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goetzpartners securities Limited
4SC AG (VSC-DE): On track and undervalued
09-Aug-2018 / 07:33 GMT/BST
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*4SC AG (VSC-DE): On track and undervalued*
*Recommendation: OUTPERFORM*
*Target Price: EUR10.00 *
*Current Price: EUR4.01 (cob on 8th August 2018)*
*KEY TAKEAWAY*
4SC's H1/2018A report published today indicates that the company remains on
track, but is fundamentally undervalued. As detailed in our note of the 16th
July, financed into 2020E, the company's current valuation is largely
justified by its pivotal stage resminostat ("RESMAIN") programme. It takes
little or no account of the potential value of the domatinostat currently in
Phase II in combination with the immune checkpoint inhibitor ("ICI")
pembrolizumab for melanoma. First interim data from the domatinostat
("SENSITIZE") trial due in H1 should provide a substantial catalyst for the
stock now trading at less than half of its early 2018 peak. Preclinical
studies and positive data from sub-optimally dosed drugs of the same class
support a synergy between immune checkpoint inhibitors ("ICI") and
domatinostat. We maintain and reiterate both our OUTPERFORM recommendation and
TP of EUR10.
*Resminostat justifies valuation* - The use of resminostat as a maintenance
therapy is well supported by both clinical and biological proof-of-concept.
Recent preclinical data supports resminostat's mechanism of action. The
potential of resminostat has been endorsed by 4SC's Japanese partner in
H1/2018A, who elected to join the RESMAIN trial, as well as initiate a Phase
II trial for resminostat in biliary tract cancer. We are comfortable the
current valuation is supported by resminostat alone.
*Interim data catalyst in H2/2018E* - Domatinostat-pembrolizumab combo is in
Phase II (SENSITIZE) trial in pembro-resistant metastatic melanoma. Interim
data from the first two cohorts due in H2/2018E may provide a catalyst prior
to the trial read out in 2019E.
*Sound basis for HDACi-ICI combos* - Preclinical and clinical data strongly
support HDACi immunostimulatory action. ICI combination with HDACi entinostat
is generating positive data in cancers including melanoma and lung cancer
despite likely sub-optimal dosing resulting from drug-specific toxicities.
Superior domatinostat tolerability facilitates optimal dosing; therapeutic
impact expected to exceed other Class I HDACi including entinostat.
*Further upside from partnering and trial data* - 4SC anticipates generating
further news flow from out-licensing of non-core assets as well as potential
partnering opportunites with domatinostat. An additional Phase II ("EMERGE")
study with domatinostat in combination with the ICI avelumab is due to start
in Q1/2019E with first readout in H2/2019E.
*Remains undervalued *- Our risk DCF analysis indicates a fair value of
EUR4.40 / share on the basis of the resminostat alone. This rises to EUR7.10 /
share when including the in-house domatinostat programmes. Assuming the
company out-licenses domatinostat to major partners drives the valuation to
EUR10.30 / share. This would increase to over EUR14 / share as the drug
successfully moves through clinical trials over the next 6 -12 months. We
reiterate both our OUTPERFORM recommendation and TP of EUR10.
Kind regards,
Dr. Chris Redhead | Analyst
goetzpartners Healthcare Research Team | Research Team
goetzpartners securities Limited
The Stanley Building, 7 Pancras Square, London, N1C 4AG, England, UK.
T +44 (0) 203 859 7725 | chris.redhead@goetzpartners.com /
healthcareresearch@goetzpartners.com
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(END) Dow Jones Newswires
August 09, 2018 02:33 ET (06:33 GMT)
