Medigene’s decision to expand its clinical programme for RhuDex in primary biliary
cirrhosis (PBC) should result in a more meaningful outcome than would have been
possible under previous plans. Although the revised Phase II study wil now not start
until H114 (previously a Phase IIa was to start in Q113), we believe the delay should be worth it in the long run, making RhuDex a more valuable and attractive asset to
support partnering and/or financing. We have pushed back our estimated launch for
RhuDex in PBC by two years to 2019 and reduce our valuation by €4m to €83m.
Note: *PBT and EPS are normalised, excluding intangible amortisation and exceptional items.
Seeking a more meaningful outcome Plans to develop RhuDex for PBC, an autoimmune disorder of the liver, were announced six months ago as a shrewd move to fast track development of a drug previously being developed for rheumatoid arthritis. The original proposal was to conduct a 60-patient, three-arm (dose-ranging), open-label, three-month treatment
study in PBC. Medigene now plans to switch to a double-blinded study, add a fourth
(placebo control) arm, making 80 patients in total, and dose patients for six months.
Medigene needs to complete further preclinical work and wil seek regulatory approval
of the revised trial protocol, meaning the Phase II study wil now start by H114. With a six-month treatment period and an estimated six-to-nine months to recruit all 80
Medigene is a German biotech company with a focus on cancer and autoimmune
patients, headline results should be available in H215. A pivotal study of 150-200
diseases. It has brought two products to
patients, dosed for 12 months, would likely be required for approval, suggesting a
the market – Eligard for treating prostate
potential launch by the end of 2018 or early-2019.
cancer and Veregen for genital warts – and research efforts are currently focused on
Costs deferred, but financing requirement remains
Although the bulk of trial costs (estimated at €2.5m on the basis of c €30,000 per
patient cost) are now deferred to 2014 and beyond, we stil see a funding requirement
in H214. However, with a more robust clinical programme for RhuDex, targeting an
attractive orphan drug market (estimated at $800m), Medigene should have a more
compelling case to attract further investment in RhuDex. Medigene wil provide further
trial details and the impact on its financial outlook at its FY12 results on 22 March.
The delay to RhuDex’s timeline and a reduction in Medigene’s latest cash reserve
(FY12 net cash estimated at €20m vs €26m at June 2012) reduces our overall
valuation of Medigene by €4m to €83m. We have decreased R&D estimates for 2012
and 2013, to €7m (vs €8m) and €7.5m (€8.8m), respectively.
Medigene is a research client of Edison Investment Research Limited
Update: Expansion of RhuDex’s clinical programme
RhuDex is a smal -molecule CD80 inhibitor, under development as an orally available disease-modifying anti-rheumatic agent (DMARD). Although its biggest commercial potential may be in the rheumatoid arthritis (RA) setting – a Phase IIa trial in 2008 in 29 RA patients showed signs of activity – Medigene has made a shrewd move in targeting PBC to accelerate development in an attractive orphan drug market opportunity. While the revised plan for RhuDex extends the timeline to reaching the next data and therefore valuation inflection point, Medigene’s decision now presents a stronger and more compelling case to attract the financing required to complete the Phase II study.
PBC is an autoimmune disease of the liver, a chronic disorder in which the bile ducts are progressively destroyed by inflammatory processes. Excess bile causes liver tissue damage, which leads to fibrosis and cirrhosis of the liver. The activation of T-cells – via a CD28-CD80 interaction between antigen-presenting cells and T-cells, the process specifically inhibited by RhuDex – is thought to be involved in the pathogenesis of PBC.
PBC affects an estimated 200,000 to 300,000 people across the developed countries of North America, Europe and Japan. Diagnosis is relatively straightforward and well-defined, but few treatment options exist and those that are available (Ursodiol) are more symptomatic in nature. A disease-modifying agent for PBC would therefore be of huge benefit to patients, which presents RhuDex with an attractive opportunity. We previously estimated the PBC market opportunity at $800m and RhuDex peak potential sales of $200m.
To il ustrate the potential of the PBC opportunity, we highlight Intercept Pharmaceuticals, a US company currently valued at $620m, having raised $85m through an IPO in October 2012. Intercept’s FXR agonist, obeticholic acid, is undergoing a 200-patient Phase II pivotal study (results in Q214) in PBC and is fundamental to its near-term investment case. Intercept’s candidate is the most advanced in development for PBC, initially targeting patients not responding to Ursodiol, and is followed by J&J’s ustekinumab and NovImmune’s NI-0801, both monoclonal antibodies in Phase II trials.
A further attraction of PBC is the relatively clearly defined clinical trial end points, with primary targets of current trials measuring a reduction in alkaline phosphatase (AP) and bilirubin levels. In addition, most PBC patients do not receive immunomodulatory drugs, such as methotrexate, which is important as it could also provide evidence that RhuDex does not impair the body’s natural ability to mount a spontaneous inflammatory reaction, which would have read across to RhuDex’s future development for RA.
The delay to RhuDex’s timeline and a reduction in Medigene’s latest cash reserve (FY12 net cash estimated at €20m vs €26m at June 2012) reduces our overal valuation of Medigene by €4m to €83m. This shows clear upside to Medigene’s €38m market capitalisation.
A summary of our valuation inputs for RhuDex in RA and PBC, together with Medigene’s other products – marketed genital warts ointment Veregen and breast cancer agent EndoTAG-1 – is displayed in Exhibit 1.
Exhibit 1: Medigene valuation model inputs
Source: Edison Investment Research. Note: Assumes EndoTAG-1 use for triple-negative breast cancer only.
RhuDex was acquired by Medigene in 2006 through the purchase of Avidex. In 2001, Avidex licensed Active Biotech’s CD80 antagonists for the potential treatment of autoimmune diseases, a deal that includes royalties (at an undisclosed rate) on product sales. Given the early stage of the deal between Avidex and Active Biotech, we have assumed that the original deal terms have not changed and Medigene wil pay just 1-2% royalties on RhuDex sales to Active Biotech. Our 12% estimated royalty rate for RhuDex is therefore net of the royalties owing to Active Biotech. Generating positive Phase II data in PBC would help to de-risk the programme and lead to increasing our probability of success and therefore valuation.
Key sensitivities associated with this valuation centre on the progress of RhuDex, particularly the outcome of the Phase II trial in PBC. Clinical trial recruitment for orphan drug indications can be slower than larger indications. In comparison to RA, the underlying disease mechanisms behind PBC are not so extensively defined, particularly the extent to which the CD28-CD80 interaction is involved in PBC pathogenesis, which could affect the outcome of the Phase II study.
A key sensitivity to Medigene’s investment case is its ability to raise the additional finance we estimate wil be required to complete the expanded Phase II study for RhuDex, although the returns on successful completion of the trial could be significant.
The procurement of Veregen and currency exchange fluctuations are also important sensitivities. A failure to secure further development partners for EndoTAG-1 (SynCore is assuming 50% of pivotal trial costs in triple-negative breast cancer) would have a negative impact on our overall valuation of Medigene.
As a result of the shift in RhuDex’s clinical timelines, we have reduced our R&D estimates for 2012 and 2013 to €7m (vs €8m previously) and €7.5m (vs €8.8m), respectively. We expect a jump in R&D expenses for 2014 to €9m.
With cash reserves estimated at €11m by the end of 2013, Medigene is funded through to the end of 2014, but in reality is likely to require fresh funds during 2014. A financing initiative ahead of the start of the Phase II RhuDex study cannot be ruled out.
A summary of our financial model is displayed in Exhibit 2.
Selling, general & administrative spending
Operating profit (before GW and except.)
Profit/(loss) from discontinued operations
Average number of shares outstanding (m)
Source: Edison Investment Research. Notes: Excludes potential licensing deals yet to be signed. €14.1m from Cowen Royalty in 2012 for
2% EU Eligard royalties is accounted for as a financial liability (deferred revenue), which wil be amortised, pro rata, over 10 years. EBITDA
does not include €5m profit from discontinued operations in 2012 (company’s EBITDA guidance of mid-single digit €m loss in 2012 includes the €5m discontinued profit).
Edison Investment Research Limited (Edison) is a leading international investment research company. Edison and its subsidiaries (Edison Group) have won industry recognition, with
awards both in Europe and internationally. The team of 95 includes over 60 analysts supported by a department of supervisory analysts, editors and assistants. Edison writes on more
than 400 companies across every sector and works directly with corporates, fund managers, investment banks, brokers and other advisers. Edison’s research is read by institutional
investors, alternative funds and wealth managers in more than 100 countries. Edison, founded in 2003, has offices in London, New York, Sydney and Wel ington. Edison is authorised and
regulated by the United Kingdom’s Financial Services Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the
New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or
generic financial adviser services only.
Copyright 2013 Edison Investment Research Limited. Al rights reserved. This report has been commissioned by Medigene and prepared and issued by Edison for publication globally. All
information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or
completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose
of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c)(1)(a), (b) and (c) of the FAA). It is not intended for retail clients. This is not a solicitation or inducement to buy, sel ,
subscribe, or underwrite securities. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment. Edison has a restrictive
policy relating to personal dealing. Edison Group does not conduct an investment business and, accordingly, does not hold any positions in the securities mentioned in this report.
However, their respective directors, officers, employees and contractors may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform
services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden
swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a
guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts
not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject
matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only
and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this
document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie
without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent
permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees wil not be liable for any loss or damage arising as a result of reliance being
placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication.
Registered in England, number 4794244, Edison Investment Research Limited is authorised and regulated by the United Kingdom Financial Services Authority. www.edisoninvestmentresearch.co.uk. Registered on the New Zealand Financial Service Providers Register, number 247505, Edison Investment Research (NZ) Limited is registered to provid
wholesale and/or generic financial adviser services and is regulated by the New Zealand Financial Markets A uthority.
Level 33, Australia Square, 264 George St,
By Manfred Mueller, RSHom(NA), CCH T he tautopathic method in homeopathy is one that London coined the term “tautopathy.”1 Everitt was a Trustee I have seen great benefit from in my own practice. of the Royal London Homeopathic Hospital who reportedly When used as a pretreatment, it can be very effec- donated “boxed homeopathic remedies to every graduate of tive in removing obstacl