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goetzpartners securities Limited
Epigenomics (ECX-DE): 2018 results highlight strong underlying growth momentum
28-March-2019 / 19:54 GMT/BST
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*Published to the market and investors on 28th March 2019 @ 12.03pm (GMT).*
*Epigenomics (ECX-DE): 2018 results highlight strong underlying growth
momentum*
*Recommendation: OUTPERFORM*
*Target Price: EUR4.01 *
*Current Price: EUR1.76 (CoB on 27th March 2019) *
*KEY TAKEAWAY*
Having reached a number of critical milestones throughout 2018, Epigenomics
reported FY2018 product sales of 0.8m (47% YoY), highlighting the company's
strong underlying growth momentum. While total sales of EUR1.5m (-18% YoY)
were slightly below our revenue expectations, largely due to a reduction in
licensing revenue associated with a one-off patent sale in Q4/2017, product
sales in Q4/2018 increased by 7% YoY. We are revising our sales forecasts for
FY2019E and out-years as a result of the recently announced termination of the
collaboration with Chinese licensing partner BioChain and to account for the
recently published 2019E revenue guidance in the range of EUR3.0m to EUR6.0m.
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
both our OUTPERFORM recommendation and EUR4.01 target price ("TP").
*Strong underlying growth momentum expected to carry forward into 2019E*
Epigenomics has reached a number of significant milestones throughout 2018,
including a final reimbursement rate for Epi proColon of $192.00, CE marking
of HCCBloodTest for liver cancer as well as a successful capital increase.
Reimbursement coverage remains a primary focus for the company going forward,
with FDA submission for HCCBloodTest also expected later this year. Success on
both fronts would represent a turning point for the company and lay a strong
foundation for sustainable long-term growth.
*FY2018 financial review*
Epigenomics reported total revenue for FY2018 of EUR1.5m and an operating loss
of EUR12.9m. The EUR2.1m increase in R&D expenditure (48% YoY) is mainly
attributable to the post approval study, we therefore anticipate lower R&D
expenses for 2019E. Strengthened by a recent capital increase with gross
proceeds of EUR22.3m, YE2018 cash stood at EUR17.1m, which should allow the
company to fund operations into 2020E.
*Adjusting 2019E sales and beyond*
We have updated our 2019E and out-year forecasts to reflect the recent
termination of the license agreement with BioChain and to account for 2019E
revenue guidance of EUR3.0m to 6.0m. We expect Epigenomics to enter a phase of
rapid growth, fuelled by a positive coverage decision for Epi proColon, and
believe the results of the microsimulation study will facilitate
much-anticipated inclusion into the American Cancer Society ("ACS") updated
colorectal screening guidelines.
*Valuation suggests ample upside*
With the recent CE marking for HCCBloodTest, in our view, the key uncertainty
remains medicare coverage and inclusion into medical guidelines for Epi
proColon. With the new liver product de-risking the commercial outlook,
Epigenomics offers a highly attractive investment opportunity with significant
potential for growth. We maintain and reiterate both our OUTPERFORM
recommendation and TP of EUR4.01.
Kind regards,
Martin Piehlmeier | 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.piehlmeier@goetzpartners.com /
healthcareresearch@goetzpartners.com
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793305 28-March-2019
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