SymBio Pharmaceuticals — Supply issues continue

SymBio Pharmaceuticals (TYO: 4582)

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SymBio Pharmaceuticals — Supply issues continue

SymBio reported sales of $25.8m (¥2.838bn) for 2019 and an operating loss of $39.1 (¥4.301bn). Sales were down from 2018 due to the previously announced quality control issue for the supply of Treakisym from Astellas. We forecast sales of $31.2m (¥3.433bn) in 2020 as the company winds down its sales to Eisai in anticipation of the launch of its own internal salesforce and marketing effort for the drug in 2021.

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Written by

Healthcare

SymBio Pharmaceuticals

Supply issues continue

FY19 earnings update

Pharma & biotech

21 February 2020

ADR research

Price*

$5.33

Market cap

$147m

*Underlying ¥ price converted at ¥110/US$

ADR/Ord conversion ratio 1:1

Net cash ($m) at Dec. 2019 + subsequent exercises

41.2

ADRs in issue

27.5

ADR code

SYMQY

ADR exchange

OTC

Underlying exchange

Tokyo

Depository

BNY

Business description

SymBio Pharmaceuticals is a Japanese specialty pharma company with a focus on oncology and hematology. The Treakisym powder formulation was in-licensed from Astellas in 2005; liquid Treakisym was in-licensed from Eagle Pharmaceuticals in 2017. Rigosertib was in-licensed from Onconova. And brincidofovir was licensed from Chimerix in 2019.

Next events

DLBCL NDA filing

Q220

Rigosertib Phase III results

H120

Analyst

Nathaniel Calloway

+1 646 653 7036

SymBio is a research client of Edison Investment Research Limited

SymBio reported sales of $25.8m (¥2.838bn) for 2019 and an operating loss of $39.1 (¥4.301bn). Sales were down from 2018 due to the previously announced quality control issue for the supply of Treakisym from Astellas. We forecast sales of $31.2m (¥3.433bn) in 2020 as the company winds down its sales to Eisai in anticipation of the launch of its own internal salesforce and marketing effort for the drug in 2021.

Year end

Revenue ($m)

PTP*
($m)

EPADR
($)

DPADR
($)

P/E
(x)

Gross yield
(%)

12/18

34.9

(25.0)

(1.50)

0.00

N/A

N/A

12/19

25.8

(39.8)

(1.72)

0.00

N/A

N/A

12/20e

31.2

(46.2)

(1.55)

0.00

N/A

N/A

12/21e

83.3

8.7

0.45

0.00

11.8

N/A

Source: SymBio reports. Note: Converted at ¥110/US$. Dividend yield excludes withholding tax. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws.

Quality and supply issues continue

The quantity control issues that were announced in August 2019 were expected to have a negative impact on sales for the year. Further, the company announced in the annual report that although Astellas replaced the initial bad shipments, there were additional quality control issues and missed delivery dates. This further exacerbated the revenue loss to the company from its August 2019 guidance of $28.1m (¥3.092bn) to the final total of $25.8(¥2.838bn). Astellas is reportedly addressing the issue, but SymBio is unable to confirm at this time.

Preparing for internal marketing of Treakisym

Treakisym is currently marketed through the company’s partner Eisai, but the rights to the drug will revert to SymBio at the beginning of 2021. In anticipation, the company will be building out its own internal salesforce and marketing program for the drug over the coming year. SymBio is also advancing two expansions of the program: the ready to dilute formulation (NDA submitted in September 2019) and a label expansion to diffuse large B-cell lymphoma (DLBCL, NDA submission expected Q220).

Valuation: Increased to $338m or $12.28 per share

We have increased our valuation to $338m (¥37.2bn) from $300m (¥32.7bn), although it is down slightly on a per share basis ($12.28 from ¥11.87). This increase is driven by rolling forward our NPVs, offset at the share level by a higher share count and exchange rate effects. We expect to update our valuation with the announcement of results for the Phase III myelodysplastic syndrome (MDS) clinical study of rigosertib from the drug’s sponsor, Onconova, planned for H120.

Supply issues with Astellas persist and continue to negatively affect sales and earnings

SymBio previously reported in August 2019 that shipments of Treakisym (bendamustine) from its supplier Astellas had suffered from a series of quality control issues. At the time management revised its 2019 revenue guidance down to $28.1m (¥3.092bn, all values converted at ¥110/$) from $40.6m (¥4.465bn). However, the company reported in its 2019 financial report that quality control and supply issues have persisted, causing delays that continue to have a negative impact on sales. SymBio had net sales of $25.8 (¥2.838bn) for the year, down approximately $9m (¥1bn) from 2018. Furthermore, operating losses also exceeded expectations at $39.1 (¥4.301bn, compared to the revised guidance of $32.6/¥3.587bn in August 2019).

Astellas eventually replaced all of the defective batches of drug, but these shipments were affected by unreliable delivery dates and further quality control issues. SymBio stated in its report that Astellas has implemented a corrective and preventative action program to address these issues, but it is too early to evaluate the effectiveness of these measures. As Astellas is the sole licensor of bendamustine rights worldwide, SymBio has relatively little recourse over the supply issues it has faced.

Shift towards internal sales

The company has guided toward sales of $30.9 (¥3.404bn) in 2020, although this reduction is driven by a planned rundown of deliveries to the company’s marketing partner Eisai rather than inventory issues. SymBio will gain full rights to market Treakisym in Japan at the beginning of 2021 and it intends to relaunch the drug with its own internal sales force at that time. In anticipation of this, deliveries to Eisai will be reduced to allow for a reduction in its inventory. Because of the planned reduction in volume, we expect the effects of continued supply issues (if they occur) to be limited.

SymBio forecasts an operating loss of $46.3 (¥5.090bn) for 2020 as it gears up operations for its own internal salesforce. We currently forecast costs of approximately $9m (¥1bn) associated with building this organization and establishing its supply chain.

The company is targeting profitability in 2021 with the re-launch of Treakisym. In addition to bringing sales of the product in house, the company has also made multiple efforts to expand its market. The company submitted an NDA in September 2019 with the Japanese regulatory authorities for the ready-to-dilute (RTD) formulation of the drug. It is also planning an NDA submission for the label expansion to treat DLBCL in Q220; the drug previously showed positive results in Phase III for DLBCL in November 2019. The company expects approval for this NDA in Q221.

Valuation

We have increased our valuation to $338m (¥37.2bn) from $300m (¥32.7bn), although it is down slightly on a per share basis ($12.28 from ¥11.87). The increase is largely due to rolling forward our NPVs to 2020, offset by the increase in shares following recent large exercises of share acquisition rights (1.1m shares issued in January 2020, for a total of ¥626m) and exchange rate effects. The effect of the Astellas supply issues on the valuation is primarily due to unrealized sales in 2019 leading to lower than expected cash (or alternately more dilution to compensate), although we have adjusted our 2020 revenue estimates to align with company guidance. However, these negative effects have less of an impact than rolling forward our NPVs given the expected ramp in earnings in 2021 and beyond.

A major upcoming value inflection point for the company is the announcement of results for the ongoing Phase III MDS clinical study of rigosertib from the drug’s sponsor, Onconova, planned for H120.

Exhibit 1: Valuation of SymBio

Product

Indication

Launch

Peak Sales ($m)

NPV ($m)

Probability

rNPV ($m)

NPV/ADR ($/ADR)

Treakisym

Low grade NHL/MCL (r/r and 1st line); CLL

2010

78

175.2

100-95%

167.7

6.09

Treakisym (DLCBL)

r/r DLBCL

2021

87

118.0

90%

105.5

3.83

Rigosertib (IV)

r/r HR-MDS

2023

35

25.6

50%

12.0

0.44

Rigosertib (oral)

LR-MDS (mono) or First-line HR-MDS (combo)

2025

68

37.9

15%

3.8

0.14

Brincidofovir

vHC

2025

38

29.8

30%

7.8

0.28

Net Cash (Dec. 2019 + subsequent exercises)

41.2

100%

41.2

1.50

Valuation

 

 

 

427.7

 

338.2

12.28

Source: SymBio Pharmaceuticals reports, Edison Investment Research

Financials

We have lowered our revenue forecasts for 2020 to $31.2m (from $37.1) to reflect the company’s predicted rundown in sales to Eisai. However, our forecasts for operational losses are roughly similar to previous estimates ($46.1m from $47.7m), as we now forecast marginally lower SG&A costs associated with the commercial build out ($32.0m from $34.9m). The company ended 2019 with $35.6m in cash, and subsequently raised $5.7m through its ongoing rights offering. We currently include $5.5m in financing in 2020 (recorded as illustrative debt) primarily to provide a cash buffer (of $7m) going into the 2021 commercial launch.

Exhibit 2: Financial summary

Accounts: JPN GAAP, year end: 31 December, $'000s

 

2016

2017

2018

2019

2020e

2021e

Total revenues

 

 

21,528

31,311

34,868

25,798

31,213

83,266

Cost of sales

 

 

(13,308)

(21,936)

(24,206)

(17,936)

(21,849)

(16,716)

Gross profit

 

 

8,220

9,375

10,662

7,861

9,364

66,550

SG&A (expenses)

 

 

(12,401)

(17,823)

(18,147)

(24,771)

(32,044)

(50,927)

R&D costs

 

 

(15,155)

(27,435)

(16,661)

(22,196)

(23,664)

(6,955)

Other income/(expense) included in adjusted

 

 

0

0

0

0

0

0

Other income/(expense) excluded from adjusted

 

 

0

0

0

0

0

0

Reported EBIT

 

 

(19,337)

(35,882)

(24,146)

(39,106)

(46,343)

8,669

Finance income/ (expense)

 

 

50

28

6

2

178

73

Other income/(expense) included in adjusted

 

 

67

25

(0)

38

0

0

Other income/(expense) excluded from adjusted

 

 

(1,775)

(298)

(848)

(684)

0

0

Reported PBT

 

 

(20,995)

(36,128)

(24,988)

(39,750)

(46,165)

8,742

Income tax expense

 

 

(35)

(35)

(35)

(35)

3,602

3,672

Reported net income

 

 

(21,029)

(36,162)

(25,023)

(39,784)

(42,563)

12,414

Average number of ADRs - basic (m)

 

 

9.8

12.5

16.6

23.2

27.5

27.5

Basic Earnings per ADR

USD

 

(2.14)

(2.90)

(1.50)

(1.72)

(1.55)

0.45

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

(19,104)

(35,614)

(23,831)

(3,876)

(4,546)

940

Adjusted EBIT

 

 

(19,337)

(35,882)

(24,146)

(3,911)

(4,634)

867

Adjusted PBT

 

 

(21,062)

(36,153)

(24,988)

(3,979)

(4,617)

874

Adjusted Earnings per ADR

USD

 

(2.15)

(2.90)

(1.50)

(1.72)

(1.55)

0.45

Adjusted diluted Earnings per ADR

USD

 

(2.15)

(2.90)

(1.50)

(1.72)

(1.55)

0.44

 

 

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

678

426

518

686

791

1,285

Goodwill

 

 

0

0

0

0

0

0

Intangible assets

 

 

382

626

649

2,187

1,537

1,102

Other non-current assets

 

 

699

910

660

640

640

640

Total non-current assets

 

 

1,758

1,961

1,827

3,513

2,968

3,027

Cash and equivalents

 

 

51,994

26,791

43,831

35,553

7,273

14,691

Inventories

 

 

2,479

3,296

4,853

0

2,454

1,878

Trade and other receivables

 

 

4,432

4,453

3,743

4,993

3,421

9,125

Other current assets

 

 

1,868

2,155

2,469

3,885

3,885

3,885

Total current assets

 

 

60,773

36,696

54,895

44,432

17,033

29,579

Non-current loans and borrowings

 

 

4,091

0

0

0

5,522

5,522

Trade and other payables

 

 

0

0

0

0

0

0

Other non-current liabilities

 

 

13

13

12

15

15

15

Total non-current liabilities

 

 

4,104

13

12

15

5,537

5,537

Trade and other payables

 

 

2,926

5,494

6,601

1,099

4,506

4,697

Current loans and borrowings

 

 

0

0

0

0

0

0

Other current liabilities

 

 

5,639

3,701

5,548

6,830

6,830

6,830

Total current liabilities

 

 

8,565

9,195

12,149

7,929

11,336

11,527

Equity attributable to company

 

 

49,862

29,449

44,562

40,001

3,128

15,542

Non-controlling interest

 

 

0

0

0

0

0

0

 

 

 

 

 

 

 

 

 

Cashflow statement

 

 

 

 

 

 

 

 

Profit before tax

 

 

(20,995)

(36,128)

(24,988)

(39,750)

(46,165)

8,742

Depreciation and Amortisation

 

 

233

269

315

346

886

731

Share based payments

 

 

1,246

1,102

1,342

0

0

0

Other adjustments

 

 

1,791

381

552

2,081

(178)

(73)

Movements in working capital

 

 

(114)

(315)

1,677

(2,201)

2,525

(4,937)

Net cash from operating activities (pre-tax)

 

 

(17,839)

(34,692)

(21,102)

(39,523)

(42,933)

4,464

Interest paid / received

 

 

54

28

5

5

178

73

Income taxes paid

 

 

(35)

(35)

(35)

(35)

3,602

3,672

Cash from operations (CFO)

 

 

(17,819)

(34,698)

(21,132)

(39,552)

(39,153)

8,208

Capex

 

 

(254)

(518)

(362)

(1,968)

(341)

(790)

Acquisitions & disposals net

 

 

0

0

0

0

0

0

Other investing activities

 

 

(145)

(186)

124

0

0

0

Cash used in investing activities (CFIA)

 

 

(399)

(705)

(238)

(1,968)

(341)

(790)

Net proceeds from issue of shares

 

 

29,329

10,584

38,837

33,982

5,691

0

Movements in debt

 

 

4,091

0

0

0

5,522

0

Other financing activities

 

 

(163)

0

0

19

0

0

Cash from financing activities (CFF)

 

 

33,256

10,584

38,837

34,000

11,213

0

Currency translation differences and other

 

 

(1,785)

(384)

(428)

(758)

0

0

Increase/(decrease) in cash and equivalents

 

 

13,254

(25,202)

17,039

(8,278)

(28,280)

7,418

Cash and equivalents at end of period

 

 

51,994

26,791

43,831

35,553

7,273

14,691

Net (debt) cash

 

 

47,903

26,791

43,831

35,553

1,750

9,169

Movement in net (debt) cash over period

 

 

9,163

(21,112)

17,039

(8,278)

(33,803)

7,418

Source: SymBio Pharmaceuticals reports, Edison Investment Research

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This report has been commissioned by Symbio Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Symbio Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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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

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

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