Zeltia .Repositioning for Growth
18 March 2015 .
Zeltia is laying the groundwork for an important 12-18 month period that could provide significant growth and value creation. Plans to restructure the group (through a reverse merger whereby its PharmaMar division will absorb the parent company, Zeltia) and seek an IPO in the US could be transformational in terms of strengthening its financial and commercial abilities. Then there is the potential for the oncology pipeline to provide upside as it enters a catalyst-rich period. We raise our valuation to €1.03bn or €4.65 per share, ahead of a number of key catalysts in 2015.
Getting the right corporate structure in place…
The real long-term value driver in Zeltia’s biopharma/chemicals subsidiaries is PharmaMar, with marketed (Yondelis) and late-stage (PM01183/Aplidin) oncology drugs. The group is now proposing a reverse merger whereby Zeltia will be absorbed by PharmaMar, with one PharmaMar share exchanged for one Zeltia share and PharmaMar shares then listed. We view this as a positive development in resetting the story onto the established and emerging oncology portfolio, which should then help attract significant investor interest in a potential US IPO.
...while entering a catalyst-rich period…
Yondelis, already marketed in 80 countries, could gain important new regulatory approvals in 2015 as a second-line treatment for STS (soft tissue sarcoma) in the US (PDUFA in July) and Japan (Q315). This could significantly boost revenues through milestones and royalties from its partners (Janssen in the US, Taiho in Japan). PM01183 (a Yondelis follow-on) has generated highly encouraging clinical data in ovarian cancer and SCLC and is poised for rapid development in 2015. Data from a Phase III study with Aplidin in multiple myeloma are due in Q415.
...supported by solid financials to reduce net debt
FY14 net revenues increased 6% to €149.7m, with EBITDA growth of 8% to €25.7m, despite a significant increase oncology R&D expense (+24% to €45.3m). With the prospect of new market launches and milestones for Yondelis, we forecast further EBITDA improvement in FY15e to €29.1m (despite higher R&D). Increased cash flow should help to further reduce net debt (FY14: €56m; FY15e: €45.7m).
Valuation: Increased to €1.03bn or €4.65 per share
We have increased our DCF model to €1.03bn (vs €930m) or €4.65/share (vs €4.19/share). This is due to a number of factors, including an increase in probability for PM01183 in SCLC (to 50% from 15%) and a positive FX benefit (US$1.10:€ vs 1.27). We note our valuation represents fair value ahead of key catalysts in 2015.