DJ Epigenomics (ECX-DE): Q3 -Milestone completion triggers more commercial momentum
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goetzpartners securities Limited
Epigenomics (ECX-DE): Q3 -Milestone completion triggers more commercial
momentum
08-Nov-2018 / 10:45 GMT/BST
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*Epigenomics (ECX-DE): Q3 - Milestone completion triggers more commercial
momentum*
*Recommendation: OUTPERFORM*
*Target Price: EUR4.01*
*Current Price: EUR2.14 (CoB on 7th November 2018) *
*KEY TAKEAWAY*
Epigenomics reported solid Q3 sales of EUR0.5m (57% YoY) and narrowed its
FY2018E revenue forecast to EUR1.5m - EUR2.5m, slightly below our estimates.
We expect revenue generation to be catalysed by the variety of positive recent
news flow, such as the successful CE-marking of HCCBloodTest, the latest
addition to Epigenomic's growing portfolio of liquid biopsy tests, which
allows for blood-based detection of liver cancer. This will add to the
increasing momentum around Epi proColon with reimbursement rate of $192,
making it the highest reimbursed molecular screen test in the US and paving
the way for inclusion in the 2019 Clinical Laboratory Fee Schedule expected to
be published 11/2018. We continue to see the positive commercial outlook of
Epigenomic's liquid biopsy tests due to a differentiated profile, fast
readouts, large target markets and a significant health-economic impact. We
maintain and reiterate our OUTPERFORM recommendation and our TP of EUR4.01.
*Q3/2018 financial results and adjusted outlook for FY2018E*
Epigenomics reported Q3/2018 sales of EUR0.5m (57% YoY), bringing the 9M/2018
revenue to EUR1.3m. The increase was mainly due to a 73% increase in product
revenue and additional licensing income. The gross margin of 77% remained
relatively level vs. 79% in Q3/2017, however, the increase in gross profit was
offset mainly by a 123% increase in R&D costs and a 157% increase in SG&A
costs, which were mainly driven by one-off payments associated with the
post-approval study for Epi proColon in the US and legal costs. Epigenomics
closed Q3 with a net loss of EUR3.0m and a cash position of EUR5.8m (EUR6.6m
including marketable securities) and narrowed its revenue forecast for FY2018E
to EUR1.5m - EUR2.5m from EUR2.0m - 4.0m, which is slightly below our forecast
of EUR3.9m.
*CE mark obtained for liquid biopsy test for liver cancer detection*
Epigenomics recently received CE-marking for its blood-based liquid biopsy
test ("HCCBloodTest") for the detection of liver cancer in high-risk patients
with cirrhosis. In order to pave the way for FDA approval, Epigenomics intends
to initiate a prospective trial in the US in 2019. In addition, the company is
also evaluating strategic avenues to gain CFDA approval to be able to
capitalise on the substantial commercial opportunity represented by the
Chinese market. A c.EUR3bn global market together with the growing trend
towards liquid biomarkers make liver cirrhosis surveillance for HCC a
promising opportunity for Epigenomics.
*US study launched to investigate screening adherence impact of Epi proColon*
Epigenomics recently announced that the Veterans Administration in New York is
conducting a study to assess the impact of a blood-based colorectal cancer
("CRC") test on screening adherence in patients who have refused other forms
of testing such as colonoscopy or stool-based screening. CRC is the fourth
most common cancer in the US and current screening rates are far from optimal.
Since regular CRC screening can drastically improve disease management and
treatment outcomes, we see a strong need for less invasive blood-based screens
such as Epi proColon that can reduce the number of unscreened patients, thus
reducing mortality and unnecessary treatment expenditures.
*Gross proceeds of EUR22.3m from recent capital increase*
Epigenomics successfully completed a capital increase with subscription rights
in October, which generated gross proceeds of EUR22.3m. 67% of new shares were
issued to existing shareholders, the remaining shares were subsequently
offered to institutional investors as part of an international private
placement.
*Valuation suggests ample upside*
With the recent CE marking for HCCBloodTest, in our view, the key uncertainty
remains coverage and inclusion into medical guidelines for Epi proColon. With
the new product candidate de-risking the commercial outlook, Epigenomics
offers a highly attractive investment opportunity with significant potential
for growth. We maintain and reiterate our OUTPERFORM recommendation and TP of
EUR4.01.
Kind regards,
Martin Brunninger | 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 | martin.brunninger@goetzpartners.com /
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