1. business and industrial

COMPANY ANALYSIS 13 February 2015
Summary
Pledpharma
(Pled.st)
Ready for study outcome
• Tensions are rising in the run-up to the impending topline results from the Phase II study with the main
project PP-095 (colorectal cancer), which are expected
during the current quarter. The data presented in the
project so far appear to be very promising, suggesting a
good chance for a positive outcome. Nevertheless, the
risks continue to be high.
List:
Market Cap:
Industry:
CEO:
Chairman:
• Last year's fully subscribed rights issue gives the
company muscles before potential partner negotiations
and financing to take Aladote (paracetamol poisoning)
through Phase II, after which it will seek a partner.
• With Aladote and completion of financing, valuation no
longer rests as heavily on PledOx, which is reflected in
our scenario analysis. Our Bull case, where we expect a
positive outcome in the PLIANT study, gives a fair
value of SEK 62 (64). Our Bear case, a negative
outcome in the study, gives a fair value of SEK 14 (3).
708 MSEK
Healthcare
Jacques Näsström
Håkan Åström
OMXS 30
Pledpharma
30
28
26
24
22
20
18
16
14
12
12-Feb
13-May
11-Aug
09-Nov
07-Feb
Redeye Rating (0 – 10 points)
Management
Growth prospect
Ownership
4.5 points
6.0 points
Profitability
Financial strength
0.0 points
4.5 points
2.0 points
Key Financials
Revenue. MSEK
Growth
2012
1
2013
0
2014E
0
2015E
0
2016E
150
0%
Nm
Nm
Nm
100%>
EBITDA
-35
-26
-45
-42
115
EBITDA margin
Neg
Neg
Neg
Neg
76%
EBIT
-35
-26
-45
-42
115
EBIT margin
Neg
Neg
Neg
Neg
76%
Pre-tax earnings
Net earnings
-34
-34
-26
-26
-45
-45
-42
-42
115
115
Net margin
Neg
2012
Dividend/Share
EPS adj.
P/E adj.
EV/S
EV/EBITDA
2012
Neg
2013
0.00
-1.68
Neg
Nm
Neg
2013
Neg
2014E
0.00
-1.16
Neg
Nm
Neg
2014E
Neg
2015E
0.00
-1.59
Neg
Nm
Neg
2015E
Share information
Share price (SEK)
Number of shares (m)
Market Cap (MSEK)
Net debt (MSEK)
25.0
28.3
708
-98
Free float (%)
Daily turnover (’000)
53 %
28
76%
2016E
0.00
-1.49
Neg
Nm
Neg
2016E
0.00
4.05
6.2
3.6
4.7
Analysts:
Klas Palin
klas.palin@redeye.se
Björn Olander
bjorn.olander@redeye.se
Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report.
Redeye. Mäster Samuelsgatan 42. 10tr. Box 7141. 103 87 Stockholm. Tel +46 8-545 013 30. E-post: info@redeye.se
Pledpharma
Redeye Rating: Background and definitions
The aim of a Redeye Rating is to help investors identify high-quality companies with attractive valuation.
Company Qualities
The aim of Company Qualities is to provide a well-structured and clear profile of a company’s qualities (or
operating risk) – its chances of surviving and its potential for achieving long-term stable profit growth.
We categorize a company’s qualities on a ten-point scale based on five valuation keys; 1 – Management. 2 –
Ownership. 3 – Growth Outlook. 4 – Profitability and 5 – Financial Strength.
Each valuation key is assessed based a number of quantitative and qualitative key factors that are weighted
differently according to how important they are deemed to be. Each key factor is allocated a number of points
based on its rating. The assessment of each valuation key is based on the total number of points for these
individual factors. The rating scale ranges from 0 to +10 points.
The overall rating for each valuation key is indicated by the size of the bar shown in the chart. The relative size of
the bars therefore reflects the rating distribution between the different valuation keys.
Management
Our Management rating represents an assessment of the ability of the board of directors and management to
manage the company in the best interests of the shareholders. A good board and management can make a
mediocre business concept profitable. while a poor board and management can even lead a strong company into
crisis. The factors used to assess a company’s management are: 1 – Execution. 2 – Capital allocation. 3 –
Communication. 4 – Experience. 5 – Leadership and 6 – Integrity.
Ownership
Our Ownership rating represents an assessment of the ownership exercised for longer-term value creation. Owner
commitment and expertise are key to a company’s stability and the board’s ability to take action. Companies with
a dispersed ownership structure without a clear controlling shareholder have historically performed worse than
the market index over time. The factors used to assess Ownership are: 1 – Ownership structure. 2 – Owner
commitment. 3 – Institutional ownership. 4 – Abuse of power. 5 – Reputation. and 6 – Financial sustainability.
Growth Outlook
Our Growth Outlook rating represents an assessment of a company’s potential to achieve long-term stable profit
growth. Over the long-term. the share price roughly mirrors the company’s earnings trend. A company that does
not grow may be a good short-term investment. but is usually unwise in the long term. The factors used to
assess Growth Outlook are: 1 – Strategies and business model. 2 – Sale potential. 3 – Market growth. 4 – Market
position. and 5 – Competitiveness.
Profitability
Our Profitability rating represents an assessment of how effective a company has historically utilised its capital to
generate profit. Companies cannot survive if they are not profitable. The assessment of how profitable a company
has been is based on a number of key ratios and criteria over a period of up to the past five years: 1 – Return on
total assets (ROA). 2 – Return on equity (ROE). 3 – Net profit margin. 4 – Free cash flow. and 5 – Operating
profit margin or EBIT.
Financial Strength
Our Financial Strength rating represents an assessment of a company’s ability to pay in the short and long term.
The core of a company’s financial strength is its balance sheet and cash flow. Even the greatest potential is of no
benefit unless the balance sheet can cope with funding growth. The assessment of a company’s financial strength
is based on a number of key ratios and criteria: 1 – Times-interest-coverage ratio. 2 – Debt-to-equity ratio. 3 –
Quick ratio. 4 – Current ratio. 5 – Sales turnover. 6 – Capital needs. 7 – Cyclicality. and 8 – Forthcoming binary
events.
Company analysis
2
Pledpharma
Ready for study outcome
Financed to H2 2017
Last year ended with a fully subscribed rights issue that raised more than
SEK 70 million for the company after transaction costs. Together with
previous cash holdings, we predict cash at year-end 2014/15 of almost SEK
100 million. We expect that this will provide financing for about 2.5 years,
even with a negative outcome in the PLIANT study. The company's new
drug project, Aladote (paracetamol/acetaminophen poisoning) thus has full
financing through a Phase II study, which will serve as the basis for a
partnership agreement. The company’s risk profile has improved as a result
of strengthened cash and more projects that support the value of the
company.
As we noted previously, the preclinical and clinical results appear to be
extremely promising, which we believe suggests a good possibility for a
positive outcome in the ongoing PLIANT study (colorectal cancer). This was
strengthened in the fall of last year after the independent expert panel
(DSMB) monitoring the study did not note any signs that tumor response
was worse in the PledOx arms compared with placebo (analysis of 90
patients after four treatment cycles). Even though everything looks very
promising as we await the results, it is always worth remembering that
clinical trials in general are associated with high risk.
Aladote (PP-100) focused on orphan drug indication
Aladote is based on the
same drug class as the
company's other projects
The main reason for the recent rights issue was to ensure financing of the
new Aladote project, which focuses on treatment of paracetamol poisoning.
Aladote is based on the same clinically proven drug class as the company's
two other projects. This makes it possible to go directly to Phase II, since
the extensive safety data that are already available for the drug class can be
used. The project is also covered by the same substance patent as PledOx,
which means patent protection is possible until the end of 2032 upon
approval. Nevertheless, we expect that these patent applications will be
supplemented with patent applications for Aladote.
PledPharma is starting a new project based on the logic of the promising
preclinical results generated in the relevant animal models (mice). Data
indicate that Aladote can effectively reduce the risk of liver damage and
acute liver failure, including for patients who receive delayed medical care
(8-10 hours>) and for whom no effective drug is currently available.
Overdose of paracetamol is a major problem
Paracetamol is one of the
most frequently used
medications in Europe
and the US
Paracetamol (US: acetaminophen) is an extremely well-known effective
substance to treat fever and pain, and is one of our most used medications.
Drugs with paracetamol are available both by prescription and over the
counter in many countries. A vast number of products and formulations of
paracetamol are available on the market, either combined with other active
Company analysis
3
Pledpharma
substances, or containing paracetamol alone. At the recommended dose (4
grams per day), the drug is safe.
Paracetamol can cause
liver damage at just twice
the recommended dose
The first paracetamol products were launched in the mid-1950s, but it was
not until the 1960s that it was discovered that overdose could result in liver
damage. The insidious problem is that liver damage can occur already at
twice the recommended daily dose (7-8 grams). In Sweden a typical
package usually contains 10 grams. Malnourished individuals or individuals
with chronically high daily consumption of alcohol are at increased risk of
liver damage even at lower daily doses.
Paracetamol poisoning is currently the most common type of poisoning in
emergency care in Europe and the US. It is also the leading cause of acute
liver failure in these regions. The most common reason for an overdose of
paracetamol is for suicidal purposes and young women are
overrepresented, accounting for an estimated 50-70 percent of cases of
paracetamol poisoning in acute care. Another large group of patients who
overdose on paracetamol are those who do so unintentionally. Such cases
often involve patients who take several paracetamol-containing products
simultaneously.
At the recommended dose, paracetamol is broken down in the liver by
conjugation (made more readily soluble) with glucuronic acid or sulfate,
which allows it to be excreted in the urine. A small portion is oxidized by the
cytochrome P450 (CYP450) system into the toxic metabolite NAPQI, which
can cause cell damage. At a normal dose, NAPQI is conjugated with
glutathione in the liver into a non-toxic substance that is excreted through
the urine. In paracetamol overdose, production of NAPQI increases. As a
result, the supply of glutathione in the liver can be exhausted, allowing
NAPQI to bind to liver cells instead and causing strong oxidative stress. It is
at this phase that existing antidotes can no longer protect the liver and
where a drug like Aladote has the potential to strengthen the body's defense
against oxidative stress.
Current treatment of paracetamol poisoning
NAC is an effective
treatment for patients who
reach care within 8-10
hours following an
overdose
Patients who reach emergency care shortly after taking an overdose of
paracetamol (within 2 hours) can have their stomach pumped (gastric
lavage) and activated charcoal may also be an option. However, the
majority of patients do not seek care that quickly. These patients may be
effectively treated with N-acetylcysteine (NAC), which restores glutathione
levels in the liver. NAC has been shown to provide essentially full protection
against liver damage in patients treated within 8-10 hours after having
overdosed on paracetamol. The drug has subsequently been shown to have
a declining effect, which means an increasing risk of liver damage in
patients for whom treatment is initiated later. Currently no alternative drug
is available to effectively treat patients who present for treatment after 8-10
hours. These patients are often treated with NAC despite its decreased
Company analysis
4
Pledpharma
efficacy. The graph on the next page, which is based on the results of a
British study, clearly shows that delayed treatment results in worse survival.
More than 80 percent of the nearly 400 patients in the study were treated
with NAC.
Survival for patients with paracetamol-induced acute liver
damage based on time to care for overdose
Source: Staggered overdose pattern and delay to hospital presentation are associated with
adverse outcomes following paracetamol-induced hepatotoxicity, Craig et al, British Journal of
Clinical Pharmacology, 2011
Paracetamol poisoning
produces diffuse initial
symptoms
One reason that many patients delay seeking care following paracetamol
poisoning is that the symptoms are initially diffuse. During the first 24
hours, patients experience mild and non-specific symptoms such as
abdominal pain, nausea and vomiting.
Aladote can provide protection for all patients with
paracetamol poisoning
PledPharma has conducted preclinical studies in mice, which are relevant
animal models. The results (statistically significant) have been extremely
promising and show that Aladote effectively lowers ALT levels significantly
longer after the paracetamol overdose compared with NAC; please see the
diagram below. Elevated liver enzymes, alanine aminotransferase (ALT) or
aspartate aminotransferase (AST), in the blood are a sign of liver damage.
Preclinical results Aladote (ALT)
20000
15000
NS
Unit/L
Results from animal
studies
10000
*
5000
***
***
0
Source: Pledpharma, * statistical significans strength,
Company analysis
5
*** ***
Pledpharma
It should be pointed out that the metabolism of mice is significantly faster
than that of humans, so the above times are not directly transferable to
humans. About one hour for a mouse equals eight hours for a human.
Clinical development
The next step in clinical development is to conduct a phase II study, which
PledPharma intends to do on its own. Successful Phase II results will then
serve as a basis for arranging a good contract with a partner that can take
the project to market and commercialization.
Development of a
formulation that is stable
at room temperature is
underway
Development this year is focused on developing a formulation that is stable
at room temperature and is better adapted to the real clinical environment
for Aladote. Our assessment is that the company has good control of the
process and the requirements. We expect this work will be completed this
year so that the phase II study can begin in 2016. This study is expected to
be a dose escalation study that will be divided into three dosage groups and
a placebo group. The scope of the study has not yet been announced, but we
expect that it will include about 40-80 patients. Since paracetamol
poisoning is an acute condition, we believe that the upcoming study can be
conducted relatively quickly (6-12 months). We believe that the challenge
will be to recruit patients into the study, which is best tackled by including
several major centers.
In order for Aladote to achieve marketing approval, at least one more major
confirmatory study will be required after the upcoming Phase II study. In
the US, paracetamol poisoning is an indication that qualifies for orphan
drug designation, which suggests there is a good chance that the pivotal
study does not need to be too extensive. In our model, we expect that the
study could be carried out in about 1.5 years, starting in late 2017. In our
scenario, if upcoming studies have positive outcomes, it could be possible to
reach the market in 2020.
Market launch could be
possible in 2020
Future clinical development PP-100, Acute Paracetamol Poisoning
2015
2016
2017
2018
2019
2020
2021
Phase IIa
Phase IIb/III
NDA
Launch
So urce: Redeye Research
Since no effective approved drug is currently available for patients who
present for emergency care later than 8-10 hours after an overdose, it is
possible that Aladote could be awarded what is known as Breakthrough
Therapy Designation (BTD). This would make the product more attractive
to partners and even accelerate development by a year or so.
Company analysis
6
Pledpharma
Many patients in the US and UK
We believe the greatest
potential is in the US
market
The addressable market
consists of about 20,000
patients annually
There is a clear need for new treatments that can effectively treat patients
with paracetamol poisoning. We believe that the greatest potential for a
drug like Aladote is in the US market, since the greatest potential for good
pricing is there.
According to studies conducted on national patient databases in the US,
about 80,000 patients suffer from paracetamol poisoning and seek
emergency care. PledPharma has spoken with leading physicians in the
field, who estimate that an estimated 25 percent of cases involve patients
for whom more than 8 hours have passed since the overdose. Although we
have been unable to find any robust studies that have addressed this issue,
results from several small studies suggest that the company’s estimate is
reasonable and perhaps even somewhat conservative.
Between one third and one half of all patients who seek care suffer from an
unintentional overdose and we believe this is the case for the majority of
patients who present late for care. Unintentional overdose occurs primarily
as a result of patients taking several products that contain paracetamol and
often over an extended period of time. These patients are often in poorer
condition and studies have shown that this group is at higher risk for
developing liver damage.
Large potential in the UK
too
The British market should also be mentioned as a potentially interesting
market. According to the British Medicines and Healthcare Products
Regulatory Agency (MHRA), there are an estimated 80,000-90,000 cases
of paracetamol poisoning annually in the UK. Of these, an estimated
19,000-40,000 patients are treated with NAC annually.
Orphan drug designation allows for high price
Acetadote sales peaked at
USD 42.5 million
NAC has a long history of treatment of paracetamol poisoning that dates
back to the 1970s. In regions such as Europe and in countries such as
Australia and Canada, NAC has long been available in both intravenous and
oral formulations. In the US market, the first intravenous formulation was
not launched until 2004, Acetadote (Cumberland Pharmaceuticals). Since
acetylcysteine was already approved, Cumberland achieved protection
against competitors because it managed to get orphan drug designation for
Acetadote from the FDA. Low product differentiation meant limited
opportunity for high pricing. Sales of Acetadote peaked at USD 42.5 million
in 2011, which was also the last year of orphan drug protection. The market
is currently dominated by intravenous generics of NAC.
A 2008 study estimated the direct costs to society of paracetamol
overdosing at USD 87 million per year. The same study estimated total
healthcare costs in the US (inflation-adjusted) at USD 422 million in 2005.
Broken down to the patient level, the cost of patients who suffer liver
damage is estimated at USD 32,500, while for those who do not develop
Company analysis
7
Pledpharma
liver damage the estimated cost is USD 9,900. This gives some indication of
the pricing potential.
The company indicates a
price of USD 20,000 for
Aladote
PledPharma’s price
assumptions for Aladote
seem reasonable
PledPharma has indicated to the market a price tag of USD 20,000 per
treatment with Aladote. This is based on calculations by IMS Health
Capital, which considered factors such as a comparison with similar
products in the market. In addition, their price assumption is based on the
substantial potential savings to society.
Future pricing of Aladote is a key variable when assessing market potential.
Naturally the most crucial factor will be the clinical results; therefore this is
currently a guessing game, where the idea is to make the most qualified
guess. Based on what we wrote above and the material to which
PledPharma refers, we consider their point of departure to be reasonable.
We believe it may even be somewhat conservative if future studies show
that Aladote prevents acute liver failure for patients who do not respond to
NAC treatment.
Orphan drugs are not as price-sensitive as other drugs. Orphan drug
designation provides better potential for reimbursement even without
health economic documentation, based on the special circumstances of
these indications. In addition, the limited patient population entails lower
pressure on the budget for government agencies and third-party payers. If
we compare the price of orphan drugs with similar patient populations,
prices ranging from USD 20,000 to 50,000 can be considered reasonable;
please see below.
Price in relation to patient population for orphan drug
Aladote
Source: Medical Marketing Economics LLC
Orphan drug designation
possible in the US
To achieve orphan drug designation in the US, the disease that the drug is
intended to treat must affect fewer than 200,000 Americans. This criterion
may be deemed to be met. In addition, the FDA has previously granted
orphan drug designation for the indication, providing further support that
this should be achievable. In Europe, the requirements are formulated
Company analysis
8
Pledpharma
slightly differently, and instead the disease may occur in no more than 5 of
10,000 people. The incidence varies widely in the different countries in
Europe and is governed by how easily accessible paracetamol is for the
consumer. It is currently unclear whether it might be possible to obtain
orphan drug designation for Aladote in the EU, which is why we expect a
much lower price of USD 5,000 per treatment.
Forecast Aladote
Focus on the US market
The UK market may be
interesting for the
company to tackle on its
own
We believe it will be difficult for Aladote to completely and fully outcompete NAC. The market potential is limited to patients who delay seeking
treatment or patients who for some other reason cannot effectively be
treated with NAC, such as patients who experience side effects from the
treatment. The focus is on the US market when we make forecasts based on
the above reasoning about pricing. However, other markets outside the US
in which paracetamol is sold over the counter could also become relevant in
the long term, such as Australia, Canada and the UK, though the more
limited pricing opportunity will hold back any potential in these markets.
Our forecast for the US is based on the same price that PledPharma
indicates, USD 20,000 per treated patient. We expect that Aladote will
achieve a penetration of 50 percent of patients who delay seeking
treatment. We believe that the factor that will hold back the penetration
rate is competition from NAC, which is currently also administered to
patients up to 24 hours after overdose. Moreover, a high proportion of this
patient group is uninsured. Our maximum sales for the US market amounts
to USD 220 million. We have also included forecasts for a launch on the
British market in 2021. We estimate the sales potential at USD 30 million.
Here we have assumed a launch partner with the same conditions as in the
US. An attractive possibility would be for the company to instead try to go
all the way to market on its own.
In our main scenario we include risk-adjusted revenues from a licensing
agreement signed in 2017 after phase II. In all, we estimate a value of USD
240 million in development-related, regulatory and sales-related milestone
payments, including USS 30 million in cash. The distribution of revenues is
40 percent related to clinical and regulatory successes and the rest salesrelated milestones. Because of the potential for high pricing, we expect
higher profitability for a partner to Aladote compared with PledOx, which is
the reason that we assume a higher average royalty level of 20 percent.
There is extensive clinical experience with the PLED derivative
mangafodipir as a contrast agent. We consider the risk of unexpected side
effects to be low, especially since emergency treatment is involved.
Combined with promising preclinical results, we believe the project risk is
somewhat lower than for the industry at large. We have therefore set the
probability that Aladote will reach the market at 25 percent. When a final
formulation is in place for Phase II studies, we will increase the probability
Company analysis
9
Pledpharma
to 30 percent. The next big step in valuation will be the Phase II data and if
successful, we will increase the probability to 60 percent.
Financial forecasts
We have adjusted our forecasts for PledPharma upwards as a result of new
assumptions regarding the Aladote project and completed financing. The
table below presents the new forecasts.
Forecasts for 2016 include
risk-adjusted cash
payment for agreements
related to PledOx
Forecasts Pledpharma
MSEK
2012
Revenues
2013
2014P
2015P
2016P
0.7
0.3
0.2
0.2
150.2
Operating expenses
-36.0
-26.4
-45.5
-42.5
-35.7
Operating profit (EBIT)
114.5
-35.3
-26.1
-45.3
-42.3
Financial net
1.5
0.6
0.3
0.8
1.2
Net Income
-33.9
-25.5
-45.0
-41.3
115.7
Source: Redeye Research
PledPharma has been clear that its goal is to sign a partnership agreement
for PledOx if the outcome of the ongoing PLIANT study is positive. In the
above forecast we included a risk-adjusted cash payment for a licensing
agreement in 2016.
Valuation
Motivated value amounts
to SEK 42 (34)
Our valuation of PledPharma is based on a probability-adjusted cash flow
model, in which each project is valued separately over the life of its patent.
When we include the effects of the most recent rights issue and the new
Aladote project, our motivated value increases to SEK 42 (34) per share or
SEK 1.194 million, see below. The value is also positively affected by the
strong appreciation of the USD, since our forecasts are denominated in
USD.
Pledpharma – Cash Flow Valuation
Sum-of-the-parts Pledpharma
Project
Indication
PP-095, PledOx
Tjock- och ändtarmscancer
PP-099
Reperfusionsskador
PP-100, Aladote
Paracetamolförgifting
Probability of
launch
Royalty
Top Sales
(MUSD)
Launch
NPV
(MSEK)*
40%
17%
1 400
2020
856
5%
10%
150
2022
18
25%
20%
250
2020
269
1 141
Tech value (MSEK)
Net cash (MSEK)
112
Administration costs (MSEK)
-59
Fair value (MSEK)
1 194
28,3
Number of shares, fully diluted (million)
Fair value per share (SEK)
42
* 7,9 SEK/USD, WACC 17,4 %
Source: Redeye Research
Company analysis
10
Pledpharma
Aladote and the strengthened financing are factors that improve the risk
profile and reduce the weight of the company’s value that rests on PledOx.
The project continues to be PledPharma’s most valuable asset in our eyes,
but currently accounts for 70 percent of the value, compared with 95 percent of the value previously.
We reduce expectations for
PP-099
In our valuation model we have sharply adjusted expectations downward
for project PP-099 because no partnership agreement was signed in 2014.
We believe that a likely scenario will be that project stakeholders will want
to see additional clinical data from a new formulation with better patent
protection. In the current situation it appears unlikely that PledPharma will
make any further investments in the project on its own, which argues
against its future. However, positive data in the PLIANT study and a
partnership agreement for PledOx could change the situation.
Relative valuation
The table below presents a summary of a number of Swedish research and
development companies with a focus on oncology.
Relative valuation
Marketvalue
Net cash
Tech
value
Own
projects
Pledpharma
708
112
596
3
0
Fas II
Active Biotech
1.980
157
1.823
2
1
Fas III
Bioinvent
302
70
232
2
5
Fas I/II
Immunicum
415
98
317
3
0
Fas I/II
Kancera
764
28
736
3
0
Preklin
Oasmia
1.980
45
1.935
2
2
Fas III
491
37
454
2
0
Fas I
(MSEK)
Wnt Research
Number of Development
partners
phase
Source: Redeye Research
Valuation of companies in Sweden with projects in oncology, as presented
above, ranges widely. The market appears to be prepared to pay the most
for companies that lack partners and have high-risk projects, such as
Kancera and Wnt Research.
Evaluation of Active
Biotech and Oasmia
provide an indication of
the potential with positive
phase II data
No companies are directly comparable with PledPharma. Active Biotech
and Oasis are interesting examples of how the market currently values
phase III assets and thereby provides an indicator of the potential for the
share with positive results in the PLIANT study.
In a comparison with the companies in the table above, we do not feel that
PledPharma’s valuation stands out.
Company analysis
11
Pledpharma
Scenario analysis
Our risk-adjusted baseline scenario is summarized under the heading
Valuation – PledPharma. However, crucial results for the company's most
valuable asset, PledOx, are imminent and the outcome in the study will
have a strong influence on the value of the project and the company. Below
we have listed how a positive (Bull case) versus a negative (Bear case)
outcome in the PLIANT study would affect our motivated value.
Bull case gives a value of
SEK 62
In our optimistic Bull Case scenario, we have made the following
assumptions about the critical factors over the coming year:
•
The PLIANT study shows good results. Substantial reduction of
serious adverse effects in the form of neutropenia and
neurotoxicity. Successfully demonstrating even a decreased
incidence of thrombocytopenia would further strengthen our
opinion of the project
•
No signs that PledOx protects tumor cells have been noted
•
PledOx are ready to be taken onward to the final phase III studies,
which is expected to occur in cooperation with a partner
Our motivated value in the Bull Case scenario is SEK 62.
Bear case gives a value of
SEK 14
In our Bear Case scenario we have sketched a negative scenario in the
ongoing PLIANT study:
•
No statistically significant difference in the number of serious
adverse effects between the different study arms
•
PledOx project is placed on hold
•
Focus is on the PP-100 project and the company continues to
search for a partner for project PP-099
Our motivated value in the Bear Case scenario is SEK 14.
The results of the scenario analysis underscore that the risk profile of the
company has improved.
Strong period backs the share
Since the rights issue was completed last December the share price trend
has been strong. In early 2015 the share hit a new peak of just over SEK 28.
Positive signals from the independent expert committee (DSMB) that
monitors the PLIANT study, combined with earlier promising results, drive
investor interest in being present when the first results are read. Trading in
the shares is relatively limited and the average trading volume in shares the
past three months is barely 30,000 shares per day. Low free-float in the
share and the fact that owners positioned themselves prior to the reading of
the first study data could explain why shares are not trading more than they
are.
Company analysis
12
Pledpharma
Investment case
PledOx continues to be the
company's main project
PledPharma is a relatively young company that was founded in 2006, but
its research has a long history with its origins dating back to the early
1990s. The company is pursuing three projects in phase II: PledOx
(oncology), PP-099 (acute myocardial infarction) and PP-100 (paracetamol
poisoning). The PledOx project, which is also the company's main value
driver, has the highest priority. A phase 2 study (the PLIANT study) is being
carried out with patients who have colorectal cancer, in which PledOx is
administered as pretreatment to the FOLFOX cytotoxin cocktail in order to
reduce its serious adverse effects.
The first results from the PLIANT study are expected during the current
quarter. If the outcome of the study is positive, the goal is to find a partner
who will bring the project to market and who has resources for
commercialization. An agreement relating to PledOx would free up
resources and capital, which would enable the company to build value in its
other projects. One possibility could be for the company to bring Aladote to
market on its own and commercialize the product.
Three clinical studies and a case study have been conducted, involving
about 40 patients. These studies have all shown that PledOx reduces serious
adverse effects from FOLFOX treatment. The studies have also confirmed
that the drug has a good safety profile. Nevertheless, it should be noted that
these studies have only a limited number of patients and in some cases
there is no control group. Within the company there is an extensive history
of working with the substance class to which PledOx belongs and an
understanding of the mechanism of action. This, together with the positive
results from previous clinical studies land on the plus side for the upcoming
study results. In addition to FOLFOX, PledOx has shown promising results
in preclinical studies along with several other well-established cytotoxins,
suggesting additional potential in more indications.
PledPharma employees have extensive knowledge of the derivative
mangafodipir, on which the company's projects are based. Mangafodipir is
an already approved substance formerly used as a contrast agent. There is
extensive documented knowledge about the substance, which has been used
in over 200,000 patients. A new composition, PledOx, which is better
adapted for therapeutic use, has been formulated and is being used in an
ongoing study. Patent applications have been submitted for the new
composition that can strengthen patent protection until 2032.
Company analysis
13
Pledpharma
The factors that we believe argue in favor of an investment in PledPharma
before the crucial PledOx results are:
Factors that argue in
favor of an investment in
PledPharma
• promising clinical results shown in smaller studies
• understanding of the mechanism
• potential in several cancer indications
• vast knowledge and experience of substance class
• possibility for long patent protection: 2032
The risks in drug development companies are generally very high. It is
therefore important to point out that an investment in PledPharma should
be made with money you can afford to lose.
Company analysis
14
Pledpharma
Summary Redeye Rating
The rating consists of five valuation keys. each constituting an overall
assessment of several factors that are rated on a scale of 0 to 2 points. The
maximum score for a valuation key is 10 points.
Management 6.0p
The company’s board appears competent and well composed. Senior
management has extensive experience working in the pharmaceutical
industry. So far it has delivered relatively well according to plan and with
only minor delays in studies contributing negatively to the scenario. The
large value indicator will be if the management and board succeed in
squeezing considerable value from the company’s projects.
Compensation and incentive programs appear balanced.
Ownership 4.5p
Pledpharma has distinct principal owners who have been recurrently
been willing to back the company financially as necessary, which is very
positive. The rating is pulled down due to management and the board
having relatively small holdings.
Growth prospect 4.5p
There is great potential in Pledpharma’s projects, but many years remain
before its first commercial product could be on the market.
Profitability 0.0p
As a development company, it lacks revenues and the company is not
expected to be profitable based on ongoing revenues for many years.
Financial strength 2.0p
The risk in the business is very high and it is likely that the company will
need to undertake further capital acquisition in coming years.
Company analysis
15
Pledpharma
Income statement
Net sales
Total operating costs
EBITDA
2012
1
-36
-35
2013
0
-26
-26
2014E
0
-45
-45
2015E
0
-43
-42
2016E
150
-36
115
Depreciation
Amortization
Impairment charges
EBIT
0
0
0
-35
0
0
0
-26
0
0
0
-45
0
0
0
-42
0
0
0
115
Share in profits
Net financial items
Exchange rate dif.
Pre-tax profit
0
1
0
-34
0
1
0
-26
0
0
0
-45
0
0
0
-42
0
0
0
115
Tax
Net earnings
0
-34
0
-26
0
-45
0
-42
0
115
2012
2013
2014E
2015E
2016E
59
1
0
1
60
49
0
0
1
51
98
0
0
3
101
55
0
0
3
58
167
15
0
3
184
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
61
51
101
58
184
Balance
Assets
Current assets
Cash in banks
Receivables
Inventories
Other current assets
Current assets
Fixed assets
Tangible assets
Associated comp.
Investments
Goodwill
Cap. exp. for dev.
O intangible rights
O non-current assets
Total fixed assets
Deferred tax assets
Total (assets)
Liabilities
Current liabilities
Short-term debt
Accounts payable
O current liabilities
Current liabilities
Long-term debt
O long-term liabilities
Convertibles
Total Liabilities
Deferred tax liab
Provisions
Shareholders' equity
Minority interest (BS)
Minority & equity
0
7
0
7
0
0
0
7
0
0
54
0
54
0
4
0
4
0
0
0
4
0
0
47
0
47
0
4
0
4
0
0
0
4
0
0
97
0
97
0
3
0
3
0
0
0
3
0
0
55
0
55
0
15
0
15
0
0
0
15
0
0
169
0
169
Total liab & SE
60
51
101
58
184
Free cash flow
Net sales
Total operating
costs
Depreciations total
EBIT
Taxes on EBIT
NOPLAT
Depreciation
Gross cash flow
Change in WC
Gross CAPEX
Free cash flow
2012
1
-36
2013
0
-26
2014E
0
-45
2015E
0
-43
2016E
150
-36
0
-35
0
-35
0
-35
2
0
0
-26
0
-26
0
-26
-3
0
0
-45
0
-45
0
-45
-1
0
0
-42
0
-42
0
-42
-1
0
0
115
0
115
0
115
-3
0
-33
-29
-47
-43
112
Capital structure
Equity ratio
Debt/equity ratio
Net debt
Capital employed
Capital turnover
rate
2012
89%
0%
-59
-5
0.0
2013
92%
0%
-49
-2
0.0
2014E
97%
0%
-98
-1
0.0
2015E
95%
0%
-55
0
0.0
2016E
92%
0%
-167
3
0.8
Growth
Sales growth
EPS growth (adj)
2012
0%
2%
2013
-99%
-30%
2014E
0%
37%
2015E
4 900%
-6%
2016E
75 000%
-371%
DCF valuation
WACC (%)
17.4 %
Fair value e. per share. SEK
Share price. SEK
38.5
25.0
Data per share
EPS
EPS adj
Dividend
Net debt
Total shares
2012
-1.68
-1.68
0.00
-2.91
20.20
2013
-1.16
-1.16
0.00
-2.25
21.94
2014E
-1.59
-1.59
0.00
-3.47
28.30
2015E
-1.49
-1.49
0.00
-1.95
28.30
2016E
4.05
4.05
0.00
-5.89
28.30
Valuation
EV
P/E
P/E diluted
P/Sales
2012
118.0
-5.2
-5.2
252.5
2016E
540.7
6.2
6.2
4.7
168.5
2014E
609.4
-15.7
-15.7
176 875
.0
152 352
.4
-13.4
2015E
652.2
-16.7
-16.7
3 537.5
EV/Sales
2013
275.3
-12.7
-12.7
81 159.
5
68 834.
0
-10.6
EV/EBITDA
Share performance
1 month
3 month
12 month
Since start of the year
Shareholder structure %
Staffan Persson
Peter Lindell
SHB fonder
Torsten Almén
Carl Rosvall
B&E Participation
Länsförsäkringar Fonder
Andreas Bunge
Avanza Pension Försäkring
Jynge Innovation
Share information
Reuters code
List
Share price
Total shares. million
Market Cap. MSEK
Management & board
CEO
CFO
IR
Chairman
Financial information
FY 2014 Results
Analysts
Klas Palin
klas.palin@redeye.se
Björn Olander
bjorn.olander@redeye.se
Company analysis
16
-3.3
-8.4
25.0
28.9
0.0
%
%
%
%
Growth/year
Net sales
Operating profit adj
EPS. just
Equity
Capital
25.3 %
16.1 %
5.1 %
4.0 %
2.9 %
2.8 %
2.5 %
2.5 %
2.4 %
2.3 %
3 261.2
3.6
-15.4
4.7
12/14e
-92.4 %
13.3 %
-2.6 %
34.3 %
Votes
25.3 %
16.1 %
5.1 %
4.0 %
2.9 %
2.8 %
2.5 %
2.5 %
2.4 %
2.3 %
25.0
28.3
707.5
Jacques Näsström
Michaela Gertz
Håkan Åström
February 17. 2015
Redeye AB
Mäster Samuelsgatan 42. 10tr
111 57 Stockholm
Pledpharma
Revenue & Growth (%)
EBIT (adjusted) & Margin (%)
160
140
120
100
80
60
40
20
0
-20
-40
-60
80000,0%
70000,0%
60000,0%
50000,0%
40000,0%
30000,0%
20000,0%
10000,0%
0,0%
-10000,0%
140
120
100
80
60
40
20
0
2011
2012
2013
2014E 2015E 2016E
Net sales
-200000,0%
-400000,0%
-600000,0%
-800000,0%
2011
2012
2013
2014E 2015E 2016E
-1000000,0%
-1200000,0%
EBIT adj
EBIT margin
Equity & debt-equity ratio (%)
5
5
0,98
4
4
0,96
3
3
0,94
2
2
0,92
1
1
0,9
0
0
0,88
-1
0,86
2011
0,0%
Net sales growth
Earnings per share
-1
200000,0%
2012
2013
2014E
2015E
2016E
-2
-2
-3
-3
EPS, unadjusted
100,0%
90,0%
80,0%
70,0%
60,0%
50,0%
40,0%
30,0%
20,0%
10,0%
0,0%
0,84
EPS, adjusted
2011
2012
2013
Equity ratio
Conflict of interests
Klas Palin owns shares in the company: Yes
Björn Olander owns shares in the company: No
Redeye performs/have performed services for the Company and
receives/have received compensation from the Company in connection
with this.
Company analysis
17
2014E
2015E
2016E
Debt-equity ratio
Pledpharma
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Redeye does not issue any investment recommendations for fundamental analysis. However. Redeye has developed a proprietary analysis and rating
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Redeye Rating (2015-02-13)
Rating
7.5p - 10.0p
3.5p - 7.0p
0.0p - 3.0p
Company N
Management
Ownership
23
53
2
78
33
38
7
78
Growth
Prospect
11
65
2
78
Profitability
7
31
40
78
Financial
Strength
18
30
30
78
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Company analysis
18