ELBIT Medical Technologies — Large portion of InSightec stake sold

ELBIT Medical Technologies — Large portion of InSightec stake sold

Elbit Medical recently completed the sale of most of its stake in InSightec for $102.2m, at a $702m valuation for the company. In March, InSightec announced a Series F funding round that is being led by current investor, Koch Disruptive Technologies, which will raise an additional $150m for InSightec. The post-money valuation for InSightec would be $1.3bn fully diluted. Following these transactions, Elbit Medical now has a stake of approximately 3.3% of InSightec (2.8% on a fully diluted basis) down from 22% (18% on a diluted basis) previously.

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ELBIT Medical Technologies

Large portion of InSightec stake sold

Financial update

Pharma & biotech

7 May 2020

Price

NIS1.09

Market cap

NIS107m

Priced at 5 May 2020

NIS3.57/US$

Net cash ($m) at 31 December 2019 including sale proceeds and share repurchase

17.5

Shares in issue

98.1m

Free float

65%

Code

EMTC

Primary exchange

TASE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

22.4

13.4

17.2

Rel (local)

8.6

35.9

25.9

52-week high/low

NIS1.4

NIS0.7

Business description

Elbit Medical Technologies is an Israeli biomedical and healthcare technology group. Its portfolio of two companies is focused on medical devices and therapeutics: InSightec, which develops and markets the ExAblate platform for non-invasive thermal tissue ablation, and Gamida Cell, which is developing a universal bone-marrow transplant.

Next events

Gamida Cell omidubicel Phase III top-line data

Q220

Analysts

Maxim Jacobs

+1 646 653 7027

Wiktoria O’Hare

+1 646 653 7028

Elbit Medical recently completed the sale of most of its stake in InSightec for $102.2m, at a $702m valuation for the company. In March, InSightec announced a Series F funding round that is being led by current investor, Koch Disruptive Technologies, which will raise an additional $150m for InSightec. The post-money valuation for InSightec would be $1.3bn fully diluted. Following these transactions, Elbit Medical now has a stake of approximately 3.3% of InSightec (2.8% on a fully diluted basis) down from 22% (18% on a diluted basis) previously.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/18

35.0

26.8

0.12

0.0

N/A

N/A

12/19

16.8

(21.2)

(0.09)

0.0

N/A

N/A

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

Sale of InSightec stake bolsters cash

The successful sale of its InSightec stake provides Elbit with $102.2m in cash. The company has already used part of the proceeds in Q120 to repurchase 133.3m shares for $38m and will use most of the rest of the cash for either the payment or repurchase of debt.

InSightec raises additional cash from Koch

In March, InSightec announced a Series F funding round led by Koch Disruptive Technologies, the venture capital arm of Koch Industries. Up to $150m will be invested in InSightec, with $107m received as of March ($100m from Koch Disruptive Technologies). The fully diluted post-money valuation for InSightec will be $1.3bn. This is the second funding round led by Koch Disruptive Technologies, following a Series E round investment.

Omidubicel data due in Q220

Top-line data for the Phase III of omidubicel in haematological malignancies continues to be expected in Q220. As enrolment in the trial was completed last December, we do not believe timelines should be affected greatly by coronavirus. If the Phase III data are positive, Gamida Cell plans to submit a biologic licence application (BLA) filing for omidubicel in Q420.

Valuation: NIS229.7m or NIS2.34per share

We have adjusted our valuation to NIS229.7m or NIS2.34 per share from NIS346.1m or NIS1.50 per share. The total valuation fell mainly due to $38m in cash used to buy back shares, while the per-share value rose due to the 133.3m fewer shares. A key valuation inflection point for the stake in Gamida Cell will be the Phase III data for omidubicel, expected in Q220.

Gamida data coming soon

Gamida Cell’s 120-patient Phase III study of omidubicel in patients with haematological malignancies completed enrolment last December and data are expected in Q220 (with a filing in Q420 if the data are positive). Omidubicel, which is the company’s lead asset, expands umbilical cord blood (UCB) cell grafts ex vivo and enriches the specific subpopulation of stem and progenitor cells to treat haematological malignancies such as leukaemia and lymphoma. Essentially, CD133+ cells selected from a single unit of UCB are cultured for approximately three weeks in nicotinamide and are then cryopreserved until they are transplanted into the intended patients. This expansion is expected to provide a substantial advantage over a single UCB graft. The use of UCB for bone marrow transplantation (BMT) is limited by the minimal number of stem and progenitor cells. The omidubicel process seeks to provide a more viable alternative to BMT in cancer patients and only partial genetic matching is needed (ie a minimum requirement of four out of six human leukocyte antigen biomarkers). The registrational trial is investigating the ability of omidubicel to provide a graft with an ample number of cells that have fast and vigorous in vivo neutrophil- and platelet-producing potential to improve transplantation outcomes (as low cell dose is associated with delayed engraftment and poor outcomes). The primary endpoint for the trial is time to neutrophil engraftment following transplantation (on or before the 42nd day post-transplant) compared to an unmanipulated cord blood unit.

The company is also investigating omidubicel for the treatment of severe aplastic anaemia in an ongoing Phase I/II study. With patient inclusion in cohort one complete (and encouraging data presented on those first cohort patients at the annual Transplantation and Cellular Therapy meeting in 2019), enrolment into cohort two began last June. Cohort two will evaluate engraftment and transplantation outcomes with the omidubicel-expanded unit alone (in other words, without a haploidentical donor). The company has stated that additional data from this trial will be presented in the second half of 2020, although the exact timing is unknown as enrolment may have been affected by the coronavirus pandemic.

The company also expects to file an IND in Q420 for the GDA-201 programme with the FDA in order to enable the initiation of a multi-centre Phase I/II clinical study in patients with non-Hodgkin Lymphoma (NHL). The GDA-201 programme is based on donor-derived natural killer (NK) cells. NK cells are a type of lymphocyte, or white blood cell, that play a central role in lysing infected or transformed cells and therefore offer an innovative approach to cancer treatment. As a reminder, the company presented data at the American Society of Hematology (ASH) meeting in December 2019 from a Phase I trial. Among the nine evaluable NHL patients in the study, GDA-201 achieved a 56% complete response rate and a 67% objective response rate.

Gamida Cell ended 2019 with $55.4m in cash and marketable securities. Gamida Cell has guided for a $30–35m in cash outflow for operating activities over the first six months of 2020 and expects its current resources to fund its operations into Q420. As a reminder, Elbit owns a 7% stake in Gamida Cell.

The InSightec stake

In February, Elbit Medical completed the sale of most of its stake in InSightec for $102.2m at a $702m valuation for InSightec. In March, InSightec announced a Series F funding round that is being led by current investor, Koch Disruptive Technologies, which will raise an additional $150m for InSightec. The post-money valuation for InSightec would be $1.3bn fully diluted. So far $107m has been received, including $100m from Koch Disruptive Technologies. This is the second funding round led by Koch Disruptive Technologies. Following these transactions, Elbit Medical now has a stake of approximately 3.3% of InSightec (2.8% on a fully diluted basis) down from 22% (18% on a diluted basis) previously.

InSightec recently reported its 2019 results. Revenues, which are based on the sale of ExAblate systems and corresponding annual service contract costs and consumables, were $45.7m in 2019, up 20% from $38.0m in 2018. Cash flow for operating activities in 2019 was a negative $42.8m. Cash, cash equivalents and deposits totalled $62.6m as of 31 December 2019. It is unclear what impact coronavirus will have on sales but it could be significant as resources are diverted and hospitals are under significant financial pressure.

Valuation

We have adjusted our valuation of Elbit from NIS229.7m or NIS2.34 per share from NIS346.1m or NIS1.50 per share. The total valuation fell mainly due to $38m in cash used to buy back shares, although this was mitigated by rolling forward our NPVs and a small increase in value due to the sale of InSightec shares at a higher valuation than we had been modelling. The per-share value rose due to the 133.3m fewer shares outstanding following the buyback. A key valuation inflection point for the stake in Gamida Cell will be the Phase III data for omidubicel, expected in Q220.

Exhibit 1: Elbit Medical valuation table

Product

Setting

Status

Launch

Peak sales ($m)

Probability of success

Royalty rate

rNPV ($m)

% owned by Elbit Medical (fully diluted)

Elbit Medical rNPV ($m)

Insightec

MRgFUS (for gynaecology, oncology, neurology indications)

Market

Market

583

100%

100%

723

2.8%

20.2

Gamida cell

Leukaemia (AML, ALL, CML, CLL)

Phase III

2021

370

50%

100%

391

7%

27.4

Portfolio total ($m)

47.6

Pro forma net cash (as of 31 December 2019 plus InSightec sale and net of funds used for buyback) ($m)

17.5

Overall valuation

65.1

Shekel/dollar conversion rate

3.5

Overall valuation in shekels (NISm)

229.7

Shares outstanding (m)

98.1

Per share (NIS)

2.34

Source: Edison Investment Research, Elbit Medical Technologies

Financials

Elbit Medical recently announced its 2019 financial results. The post-tax loss was $21.2m, mainly due to changes in the fair value of assets and financing expenses for debentures as the operating cash flow loss was only $0.6m. General and admin costs for the period were $0.5m, which includes management fees, professional services and other related expenses. The company had cash, cash equivalents, short-term deposits and restricted cash of $2.2m at 31 December 2019 and $49.0m in debt (which includes $2.3m in fair value for the bond conversion component). In February, it received $102.2m in cash from its sale of the InSightec stake and used $38m for a share repurchase. Most of the rest of the cash will be used to pay or repurchase the debt outstanding. We outline historical financials in Exhibit 2. Please note we continue not to provide financial forecasts at this time.

Exhibit 2: Financial summary

US$'000s

2018

2019

Year end 31 December

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

34,951

16,803

Cost of Sales

0

0

Gross Profit

34,951

16,803

R&D expenses

0

0

SG&A expenses

(918)

(470)

Other expenses

0

(15,937)

EBITDA

 

 

34,033

396

Operating Profit (before amort. and except.)

 

 

34,033

396

Intangible Amortisation

0

0

Exceptionals

0

0

Operating Profit

34,033

396

Other

0

(14,847)

Net Interest

(7,212)

(6,769)

Profit Before Tax (norm)

 

 

26,821

(21,220)

Profit Before Tax (FRS 3)

 

 

26,821

(21,220)

Tax

0

0

Profit After Tax (norm)

26,821

(21,220)

Profit After Tax (FRS 3)

26,821

(21,220)

Average Number of Shares Outstanding (m)

231.5

231.5

EPS - normalised ($)

 

 

0.12

(0.09)

EPS - FRS 3 ($)

 

 

0.12

(0.09)

Dividend per share ($)

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

24,233

11,548

Intangible Assets

23,016

11,548

Tangible Assets

0

0

Other

1,217

0

Current Assets

 

 

3,797

2,248

Stocks

0

0

Debtors

11

35

Cash

3,786

2,213

Other

0

0

Current Liabilities

 

 

(1,526)

(1,522)

Creditors

(1,526)

(1,522)

Short term borrowings

0

0

Short term leases

0

0

Other

0

0

Long Term Liabilities

 

 

(41,998)

(48,961)

Long term borrowings

(39,030)

(46,661)

Long term leases

0

0

Other long term liabilities

(2,968)

(2,300)

Net Assets

 

 

(15,494)

(36,687)

CASH FLOW

Operating Cash Flow

 

 

(499)

(571)

Tax

0

0

Capex

0

0

Acquisitions/disposals

0

0

Financing

0

0

Dividends

0

0

Other

(4,113)

2,165

Net Cash Flow

(4,612)

1,594

Opening net debt/(cash)

 

 

42,383

35,244

HP finance leases initiated

(6,835)

(2,542)

Other

18,586

(8,256)

Closing net debt/(cash)

 

 

35,244

44,448

Source: Company accounts. Note: 2018 cash flow amounts have been restated.


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Disclosure regarding the scheme to enhance the awareness of investors to public companies in the technology and biomed sectors that are listed on the Tel Aviv Stock Exchange and participate in the scheme (hereinafter respectively “the Scheme”, “TASE”, “Participant” and/or “Participants”). Edison Investment Research (Israel) Ltd, the Israeli subsidiary of Edison Investment Research Ltd (hereinafter respectively “Edison Israel” and “Edison”), has entered into an agreement with the TASE for the purpose of providing research analysis (hereinafter “the Agreement”), regarding the Participants and according to the Scheme (hereinafter “the Analysis” or “Analyses”). The Analysis will be distributed and published on the TASE website (Maya), Israel Security Authority (hereinafter “the ISA”) website (Magna), and through various other distribution channels. The Analysis for each participant will be published at least four times a year, after publication of quarterly or annual financial reports, and shall be updated as necessary after publication of an immediate report with respect to the occurrence of a material event regarding a Participant. As set forth in the Agreement, Edison Israel is entitled to fees for providing its investment research services. The fees shall be paid by the Participants directly to the TASE, and TASE shall pay the fees directly to Edison. Subject to the terms and principals of the Agreement, the Annual fees that Edison Israel shall be entitled to for each Participant shall be in the range of $35,000-50,000. As set forth in the Agreement and subject to its terms, the Analyses shall include a description of the Participant and its business activities, which shall inter alia relate to matters such as: shareholders; management; products; relevant intellectual property; the business environment in which the Participant operates; the Participant's standing in such an environment including current and forecasted trends; a description of past and current financial positions of the Participant; and a forecast regarding future developments in and of such a position and any other matter which in the professional view of the Edison (as defined below) should be addressed in a research report (of the nature published) and which may affect the decision of a reasonable investor contemplating an investment in the Participant's securities. To the extent it is relevant, the Analysis shall include a schedule of scientific analysis of an expert in the field of life sciences. An "equity research abstract" shall accompany each Equity Research Report, describing the main points addressed. The full scope reports and reports where the investment case has materially changed will include a thorough analysis and discussion. Short update notes, where the investment case has not materially changed, will include a summary valuation discussion. The Agreement with TASE regarding the participation of Edison in the scheme for the research analysis of public companies does not and shall not constitute an approval or consent on the part of TASE or the ISA or any other exchange on which securities of the Company are listed, or any other securities’ regulatory authority which regulates the issuance of securities by the Company to the content of the Report or to the recommendation contained therein. A summary of this report is also published in the Hebrew language. In the event of any contradiction, inconsistency, discrepancy, ambiguity or variance between the English Report and the Hebrew summary of said Report, the English version shall prevail; and a note to this effect shall appear in any Hebrew summary of a Report. Edison is regulated by the Financial Conduct Authority. According to Article 12.3.2, Chapter 12 of the Conduct of Business Sourcebook, Edison, which produces or disseminates non-independent research, must ensure that it: 1) is clearly identified as a marketing communication; and 2) contains a clear and prominent statement that (or, in the case of an oral recommendation, to the effect that) it: a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and b) is not subject to any prohibition on dealing ahead of the dissemination of investment research. The financial promotion rules apply to non-independent research as though it were a marketing communication.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Tel Aviv +44 (0)20 3734 1007
Azrieli Centre, Triangle Building

38th Floor, Tel Aviv, 4676652

Israel

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Tel Aviv +44 (0)20 3734 1007
Azrieli Centre, Triangle Building

38th Floor, Tel Aviv, 4676652

Israel

Research: Investment Companies

Canadian General Investments — Sticking to the fundamental, long-term process

Canadian General Investments (CGI) is managed by Greg Eckel at Morgan Meighen & Associates. He stresses that despite the tough macro backdrop as a result of the coronavirus pandemic, he is sticking to the company’s philosophy and fundamental investment process, which has generated a very long-term record of outperformance versus the Canadian market. The manager says: ‘We will not veer off into unknown, dangerous territories and away from our core, proven strengths. It is easy to fall victim to near-term pressures, but doing so has proven to handicap and impair returns otherwise available. We rely on our experience and learnings of the past in an effort to avoid such pitfalls, and make every effort to provide our shareholders with the results to which they have become accustomed.’

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