1. business and industrial

COMPANY ANALYSIS 22 April 2015
Summary
Pledpharma
(Pled.st)
The stock has more to give
List:
Market Cap:
Industry:
CEO:
Chairman:
• The initially positive price reaction to the outcome of the
PLIANT study has quickly been wiped out. We estimate
that shares are being pressured by profit-taking from
players who only joined to see what cards others are
holding in the study. Shares are also being squeezed by the
expectation, at least on paper, that the news flow will be
thin over the coming months.
787 MSEK
Healthcare
Jacques Näsström
Håkan Åström
OMXS 30
Pledpharma
42
37
32
• The reduction of nerve damage by 43 percent, which
appeared in the highest dose group (5 µmol/kg),
strengthens our view that PledOx will reach the market.
The probability that PledOx will become an approved drug
increased to 50 (40) percent. However, we have revised
down the expected sales potential somewhat, as there was
no demonstrated reduction of neutropenia or
thrombocytopenia.
27
22
17
12
22-Apr
• Updated model assumptions increase the motivated value
to SEK 54 (42) per share. We see good prospects for a
revaluation of the shares as the shortsightedness now
prevalent in the market subsides.
21-Jul
19-Oct
17-Jan
17-Apr
Note: This report is a translation of the
orignial that was written in swedish,
published the 2nd of April
Redeye Rating (0 – 10 points)
Growth prospect
Ownership
Management
6,0 points
7,0 points
Profitability
Financial strength
0,0 points
4,5 points
1,0 points
Key Financials
Revenue, MSEK
Growth
2013
0
2014
0
2015E
0
2016E
150
2017E
26
-99%
0%
5 500%
66 954%
-83%
EBITDA
-26
-49
-43
115
-16
EBITDA margin
Neg
Neg
Neg
76%
Neg
EBIT
-26
-49
-43
115
-16
EBIT margin
Neg
Neg
Neg
76%
Neg
Pre-tax earnings
Net earnings
-26
-26
-48
-48
-43
-43
115
115
-16
-16
Net margin
Neg
Neg
2013
Dividend/Share
EPS adj.
0,00
Neg
2013
P/E adj.
EV/S
EV/EBITDA
0,00
Neg
2014
-12,7
Nm
-10,6
Neg
2014
2016E
0,00
Neg
0,00
4,05
2015E
-14,6
Nm
-12,5
76%
2015E
27,8
28,3
787
-48
Free float (%)
Daily turnover (’000)
53 %
28
Analysts:
Klas Palin
2017E
2016E
-18,4
Nm
-17,3
Neg
Share information
Share price (SEK)
Number of shares (m)
Market Cap (MSEK)
Net debt (MSEK)
0,00
Neg
2017E
6,9
4,3
5,6
-49,2
24,7
-40,2
[email protected]
Björn Olander
[email protected]
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: [email protected]
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
Mostly positive
Significant reduction of
neuropathies seen in the
highest dose group
Our overall impression of the results released from the PLIANT study to
date can best be summarized as follows. The ball ended up in the goal, but
not in the top corner. The main target variable in the study was to show that
PledOx reduces the risk of nerve damage (neuropathy) in treatment with
the chemotherapy regimen FOLFOX. At the highest dose level (5 µmol/kg),
43 percent exhibited a lower incidence of neuropathy compared with the
placebo group. Although the results did not reach statistical significance (p
= 0.14), the difference between the groups is so large that it gives us good
reason to assume that the drug is effective. Equally important was to
establish that PledOx has not shown any negative influence on the anticancer effects of FOLFOX treatment. A relevant clinical decline was not
shown for neutropenia and thrombocytopenia, which is why we do not
classify the study as a shot into the top corner. However, we are convinced
that there is significant potential for a drug that reduces nerve damage from
FOLFOX therapy.
The next step is to clarify what kind of pivotal study will be required by
authorities in order to obtain market approval. Above all, we must secure a
meeting with the FDA, as the US is where the largest market potential
exists. The outcome of these discussions will be important to achieve a
partnership agreement concerning PledOx. PledPharma intends to
relatively quickly intensify partner discussions. We expect that it will take
approximately 12 months until this results in a license agreement, which is
in line with our expectations to date.
We are raising the
chances of PledOx
reaching the market
The results of the PLIANT study reinforce our belief in the project and we
have increased the likelihood of PledOx reaching the market to 50 (40)
percent. Because PledOx seems to have the power to reduce neuropathy
only, we dampen our view of the future pricing of the drug. In the US, we
have lowered our expectations to USD 2,000 (3,000) per treatment cycle
and globally we have lowered them to USD 1,500 (2,000) per treatment
cycle. We still maintain our assumptions about penetration and expect that
PledOx will be used in 30 percent of all oxaliplatin cycles in the major
pharmaceutical markets (Europe, Japan and the US).
Our lower expectations of the future pricing potential reduces the expected
peak sales that will be achieved for PledOx to USD 1.0 (1.4) billion.
Valuation
Our evaluation of PledPharma is based on a probability-adjusted cash-flow
model, where each project is valued separately over their terms of patent
(SOTP). Our fundamental value is, after the above-described changes, SEK
54 (42) per share; see table next page.
Pledpharma – Cash Flow Valuation
Company analysis
3
Pledpharma
Sum-of-the-parts Pledpharma
Project
Indication
Probability of
launch
PP-095, PledOx
Neurophaty - CIPN
PP-099
Reperfusion injury
PP-100, Aladote
Paracetamol intoxification
Royalty rate
(MUSD)
Top Sales
Launch
NPV
(MSEK)* (MSEK)*
50%
17%
1 020
2020
1 195
5%
10%
150
2022
20
25%
20%
250
2020
274
1 488
Tech value (MSEK)
Net cash (MSEK)
100
Administration costs (MSEK)
-63
Fair value (MSEK)
1 525
28,3
Number of shares, fully diluted (million)
Fair value per share (SEK)
54
* Valuation is based on SEK/USD 8,3 and a WACC of 16.6 %
Source: Redeye Research
The initial price reaction to the results of the study was very strong and the
stock has since come down, so the price is significantly lower than our
fundamental value. In the short term, the price is being squeezed by players
who purchased shares solely to be able to call the cards in the PLIANT
study. Another factor inhibiting the shares in the short term is the
expectation of a limited news flow.
In terms of news this year and next, the most important items will be
related to PledOx, which is the major value driver for the stock. We believe
it is likely, but not certain, that PledPharma will release more data from the
study later this year, which may help to further strengthen confidence in the
project.
Relative Valuation
The table below presents a summary of a number of Swedish research and
development companies in oncology.
Relative valuation – Swedish oncolgy companies
Market
value
Net
cash
Pledpharma
1007
Active Biotech
2430
Bioinvent
Immunicum
(millionSEK)
Oasmia
Wnt Research
EV/Tech
valuevärde
Projects
Partners
Development
phase
100
907
3
0
Phase II
329
2102
3
1
Phase III
255
46
209
3
5
Phase I/II
779
98
681
2
0
Phase II
1920
-1
1921
2
2
Phase III
978
35
943
2
0
Phase I
Source: Redeye Research
A comparison with other companies active in the cancer field, strengthens
our view that the market’s expectations of PledPharma are not inflated.
Company analysis
4
Pledpharma
Active Biotech and Oasmia are examples of companies with projects in
Phase III, where PledPharma is expected to be within 18 months.
Scenario analysis
Our risk-adjusted baseline scenario is summarized in the section Valuation
- PledPharma. Our Bull Case and Bear Case present a view of the
opportunities and risks in the shares over the next 18-24 months.
Bull Case gives a value of
SEK 78
In our optimistic Bull Case scenario, we have made the following
assumptions about critical factors over the next 18-24 months:
• The company manages to enter a partnership agreement concerning
PledOx
• PledOx advances to Phase III
• Phase II study commences for the Aladote project
Our fair value estimate in a Bull Case scenario amounts to SEK 78.
Bear Case gives a value of
SEK 14
In our Bear Case scenario, we have outlined a negative scenario for
PledOx.
• Despite promising results in Phase II, a solution has not been found to
drive the development of PledOx into phase III
• Focus is set on the PP-100 project
• The company continues to search for a partner for the PP-099 project
Our fair value estimate in a Bear Case scenario amounts to SEK 14.
Company analysis
5
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 7,0p
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 1,0p
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
6
Pledpharma
Income statement
Net sales
Total operating costs
EBITDA
2013
0
-26
-26
2014
0
-49
-49
2015E
0
-43
-43
2016E
150
-36
115
2017E
26
-42
-16
Depreciation
Amortization
Impairment charges
EBIT
0
0
0
-26
0
0
0
-49
0
0
0
-43
0
0
0
115
0
0
0
-16
Share in profits
Net financial items
Exchange rate dif.
Pre-tax profit
0
1
0
-26
0
0
0
-48
0
0
0
-43
0
0
0
115
0
0
0
-16
Tax
Net earnings
0
-26
0
-48
0
-43
0
115
0
-16
2013
2014
2015E
2016E
2017E
49
0
0
1
51
100
0
0
3
103
48
0
0
3
51
147
15
0
3
165
143
1
0
3
148
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
51
103
51
165
148
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
4
0
4
0
0
0
4
0
0
47
0
47
0
13
0
13
0
0
0
13
0
0
91
0
91
0
3
0
3
0
0
0
3
0
0
48
0
48
0
3
0
3
0
0
0
3
0
0
162
0
162
0
1
0
1
0
0
0
1
0
0
146
0
146
Total liab & SE
51
103
51
165
148
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
2013
0
-26
2014
0
-49
2015E
0
-43
2016E
150
-36
2017E
26
-42
0
-26
0
-26
0
-26
-3
0
0
-49
0
-49
0
-49
7
0
0
-43
0
-43
0
-43
-9
0
0
115
0
115
0
115
-15
0
0
-16
0
-16
0
-16
12
0
-29
-42
-52
99
-4
Capital structure
Equity ratio
Debt/equity ratio
Net debt
Capital employed
Capital turnover
rate
2013
92%
0%
-49
-2
0,0
2014
88%
0%
-100
-9
0,0
2015E
93%
0%
-48
0
0,0
2016E
98%
0%
-147
15
0,9
2017E
99%
0%
-143
3
0,2
Growth
Sales growth
EPS growth (adj)
2013
-99%
-30%
2014
0%
47%
2015E
Nm
-12%
2016E
100%>
-368%
2017E
-83%
-114%
DCF valuation
WACC (%)
16,6 %
Assumptions 2015-2021 (%)
Average sales growth
108,4
%
EBIT margin
24,6 %
Fair value e. per share, SEK
54,0
Share price, SEK
27,8
Data per share
EPS
EPS adj
Dividend
Net debt
Total shares
2013
-1,16
-1,16
0,00
-2,25
21,94
2014
-1,71
-1,71
0,00
-3,53
28,30
2015E
-1,51
-1,51
0,00
-1,70
28,30
2016E
4,05
4,05
0,00
-5,21
28,30
2017E
-0,57
-0,57
0,00
-5,07
28,30
Valuation
EV
P/E
P/E diluted
P/Sales
EV/Sales
EV/EBITDA
EV/EBIT
P/BV
2013
275,3
-12,7
-12,7
Nm
Nm
-10,6
-10,6
6,9
2014
607,5
-14,6
-14,6
Nm
Nm
-12,5
-12,5
7,8
2015E
738,5
-18,4
-18,4
Nm
Nm
-17,3
-17,3
16,4
2016E
639,4
6,9
6,9
5,2
4,3
5,6
5,6
4,8
2017E
643,4
-49,2
-49,2
30,3
24,7
-40,2
-40,2
5,4
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
Q1 report
Q2 report
Q3 report
Analysts
Klas Palin
[email protected]
Björn Olander
[email protected]
Company analysis
7
-4,1
6,5
81,7
11,2
%
%
%
%
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 %
13/15e
648,3 %
28,1 %
14,0 %
1,0 %
Votes
25,3 %
16,1 %
5,1 %
4,0 %
2,9 %
2,8 %
2,5 %
2,5 %
2,4 %
2,3 %
Pled.st
27,8
28,3
786,7
Jacques Näsström
Michaela Gertz
Håkan Åström
April 21, 2015
August 18, 2015
October 20, 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
2012
2013
2014
2015E 2016E 2017E
Net sales
-200000,0%
-400000,0%
-600000,0%
-800000,0%
2012
2013
2014
2015E 2016E 2017E
-1000000,0%
-1200000,0%
-1400000,0%
EBIT adj
EBIT margin
Equity & debt-equity ratio (%)
5
5
4
4
3
3
2
2
1
1
0
0
2012
0,0%
Net sales growth
Earnings per share
-1
200000,0%
2013
2014
2015E
2016E
2017E
-1
-2
-2
-3
-3
EPS, unadjusted
1
0,98
0,96
0,94
0,92
0,9
0,88
0,86
0,84
0,82
0,8
EPS, adjusted
100,0%
90,0%
80,0%
70,0%
60,0%
50,0%
40,0%
30,0%
20,0%
10,0%
0,0%
2012
2013
2014
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
8
2015E
2016E
2017E
Debt-equity ratio
Pledpharma
DISCLAIMER
Important information
Redeye AB ("Redeye" or "the Company") is a specialist financial advisory ooutique that focuses on small and mid-cap growth companies in the Nordic
region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and
investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful
distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory
Authority.
Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare
and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients,
place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction
with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization).
Limitation of liability
This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this
analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking
information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that
forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be
one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with
additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage
resulting from the use of this analysis.
Potential conflict of interest
Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity
and independence of its analysts. The following applies:
•
For companies that are the subject of Redeye’s research analysis, the applicable rules include those established by the Swedish Financial
Supervisory Authority pertaining to investment recommendations and the handling of conflicts of interest. Furthermore, Redeye employees are
not allowed to trade in financial instruments of the company in question, effective from 30 days before its covered company comes with financial
reports, such as quarterly reports, year-end reports, or the like, to the date Redeye publishes its analysis plus two trading days after this date.
•
An analyst may not engage in corporate finance transactions without the express approval of management, and may not receive any
remuneration directly linked to such transactions.
•
Redeye may carry out an analysis upon commission or in exchange for payment from the company that is the subject of the analysis, or from an
underwriting institution in conjunction with a merger and acquisition (M&A) deal, new share issue or a public listing. Readers of these reports
should assume that Redeye may have received or will receive remuneration from the company/companies cited in the report for the performance
of financial advisory services. Such remuneration is of a predetermined amount and is not dependent on the content of the analysis.
Redeye’s research coverage
Redeye’s research analyses consist of case-based analyses, which imply that the frequency of the analytical reports may vary over time. Unless otherwise
expressly stated in the report, the analysis is updated when considered necessary by the research department, for example in the event of significant
changes in market conditions or events related to the issuer/the financial instrument.
Recommendation structure
Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating
model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in
question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decisionmaking.
Redeye Rating (2015-04-22)
Rating
7,5p - 10,0p
3,5p - 7,0p
0,0p - 3,0p
Company N
Management
Ownership
26
54
2
82
32
43
7
82
Growth
Prospect
12
68
2
82
Profitability
8
29
45
82
Financial
Strength
17
31
34
82
Duplication and distribution
This document may not be duplicated, reproduced or copied for purposes other than personal use. The document may not be distributed to physical or
legal entities that are citizens of or domiciled in any country in which such distribution is prohibited according to applicable laws or other regulations.
Copyright Redeye AB.
Company analysis
9