Investeren in Biotechnologie Hoe zoeken naar de gouden graal

Investeren in Biotechnologie Hoe zoeken naar de gouden graal

Mini-seminarie Biotech 21 november 2012

Dr Jan De Kerpel, PhD, MBA Biotech/Pharma equity research KBC Securities - Brussels +32 2 429 84 76 [email protected]

Agenda Wat verstaan we onder biotechnologie? Investeren in biotechnologie Beleggen in biotech: aantrekkelijke returns, maar …? Europese sector Waardering via case study

Conclusie: vuistregels voor biotechbeleggingen

Wat is ‘biotechnologie’? OESO: De toepassing van wetenschap en technologie op levende organismen, zowel op onderdelen, producten of modellen daarvan, om levende en niet-levende materialen te manipuleren ten einde kennis, goederen en services te creëren.

z

3

Rode Biotech

Medicijnen

Devices

Groene Biotech

GMO

Veredeling

Witte Biotech

rest

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November 2012 z

Diagnostica



Waarom in biotech beleggen?

Hoge return Gigantische koerswinsten mogelijk Positieve klinische tests of baanbrekende technologie Overname premies van 50% of meer

Vaak erg innovatieve producten die mensenlevens redden Maatschappij is bereid hogere prijzen te betalen

Mean and lean bedrijven met sterke focus op kernproducten Biotechproducten minder gevoelig voor generische kopieën Klassieke medicijnen kennen 90% omzet verlies na patent verval

Farma is de belangrijkste klant: where big and small meet (Klein) biotechbedrijf (Groot) farmabedrijf

Weinig innovatie Procesgestuurd Risicoavers Gereglementeerd en sterke marketing Hebben nieuwe producten nodig

Sterk in innovatie Flexibel en aanpasbaar Hoog risicoprofiel (vaak slechts één product) Beperkte marktingervaring Hebben constant cash nodig

⇒ Producten & technologie: Mergers& ergers Acquisitions&Partnerships z

5

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November 2012 z

Risico’s inherent aan de activiteiten

Productontwikkeling mislukt vaak. Slechts 1 op de 10 kandidaatgeneesmiddelen komt uiteindelijk op de markt

Weinig gediversifieerd Mislukken of vertraging van één product beïnvloedt bedrijfswaardering. Entrepreneurs/oprichters niet altijd beste profiel om groeiend bedrijf te leiden.

Regulator en markt niet altijd klaar voor erg innovatieve technologieën. Gentherapie, stamcellen, regeneratieve geneeskunde, … Monoklonale antilichamen kampten 20 jaar met dezelfde obstakels, maar zijn nu de belangrijkste bronnen van omzet voor farmaceutische bedrijven

Vaak partnerships voor producten die halfweg ontwikkeling zijn Kosten lopen te hoog op Verlies van controle op het ontwikkelingstraject Partner vaak minder soepel en trager bij het ontwikkelen van projecten Vaak communicatiestop opgelegd door de partner over veelbelovende producten z

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Risico’s inherent aan kleine bedrijven

Kapitaalintensief en lange termijn voor return on investment Ontdekking en ontwikkeling zijn erg duur Return on investment duurt vrij lang (+10 jaar)

Meeste biotechbedrijven zijn niet winstgevend Europa: 5 bedrijven met omzet >€ 100mln, VS: ~50 met marktkapitalisatie > € 1mrd Netto cashverbruik vereist regelmatig herfinanciering => kwetsbaarheid

Beursgenoteerde biotechbedrijven Kleine marketcap en illiquide aandelenhandel 60% VS biotech heeft mcap < $ 100mln. Weerhoudt institutionele beleggers om toe te treden Cash outflow fondsen leidt tot gedwongen verkoop Aandelenkoersen blijvend laag terwijl bedrijven succesvol zijn

Producten en businessplannen moeilijk begrijpbaar voor gewone belegger

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Totale marktkap. beursgenoteerde biotech North America

Central Asia Europe

€ 256bn

€ 33bn

$1bn Market value

Market value

Pacific Rim

Market value € 1bn Market value

Middle East

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9

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November 2012 z

€ 21bn Market value

Totale marktkap.van beursgenoteerde biotech KMO’s 3000

15 6

2500

17

€m

2000

1500

15

7

13 6

1000

5 500

1

3

1

1

1

0

in um en ny ark ce ay nd ain aly nd nd tria ds a t It nla ola us lan gi wed rma nm ran orw erla Sp ri l B F P A her Fi N itz tBe S Ge De a t e Sw Ne Gr SME cutoff: <€ 2bn Source: Factset October 2012 z

10

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November 2012 z

Biotech market size

Number of companies

3

Innovatie: betekenis in biotech

First First in in class class Level of innovation

Innovation Innovation threshold threshold

Value Value

Me Me too too Market Market expectation expectation 5

10

15

20

Time/year z

11

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November 2012 z

Source: Paul Stoffels, Chief Scientific Officer, Janssen Pharmceutical companies, J&J



Coverage universe

Stock price: Target price: Potential: Rating: Mcap

€ 4.74 € 9.00 89.9% BUY € 207


€ 5.76 € 8.00 38.9% ACCUMULATE € 154


€ 36.60 € 45.00 23% BUY € 1,306

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November 2012 z


€ 14.59 € 16.00 9.7% ACCUMULATE € 455




Biotech/pharma Health Medical device

€ 0.82 € 0.95 15.9% HOLD € 75


€ 15.95 SUSPENDED € 387

€ 12.75 € 13.25 3.9% PT THE OFFER € 736

€ 42.18 € 44.00 4.3% HOLD € 7,734



€ 15.80 € 19.00 20.3% BUY € 420

€ 0.03 € 0.01 -61.5% HOLD € 19

Acquired: • Innogenetics • Movetis

KBCS Lead IPO or involved in financing transaction Under coverage

Hoe toekomstige waarde bepalen?

Traditionele financiële ratios zijn niet van toepassing Doorgaans cash burning, weinig omzet en beperkte winst Omzet dikwijls gevolg van éénmalige betaling, over # jaren herkend Peer-groep analyse niet zinvol= te verschillend in kernactiviteit Kans op slagen van een project gelimiteerd

Sum-of-the-parts Risico-gecorrigeerde net present berekening per project/activiteit - overhead kosten + cash positie

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Risico-gecorrigeerde NPV: Wat?

Wat doet het product? Is er een unmet medical need? Incrementeel of marginale verbetering? Waar bevindt zich de verbetering? (efficientie, veiligheid, gebruikersvoordeel, prijs, …)

Potentieel van product: hoe groot is de markt? Hoeveel patiënten elk jaar? Welk type patient komt in aanmerking? Vroeg in het ziektebeeld, midden, of op het einde van het ziektebeeld

Wat is de huidige competitive positie en die ten tijde van lancering product. Wanneer zou het product op de markt komen?

Wat is de mogelijke commerciële verkoopprijs en productiekost

=>Klinische gegevens op patienten onontbeerlijk => belang PoC

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Risico-gecorrigeerde NPV: What?

Commercieel pad Zelf commercializeren? Revenue, COGS, … Marketing strategie en investeringen

Partnering strategy? Upfront, milestone en royalty assumpties (afhankelijk van stadium van partnering)

Waarschijnlijkheidsanalyse In welke fase van ontwikkeling? Fase 1: 10-15%; fase 2: 20-50%; fase 3: 6080%; regulatory: 90%

Probabiliteit sterk afhankelijk van ziektebeeld en primair eindpunt

Verdisconteringsvoet / belastingen Reflecteert penalty functie (WACC) 12% approval/launch; 15% development

Tax rate of 34% or 7%; deferred taxes? z

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November 2012 z

Success rates and time to market across therapeutic areas Therapeutic area

Probability of approval Time (from phase I)

in

Hormones (excluding sex hormones)

65%

94

Antiparasitic

59%

103

Formulations

56%

83

Anti-infectives

50%

87

Other products

49%

77

Sensory

49%

103

Musculoskeletal

44%

101

Dermatological

43%

86

Cardiovascular

42%

103

Alimentary and metabolic

40%

99

Blood and clotting

37%

106

Genitourinary (and sex hormones)

36%

90

Immunological

35%

98

Respiratory

35%

103

Neurological

32%

108

Anticancer

24%

108

Biotechnology

21%

100

Source: PharmaPredict

clinical

development (m)

Thrombogenics Located in Leuven, Public 2006 Founded by VIB researcher/prof European biotech leader Development of new eye drug, ready for launch in US License with Alcon/Novartis for EU

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November 2012 z

TARGET: € 45 RATING: BUY

Vitreous remodelling leads to progressive liquefaction with age1

Incomplete separation can cause vitreomacular adhesion (VMA), that results in traction, leading to visual disturbance

VMA VMA Resolved

Ocriplasmin injected intravitreally acts by weakening and breaking the protein fibers that are causing the adhesion and separates the vitreous body from the retina, which relieves the traction and resolves the symptoms z

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November 2012 z

1. Bishop PN. Prog Retin Eye Res. 2000; 19(3):323‐344.


sVMA

Watchful waiting

z

•

Metamorphopsia (blurred vision)

•

Deteriorating visual acuity

•

Impaired visual function

19

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November 2012 z

Worsening of symptoms

Vitrectomy

Complications Patient compliance • Requires admission • Retinal detachment to operating room • Retinal tears (OR) • Bleeding in the eye • Face down time for • Cataract progression 48 hours to 5 days in almost all phakic • Extended caregiver patients support ~850,000 vitrectomy procedures performed globally per year (~ 300,000 in the United States)


Lead product Microplasmin for back of the eye

Single injection versus vitrectomy

US: FDA approved (Oct’ 12), launch in Jan. ‘13

Commercialization by Thrombogenics

Europe: CHMP opinion expected by YE12, launch mid 13 Commercialization by Alcon, THR gets 25-30% royalty net sales

Peak sales assumption for VMA: ~€ 700m (~0.5m eligible patients in US + EU VISION RESULTING FROM DIFFERENT EYE DISEASES VMA related Normal

Central visual distortion

Retinal detachment

Source: KBC Securities research and eyetestsathome.co.uk

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November 2012 z

Not VMA related Glaucoma

Cataract


Market Size*

% Eligible for ocriplasmin †

Eligible Ocriplasmin Patients

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November 2012 z

Macular Hole Total patients: 128,459*

VMA/VMT

Macular Pucker

Total patients: 111,478*

Total patients: 456,940*

28%†

29% 47%

71%†

72%

sVMA Population US ≈ 250,000 patients

*CMS Claims Data (SAF); CMS Claims Data (PSPS). †Eligibility based on Jan 2011 TG primary Quant research (US retinal physicians).

TARGET: € 45 RATING: BUY MARKET RESEARCH DATA FOR OCRIPLASMIN USAGE (50 US AND 50 EU RETINAL SPECIALISTS QUESTIONED) Indication

Macular Hole

VMA/VMT

Macular Pucker

Total eligible sVMA

Total patients US*

128,459

111,478

456,940

~270,000

Total patients EU-5°

132,258

114,695

470,124

~280,000

% Ocriplasmin eligible

52%

70%

28%

Total eligible for sVMA

~135,000

~155,000

~260,000

>550,000

Source: Thrombogenics market research *CMS Claims data (SAF and PSPS), °US prevalence extrapolated to EU-5 population

VALUE PROPOSITION TO ALL STAKEHOLDERS Patients: Restores vision & improves visual function Early treatment option for population now untreated Minimally invasive – administration via single injection Well tolerated Doctors: Novel early pharmacologic treatment option Office-based treatment Improved practice economics Society: Positive economic impact on disease treatment

Source: KBC Securities research and Thrombogenics z

22

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November 2012 z

TARGET: € 45

US Reimbursement strategy (Jan 2011 sub; Oct 2011 approval) ICD-9 Diagnosis Code for VMA/VMT

2011

FDA Submit April 2012

(Dec 2012 Sub; Apr 2013 earliest RATING: Effective) Transitional Pass Through Status and “C” Code for HOPD/ASC Reimbursement

Expected FDA Approval Oct 2012

2012 (Jan 2012 begin; March 2012 complete) Payer policy updates for ICD-9 Diagnosis Code for VMA/VMT

BUY

2013 (April-May 2012 begin; Ongoing through 2012) Enroll participating providers in VMA registry for patients with ICD-9 diagnosis code

Throughout 2011 and 2012 Payer Education and Advocacy for Coverage – Both Disease/Indication and Product

2014

(Jan 2013 Sub; Jan 2014 Effective) HCPCS “J” Code for MD Office Reimbursement

ICD-9 Diagnosis Coding, Registry HCPCS J Coding for MD Office HCPCS C Coding for HOPD/ASC

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23

-Dossier Development, Payer Advisory Boards, Health Economics -KOL Referral Network, CAC Education and Advocacy, Local Coverage Policies

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November 2012 z

Payer Advocacy and Coverage


Agreement with Alcon for Ocriplasmin (March 2012) Licensed ex-US rights (Europe and RoW)

Territory represents ~300,000 (250k EU, 50k RoW) patients on annual basis

Represents –according to Thrombogenics- 40% of the products value

Upfront and potential milestones of € 375m + highly attractive sales royalties

€ 75m immediate payment

€ 90m in milestones within 12 months (approval and first patient treated)

€ 210m in commercial milestones

‘Industry standard royalties’ on net sales

Undisclosed: KBCS assumption: 25% - comment CEO Thrombogenics: ‘that’s conservative’

Efficient and rapid launch in Europe and ROW

Co-invest to expand potential indication for Ocriplasmin

AMD & Diabetic Macular Edema

Share 50:50 future Ocriplasmin development costs for EU and RoW

Alcon/Novartis are global leader in ophthalmology

Ocriplasmin complementary to Lucentis ($ 3bn sales in FY11)

Thrombogenics continues to focus on US commercialization of Ocriplasmin z 24

Represents 60% of ocriplasmin’s value

z November 2012 z


Key valuation assumptions: VMA only penetration rate of 40%/50% of eligible patients Could be too conservative with partner like Alcon/Novartis

1 patient = 1 eye = 1 injection Some physicians indicate multiple use

€ 2400/injection in EU/RoW, $ 4000/injection in US Based on new mngt guidance (‘above $ 3000)

z

25

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November 2012 z

Base case scenario : $ 4,000 US; € 2,400 EU


NEW SALES POTENTIAL OCRIPLASMIN FOR VMA ONLY 2012

2013

2014

2015

2016

2017

2018

2019

2020

Eligible US patients (th)

199

207

214

222

231

239

248

257

267

Ocriplasmin penetration (%)*

0%

8%

15%

30%

45%

50%

50%

50%

50%

Number of US patients (th)

0

16

32

67

104

120

124

129

133

Ocriplasmin VMA revenues US (€ m)

0

38

99

205

319

368

382

396

411

Eligible EU patients (th)

299

310

322

334

346

359

372

386

400

Ocriplasmin penetration (%)*

0%

3%

6%

12%

24%

36%

40%

40%

40%

Number of EU patients (th)

0

9

19

40

83

129

149

154

160

Ocriplasmin VMA revenues EU (€ m)

0

21

46

96

199

310

357

371

384

Total Ocriplasmin VMA sales (€ m)

0

59

145

301

519

678

739

767

795

Source: KBC Securities research *% of eligible patients actually being prescribed ocriplasmin

NEW P&L ASSUMPTIONS FOR OCRIPLASMIN FOR VMA ONLY* (€ m)

Revenue

2013E

2014E

2015E

2016E

2017E

2018E

2019E

2020E

75

133

111

240

369

477

471

489

549

US sales revenues

0

38

99

205

319

368

382

396

411

European & Row revenues

75

95

12

35

50

109

89

93

138

Royalty Alcon

0

5

12

24

50

78

89

93

96

upfront

75

0

0

0

0

0

0

0

0

milestones

0

90

0

11

0

32

0

0

42

COGS (incl. distribution + royalty out)

-3

-10

-15

-32

-50

-60

-61

-63

-67

Gross Profit

72

124

95

208

319

418

410

426

482

Operational costs

39

46

53

61

77

88

94

100

106

S&M

14

20

24

28

35

39

40

41

43

G&A

5

6

7

9

16

20

22

23

24

R&D

20

20

22

24

27

29

32

35

39

33

78

42

146

242

329

316

326

376

69%

67%

67%

69%

EBIT z 26

2012E

Margin as % of revenues 59% 38% 61% 66% November 2012 z z Source: KBC Securities research *does not include additional sales from DME or wet-AMD

TARGET: € 45 RATING: BUY SWOT ANALYSIS JETREA STRENGTHS

WEAKNESSES

• Unique, innovative product that can prevent surgery

• VMA is a small and new disease requiring education

• Strong support from FDA advisory committee • No competitors, strong selling/pricing power

•

• Cheap production of active ingredient, long patent life • Small group of target prescribers allows for small

•

sales & marketing efforts • Huge cash pile offers cushion against regulatory

•

setbacks • Strong national and international investor base

• • •

z

27

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of physicians Referral patterns from general ophthalmologists and optometrists not yet established Thrombogenics is not an established brand in US and Jetrea is the company’s first commercial product -20°C distribution requires storage in Lack of J-code (only available as of January 2014) to be compensated by reimbursement managers Sales-team too small to address general ophthalmologists to optimize referral process No IMS US prescription monitoring possible

OPPORTUNITIES

THREATS

• Label extension in major disease areas like diabetic

• Sell-on-the-news pressure upon first approval

macular edema, AMD and ocular vein occlusion offer huge sales potential • Off-label use by surgeons to liquefy gel and other surgery-facilitating usage • Company can bank on experience of Alcon • US approval may lower investment risk and increase M&A scenario

• Initial sales ramp-up not meeting market expectations

November 2012 z

• Single product company, need for follow-up products • Underestimating the financial market’s wish for sales

reporting needs and increased investor nervousness on short- term US prescription trends

NPV: € 38/sh TARGET: € 45 RATING: BUY

SENSITIVITY ANALYSIS FOR JETREA FOR VMA ONLY Average injection/patient : 1.5 Larger eligible market Average injection/patient : 1.3 Price / patient : +20% WACC : 10% Price / patient : +10% WACC : 11% USD/EUR : 1.2 Royalty alcon : 29% Royalty alcon : 27% USD/EUR : 1.4 Price / patient : -10% Ramp-up slower (-2y) Price / patient : -20% Macular hole only Restricted label, smaller eligible market 20

25

30

35

38

40

45

50

55

60

Δ Ιmpact versus base case (€ / share)

Source: KBC Securities research PRICING SENSITIVITY ANALYSIS FOR JETREA FOR VMA ONLY* (PRICE PER SHARE)

PATIENT

EU PRICING PER

US PRICING PER PATIENT $ 3,000

$ 3,500

$ 4,000

$ 4,500

$ 5,000

€ 2,000

28.1

32.1

36.2

40.3

44.3

€ 2,200

28.7

32.8

37.0

41.0

45.1

€ 2,400

29.5

33.6

37.6

41.7

45.8

€ 2,600

30.3

34.3

38.4

42.5

46.5

€ 2,800

31.0

35.1

39.2

43.2

47.3

€ 3,000

31.8

33.8

39.9

44.0

48.1

Source: KBC Securities research *does not include additional sales from DME or wet-AMD z 28

z November 2012 z


Looking at valuation as an acquirer VALUING FROM DIFFERENT PERSPECTIVES

US Market

Alcon

Acquirer, other

Standalone

perspective

than Alcon

€ 25

€ 28

€ 28

Comment The US market has for each party equal value, although a company with an established US ophthalmology sales organization will be able to create substantial synergies. We assume a 10% synergy advantage.

EU Market

€ 13

€ 21

€ 13

Alcon can avoid the payment of near term and future milestone payments by acquiring THR. The upfront and 2013 milestones already represent € 5/sh in our valuation. On the other hand, Alcon already has a substantial part of the EU market value under control, which will be at least the value it gave away to THR. Hence, we double our assessment of the EU market with THR. If the acquirer is not Alcon, the EU value is unchanged.

Label extension

€3

€3

€3

Label extension should have a much higher value for a bigger firm given its stronger resources, but we do not take this into account for now for the sake of easy comparison.

Deferred tax assets

0

€3

€3

YE11 deferred tax assets are not taken into account for a lossmaking company in the SOTP, but for a profitable organization acquiring the loss-making biotech it holds tax-avoidance value

Cash Total Upside to current level

€4

29

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November 2012 z

€4

€ 45

€ 59

€ 51

~30%

~75%

~50%

Source: KBC Securities research z

€4

Cash in THR holds its value for all parties.


NPV BREAKDOWN NPV (€ m) Product

NPV per share (€)

Probability of launch

New

Old

New°

Old

New

Old

New

Old

Staphylokinase

2

15

0.1

0.5

10%

60%

79

79

Jetrea for VMA

1,341

888

37.6

26.1

95%

95%

740

587

Ocriplasmin, DME

108

104

3.0

3.0

30%

35%

335

315

Anti-PlGF (TB-403)

0

0

0

0

0%

0%

0

0

158

158

4.4

4.9

1,609

1,165

45.1

34.4

Cash (YE11 + 1Q capital)* Total value

Source: KBC Securities *cash from Alcon upfront is in Jetrea for VMA based on 35.5 million shares

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Peak sales estimate (€ m)

November 2012 z


Financial situation: cash exceptionally strong and ‘profitable’ End June cash position: € 186m (vs € 80m at YE11)

Includes € 75m from Alcon and € 78m capital increase

Operational cash burn 1H12 € 59m (vs ~€ 15-20m/semester in 2011)

~€ 16m to strengthen IP position (payment to Nuvue, Griffols, etc)

€ 2m FDA filing, € 4m increase SG&A for launch preparation

P&L ‘Profitability’ possible from now on

FY12 operational cash burn ~€ 60-65m, YE12e cash of ~€ 165m

Alcon upfront entirely recognized in 1Q12, results in black numbers for FY12

€ 90m Alcon 2nd payment in 1H13 -> FY13 also black numbers

2014: ocriplasmin franchise could reach profitability

Tax rate: ocriplasmin most likely eligible for 7% Belgian tax rate

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~€ 100m of deferred tax assets

November 2012 z



Beleggingsvuistregels Stock picking in biotech kan erg hoge returns opleveren

Vuistregels voor de selectie Fundamenteel nieuwe, innovatieve technologieën Maar niet te innovatief want de markt en de regulatoren zijn er mogelijk nog niet klaar voor.

Oplossing voor onvervulde medische behoeften met een groot marktpotentieel Toekomstige markt begrijpen en segmenteren. In grote markten is er plaats voor verschillende producten. Regulators, patiënten, maatschappij zijn bereid om meer te betalen voor echt levensreddende producten Nicheproductstrategie is OK, maar heeft misschien een beperkt marktpotentieel

Technologie gevalideerd door experts / experts in aandeelhouderschap en/of RvB Expert VCs als aandeelhouders in de ‘early stage’, industriële samenwerkingen met grote spelers

Gediversifieerde productportefeuille One-product bedrijven zijn risicovoller, bedrijven met ‘late stage’ producten dragen de voorkeur.

Financieel gezonde bedrijven Cashpositie: >18 maanden standhouden, back-up scenario voor alternatieve financiering bv. via outlicensing

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Beleggingsvuistregels Stock picking in biotech kan erg hoge returns opleveren

Vuistregels voor de selectie (vervolg) Professionneel management met duidelijke businessplannen en korte/middellange objectieven Tijdige en solide nieuwsberichten om de koers te ondersteunen

Timing van instap 6-9 maanden voor belangrijke gebeurtenis (essentiële resultaten klinische tests, goedkeuring door overheid)

Diversifieer belegging over verschillende bedrijven die op de voet gevolgd worden

Het meest veelbelovende product kan altijd falen, zelfs na goedkeuring Als het product faalt, verkoop zo snel mogelijk het aandeel (zelfs tijdelijk) om verlies te beperken Vaak zijn er vroegtijdige signalen van mislukking: uitstel van recrutering, negatieve reactie van de regulator, bijkomende tests, etc … z

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Thank you

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Investeren in Biotechnologie Hoe zoeken naar de gouden graal

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