received a $2m milestone relating to an existing research collaboration.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/15**

19.9

(6.9)

(1.0)

0.0

N/A

N/A

06/16

12.0

(16.2)

(3.4)

0.0

N/A

N/A

06/17e

17.5

(24.9)

(4.4)

0.0

N/A

N/A

06/18e

25.8

(32.4)

(6.0)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. **18-month reporting period, 12 months thereafter.

CRL: Outstanding items but no major concerns

Positively, the CRL raised no concerns related to the formulation or pharmacokinetic profile of CCP-07. However, there are outstanding questions that must be resolved prior to NDA resubmission and an FDA approval decision. We continue to expect CCP-07 to be ultimately approved, but as both the nature of the FDA questions and the length of time to address them is undisclosed, we conservatively assume a one-year delay to CCP-07 approval and launch. This timeline could be brought forward once there is clarity on: (i) timing, and (ii) classification of the NDA resubmission. A Class 1 classification indicates a two-month review cycle; Class 2 would be six months.

Limited impact on cough cold franchise

Updating our near-term assumptions to reflect the delayed CCP-07 launch lowers forecast cough cold revenues in FY18 (2017/18 season), and more modestly for FY19 as sales ramp up. Our assumptions for the other cough cold programmes are unchanged. At this stage, we anticipate limited read-through to CCP-08 (PDUFA date: 4 August) from the CCP-07 NDA CRL; however, a delay to CCP-08 approval could result if resolution of CRL issues/CCP-07 NDA resubmission is protracted.

Valuation: DCF valuation of £399m (76p per share)

Updating our model and financial forecasts for new CCP-07 expectations, the $2m milestone receipt and the prevailing FX rate (now $1.28/£ from $1.24/£) lowers our valuation to £399m or 76p/share (from £427m or 81p/share). In our view, this valuation reflects the downside scenario for CCP-07 approval timelines. Clarity on CCP-07 NDA resubmission, portfolio progress, launches and sales upgrades would unlock upside. Our valuation continues to consist of US cough cold and NCE pipeline rNPV, explicit cost modelling and inclusion of cash; we assume zero NPV for the research business.

Exhibit 1: Financial summary

£'000s

2013

2015**

2016

2017e

2018e

Year end 30 June (from 2015); previously December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

14,084

19,882

12,034

17,515

25,802

of which:  Cough/cold portfolio & Moxatag

0

0

1,100

1,953

16,113

  Frova royalties

6,684

6,648

2,894

3,500

1,389

  Collaborative income (R&D funding and milestones)

7,150

13,022

8,035

11,763

8,000

  Other

250

212

5

300

300

Cost of Sales

(2,244)

(1,373)

(2,004)

(2,528)

(6,496)

Gross Profit

11,840

18,509

10,030

14,988

19,306

Sales, General & Admin

(3,299)

(8,635)

(25,717)

(35,141)

(42,662)

Research & Development

(14,416)

(22,563)

(10,932)

(10,995)

(11,105)

Other

180

611

396

233

0

Operating Profit reported

 

 

(5,695)

(11,835)

(23,572)

(30,915)

(34,461)

Intangible Amortisation

(1,349)

(571)

(713)

(1,016)

(1,523)

Exceptionals

1,608

243

2,651

0

0

Share-based payment

(876)

(1,855)

(984)

(247)

(247)

EBITDA

 

 

(4,652)

(8,855)

(23,919)

(29,352)

(32,381)

Operating Profit (norm)

 

 

(5,078)

(9,652)

(24,526)

(29,653)

(32,691)

Net Interest

420

2,733

8,315

4,757

283

Other financial income

(999)

(157)

(42)

(57)

0

Profit Before Tax (norm)

 

 

(4,658)

(6,919)

(16,211)

(24,896)

(32,408)

Profit Before Tax (as reported)

 

 

(6,274)

(9,259)

(15,299)

(26,215)

(34,178)

Tax

2,273

2,858

804

2,013

844

Profit from discontinued operations

0

0

0

0

0

Profit After Tax (norm)

(2,385)

(4,061)

(15,407)

(22,883)

(31,564)

Profit After Tax (as reported)

(4,001)

(6,401)

(14,495)

(24,203)

(33,335)

Average Number of Shares Outstanding (m)

442.1

442.3

449.9

526.4

526.4

EPS - normalised (p)

 

 

(0.8)

(1.0)

(3.4)

(4.4)

(6.0)

Dividend per share (p)

 

 

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

84.1%

93.1%

83.3%

85.6%

74.8%

EBITDA Margin (%)

-33.0%

-44.5%

-198.8%

-167.6%

-125.5%

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

-36.1%

-48.5%

-203.8%

-169.3%

-126.7%

BALANCE SHEET

Fixed Assets

 

 

7,730

15,066

19,949

23,155

40,177

Intangible Assets

6,292

12,895

17,645

21,317

38,262

Tangible Assets

1,438

1,637

1,673

1,722

1,799

Other

0

534

631

116

116

Current Assets

 

 

83,298

71,509

92,541

68,721

22,894

Stocks

130

0

233

1,385

1,780

Debtors

4,443

7,017

7,225

8,638

5,655

Cash

76,918

61,258

84,018

56,633

13,394

Other (tax and derivatives)

1,807

3,234

1,065

2,065

2,065

Current Liabilities

 

 

(4,501)

(5,215)

(7,711)

(11,577)

(15,860)

Creditors

(3,384)

(3,373)

(5,175)

(5,758)

(4,241)

Other creditors

0

(5)

(80)

0

0

Short term borrowings

0

0

0

0

0

Deferred income

(962)

(1,688)

(922)

(657)

(657)

Provisions and other current liabilities

(155)

(154)

(1,614)

(5,162)

(10,962)

Long Term Liabilities

 

 

(4,283)

(4,254)

(2,048)

(1,986)

(1,986)

Long term borrowings

0

0

0

0

0

Deferred income

(156)

(744)

(1,459)

(1,408)

(1,408)

Provisions and other long-term liabilities

(4,127)

(3,510)

(589)

(578)

(578)

Net Assets

 

 

82,244

77,106

102,731

78,312

45,225

CASH FLOW

Operating Cash Flow

 

 

(3,486)

(12,135)

(23,682)

(28,119)

(25,510)

Net Interest

446

353

230

4,757

283

Tax

1,929

1,887

2,912

1,013

844

Capex

(646)

(1,005)

(212)

(350)

(387)

Purchase of intangibles

(1,976)

(7,474)

(71)

(4,688)

(18,469)

Acquisitions/disposals

0

0

(3,677)

0

0

Financing

0

13

39,236

2

0

Dividends

0

0

0

0

0

Other

0

1,644

0

0

0

Net Cash Flow

(3,733)

(16,717)

14,736

(27,385)

(43,239)

Opening net debt/(cash)

 

 

(81,555)

(76,918)

(61,258)

(84,018)

(56,633)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

(904)

1,057

8,024

0

0

Other

0

0

0

0

0

Closing net debt/(cash)

 

 

(76,918)

(61,258)

(84,018)

(56,633)

(13,394)

Source: Edison Investment Research, Vernalis accounts. Note: **18-month reporting period, thereafter 12-month reporting.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Vernalis and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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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 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Vernalis and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Investment Companies

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