Big Week! How Big?, page-18

FYI






22 November 2017 Starpharma (SPL) NDA filed for US approval for VivaGel BV Recommendation Buy (unchanged) Price $1.425 Valuation $1.78 (previously $1.32) Risk Speculative Analyst Tanushree Jain 612 8224 2849 Authorisation TS Lim 612 8224 2810 GICS Sector Pharmaceuticals & Biotechnology Expected Return Capital growth 25.0% Dividend yield 0.0% Total expected return 25.0% Company Data & Ratios Enterprise value $471.2m Market cap $528.0m Issued capital 370.51m Free float 100% Avg. daily val. (52wk) $441,558 12 month price range $0.645 - $1.51 Price Performance BELL POTTER SECURITIES LIMITED ABN 25 006 390 7721 AFSL 243480 DISCLAIMER: THIS REPORT MUST BE READ WITH THE DISCLAIMER ON PAGE 8 THAT FORMS PART OF IT. Page 1 (1m) (3m) (12m) Price (A$) 1.34 0.93 0.69 Absolute (%) 7.12 53.76 107.25 Rel market (%) 6.15 50.35 95.67 Speculative See Key risks on Page 6 & Biotechnology Risk Warning on Page 8 Speculative securities may not be suitable for Retail clients VivaGel BV well on path to US approval SPL has submitted its NDA to the FDA for both the treatment and prevention of recurrence indications for BV. The company has both the Fast track and the Qualified Infectious Disease Product (QIDP) designation from the FDA which makes it eligible for priority review and we therefore expect a 6 month FDA review time, with launch expected in FY19. The current submission includes 3 of the 5 main modules, with the remaining to be submitted in the near term under a rolling submission process. We believe the achievement of the filing milestone will assist SPL in its ongoing partnering negotiations for VivaGel (Ex ANZ). SPL has engaged a US bank to assist it with this process and we understand a number of term sheets are under discussion. We expect a licensing deal for BV in the near term will lead to further cash injection and allow SPL to focus completely on its core high value add drug delivery business. FY18 to be a transformational year for SPL FY18 is already proving to be a transformational year for SPL with the momentum expected to continue based on significant progress expected across its DEP drug delivery business and approval and licensing of its late stage VivaGel BV product. Key catalysts include a) licensing deal for VivaGel BV; b) release of pre-clinical data on SPL/AstraZeneca’s AZD0466 in Dec’17, followed by initiation of Phase 1 trial in 1QCY18 which triggers a US$3m milestone, c) initiation of Phase 1 trial with DEP cabazitaxel and d) launch of VivaGel BV by Aspen in Australia in 1QCY18. Valuation lifted to $1.78, Retain Buy (speculative) Revisions to our model have resulted in an increase in our NPAT forecasts for FY18 to FY20 driven by increased probability of success assigned to VivaGel BV (80% vs 70%), DEP docetaxel (30% vs 20%), inclusion of sales milestones from a VivaGel RBV deal and inclusion of lung and prostate cancer indications for DEP docetaxel in our model. The short term NPAT adjustments, currency adjustments and rolling forward of our DCF model has lifted our valuation to A$1.78/sh. In the coming months we intend to model royalties to SPL on net sales of its AZN partnered candidate and include DEP cabazitaxel on moving to Phase 1. Cumulatively these represent an upside to our valuation and hence we retain Buy (spec). SPL remains in our Top FY18 picks. Absolute Price Earnings Forecast Year end 30th June 2016A 2017A 2018E 2019E 2020E Revenue (A$m) 7.3 6.2 25.5 50.5 24.5 EBITDA (A$m) -22.5 -15.5 6.3 33.9 11.5 NPAT (reported) (A$m) -22.7 8.2 4.8 24.3 8.8 NPAT (adjusted) (A$m) -22.7 -15.2 4.8 24.3 8.8 EPS (reported) (cps) -6.57 2.23 1.30 6.49 2.35 EPS (adjusted) (cps) -6.57 -4.13 1.30 6.49 2.35 EPS (adjusted) growth (%) N/A N/A NM 400.1% -63.9% PER (x) N/A N/A 109.7 21.9 60.7 EV/EBITDA (x) -20.9 -30.3 75.3 13.9 40.9 Dividend (¢ps) 0.0 0.0 0.0 0.0 0.0 Yield (%) 0.0% 0.0% 0.0% 0.0% 0.0% Franking (%) N/A N/A N/A N/A N/A ROE (%) -45.9% -25.0% 7.1% 25.7% 8.4% SOURCE: IRESS NOTE: REVENUE INCLUDES R&D TAX INCENTIVES AND UPFRONTS & MILESTONES FROM DEALS. FY18/FY19 REVENUE ALSO INCLUDE POTENTIAL UPFRONT AND MILESTONES FROM VIVAGEL SYMPTOMATIC RELIEF, TREATMENT, PREVENTION OF R-BV AND DEP DOCETAXEL DEALS, MILESTONES FROM AZN AND ROYALTIES. SOURCE: BELL POTTER SECURITIES ESTIMATES $0.3 $0.5 $0.7 $0.9 $1.1 $1.3 $1.5 $1.7 Nov 15 Mar 16 Jul 16 Nov 16 Mar 17 Jul 17 SPL S&P 300 Rebased Page 2 Starpharma (SPL) 22 November 2017 Earnings and Valuation Changes We have revisited our assumptions for Starpharma and made adjustments to our forecasts based on recent newsflow, which have impacted earnings and valuation. Key changes to our modelling assumptions • We have increased our probability of success assigned to VivaGel BV for both indications treatment and prevention of recurrence (R-BV) to 80% (was 70%), following the rolling NDA submission made to the FDA. The company has both the Fast track and the Qualified Infectious Disease Product (QIDP) designation from the FDA which makes it eligible for priority review and we therefore expect a 6 month FDA review time. The current submission includes 3 of the 5 main modules, with the remaining to be submitted in the near term. While we continue to expect approval for the BV treatment indication in FY18, we now assume first sales from it in FY19 (was 2HFY18), in a similar timeframe as the R-BV indication. • With the NDA filed and SPL in advanced partnering discussions, we now model our previously assumed US$160m in commercial milestones from a potential deal for VivaGel for R-BV. • Following marketing approval for VivaGel for Bacterial Vaginosis (BV) treatment in Australia last month, partner Aspen expects to launch the OTC product as Fleurstat BV gel in the New Year (early CY18). Hence we now expect first sales in Australia in 2HFY18 (was 1HFY18). • We have increased our probability of success assigned to DEP docetaxel to 30% (was 20%), following the commencement of the Phase 2 trial. • We have revised our model to include the lung cancer and prostate cancer indications for DEP docetaxel. • We have updated our model with revised BPe USD/AUD currency assumptions for 2019 onwards (0.75). • We have rolled forward our DCF model. The net result is an increase in our NPAT forecasts for FY18 to FY20 driven by increased probability of success assigned to VivaGel BV treatment and R-BV (80% vs 70%), DEP docetaxel (30% vs 20%), inclusion of previously assumed potential sales milestones from a VivaGel R-BV deal and inclusion of lung and prostate cancer indications for DEP docetaxel in our model. The short term NPAT adjustments, currency adjustments and rolling forward of our DCF model has lifted our valuation for SPL to A$1.78/sh (was A$1.32/sh). In the coming months we intend to model potential royalties to SPL on net sales of its AZN partnered candidate AZD0466 from a first indication, likely in a form of blood cancer. We also expect to include DEP cabazitaxel in our model once it moves to Phase 1. Cumulatively these represent an upside to our current valuation of SPL and hence we retain our Buy (Speculative) recommendation. Table 1 - Key Changes to our FY18-20 Forecasts ALL AMOUNTS IN AUD IN MILLIONS EXCEPT EPS. SOURCE: BELL POTTER SECURITIES ESTIMATES Old New Change (%) Old New Change (%) Old New Change (%) Revenues 23.8 25.5 7% 44.6 50.5 13% 23.6 24.5 4% Interest Income 1.0 1.0 0% 1.3 1.3 0% 1.6 1.6 0% R&D 13.2 13.2 0% 10.5 10.5 0% 6.8 6.8 0% G&A 6.0 6.0 0% 6.1 6.1 0% 6.2 6.2 0% EBITDA 4.6 6.3 36% 28.0 33.9 21% 10.6 11.5 9% EBIT 4.2 5.9 39% 27.6 33.4 21% 10.1 11.1 9% NPAT (adjusted) 3.7 4.8 31% 20.2 24.3 20% 8.2 8.8 8% Adjusted Diluted EPS 1.0 1.3 31% 5.4 6.5 20% 2.2 2.3 8% FY2018E FY2019E FY2020E We value SPL at $1.78/sh Page 3 Starpharma (SPL) 22 November 2017 Our DCF valuation model is based on a WACC of 16.0% and a terminal growth rate of 1%. Table 2 - Summary of Valuation SOURCE: BELL POTTER SECURITIES ESTIMATES Table 3 - SPL- Probability-Weighted Sum-of-parts Valuation Summary GLOBAL PEAK SALES ARE PRE-RISK ADJUSTMENT AND ROYALTIES. BV = BACTERIAL VAGINOSIS. PEAK SALES FOR COATED CONDOM FOR OKAMOTO AND ANSELL ARE BASED ON REGIONS UNDER AGREEMENT WITH THEM. PEAK SALES FOR VIVAGEL SYMPTOMATIC RELIEF IS FOR EX-US MARKETS ONLY. PEAK SALES FOR VIVAGEL BV TREATMENT IS FOR US MARKET ONLY. AZN DEP CANCER DRUG ONLY INCLUDES UPFRONT, DEVELOPMENT AND LAUNCH MILESTONES FROM LEAD DRUG UNDER AGREEMENT. SOURCE: BELL POTTER SECURITIES ESTIMATES Table 4 - Deal Assumptions for SPL NOTE: OUR DEP DOCETAXEL DEAL ASSUMPTIONS ARE CONSERVATIVE REFLECTING ITS EARLY STAGE. IT COULD POTENTIALLY HAVE ADDITIONAL VALUE FOR EACH ADDITIONAL INDICATION THAT THE LICENSEE PURSUES. WE DO NOT INCLUDE COMMERCIAL MILESTONES IN OUR MODEL AT THIS STAGE FOR DOCETAXEL DEAL. ROYALTIES ARE LIKELY TO BE TIERED FOR EACH DEAL. WE ASSUME FLAT RATE AT MID POINT OF RANGE FOR NOW. AZN DEP CANCER DRUG ONLY INCLUDES UPFRONT, DEVELOPMENT AND LAUNCH MILESTONES FROM LEAD DRUG UNDER AGREEMENT. SOURCE: BELL POTTER SECURITIES ESTIMATES Upside Risk to our valuation We have not modelled SPL’s potential revenue flow from its undisclosed partnerships in drug delivery (partnership with 2 undisclosed companies on antibody-targeted conjugates). These partnerships becoming substantial in future and converting to a commercial licensing deal with financial terms would lead to an upside to our estimates. At this stage we do not model royalties and sales milestones attached to the lead cancer drug under the AstraZeneca (AZN) partnership. Sales milestones are estimated to be US$60m and SPL estimates that royalties over the life of the lead drug could amount to ~US$324m. We also do not include any value for the follow on compounds under the AZN agreement including the second molecule selected by AZN which are each worth up to US$93.3m in milestones. We intend to model royalties and sales milestones for the lead drug in a first indication, likely a form of blood cancer, which represents an upside to our estimates. Other follow on compounds moving into the clinic would be a potential upside to our estimates. Forecasts Base case Enterprise Value from DCF (AUDm) 622.5 Add: Reported Cash (AUDm) 56.9 Less: Debt (AUDm) 0.1 Equity Value (AUDm) 679.3 Total diluted shares (million) 381.5 Value per share (AUD) $1.78 Current Share price (AUD) $1.43 Expected Capital Growth 25% Asset Stage First Fiscal Year of sales (Est.) Peak Market share Peak Sales Global (US$m) Probability of success Probability adjusted NPV (A$m) Value per share (A$) % Mix VivaGel BV Treatment (US) NDA filed for US approval 2019 (US) 20.0% $142 80.0% $80 $0.21 11.8% VivaGel BV Symptomatic Relief First regulatory approval in AU and EU received 2018 (Ex-US) 15.0% $21 80.0% $18 $0.05 2.6% VivaGel BV Prevention of Recurrence NDA filed for US approval 2019 25.0% $642 80.0% $336 $0.88 49.5% VivaGel Coated Condom - Okamoto Regulatory certification received 2018 (Japan) 10.0% $21 80.0% $5 $0.01 0.8% VivaGel Coated Condom - Humanwell Healthcare Regulatory approval received for AU, NZ, Canada 2015 (AU), 2017 (Canada), 2018 (US) 10% (US), 4% (EX US) $232 80.0% $57 $0.15 8.4% DEP Docetaxel (NSCLC, mCRPC) Phase II 2022 15%, 20% $1,262 30.0% $139 $0.37 20.5% AZN DEP AZD0466 (lead) Pre-clinical complete 2024 NA NA NA $27 $0.07 4.0% Diagnostics/Laboratory Reagents On-market NA NA NA NA $2 $0.00 0.3% Other Pipeline/Non-allocated NA NA NA NA NA ($42) -$0.11 -6.2% Cash (last reported) NA NA NA NA NA $57 $0.15 8.4% Debt (last reported) NA NA NA NA NA -$0.1 $0.00 0.0% Equity Value $679.3 $1.78 100.0% Asset Indication Stage at Licensing Licensee Fiscal Year Timing of deal (Est.) Total Deal Value in USDm (upfront plus milestones) Upfront (USDm) Developmental & regulatory Milestones (USDm) Commercial Milestones (USDm) Royalty Rate (% ) VivaGel BV Symptomatic Relief (EX-US & ANZ) Registration (pre-launch) TBC 2018 25 1.5 NA 23.5 20.0% VivaGel BV Treatment (US) Registration (pre-launch) TBC 2018 57 1 9 47 25.0% VivaGel BV Prevention of Recurrence Registration (pre-launch) TBC 2018 200 5 35 160 25.0% VivaGel Coated Condom (Japan) Pre Regulatory Approval Okamoto 2011 0 NA NA NA 12.0% VivaGel Coated Condom (Ex-Japan) Pre Regulatory Approval Ansell (now Humanwell Healthcare) 2012 0 NA NA NA 12.0% DEP Docetaxel Solid tumuours Phase II complete TBC 2019 300 15 125 160 15.0% AZN DEP AZD0466 (lead) Unknown (BPe speculation blood cancers) Pre-clinical AstraZeneca 2016 126 2 64 60 NA Page 4 Starpharma (SPL) 22 November 2017 At this stage we assign no value to the new collaboration agreement signed with AstraZeneca in July 2016 on a new DEP program in AZN’s existing portfolio (i.e. a marketed compound by AZN). This compound is not under the scope of the licensing agreement inked between the two companies in Sep’15 which covered a defined family of oncology targets. Should this agreement translate to a commercial licensing deal in future, it will be an upside to our estimates. At this stage, we do not assign any value to SPL’s commercial opportunity for the VivaGel Coated Condom in China. SPL has signed a license and supply agreement with Shenyang Sky and Land Latex Co. for its VivaGel coated condom (VCC), for the government segment of the Chinese condom market (estimated market 3bn condoms/year). Activities related to obtaining regulatory approval in China have commenced and we understand are progressing at a rapid rate. Approval in China would be a potential upside to our estimates. At this stage, we do not value SPL’s other internal candidates from drug-delivery including DEP cabazitaxel or DEP irinotecan, or its Herceptin-targeted DEP conjugate given the early nature of these programmes. These programmes moving ahead into the clinic would be a potential upside to our estimates. We expect DEP cabazitaxel to move into Phase 1 trials in 1HFY18 and therefore expect to include it in our model in the coming months, which would represent an upside to our estimates. Also, we note that docetaxel (Taxotere) made by Sanofi Aventis is currently approved for multiple indications including breast cancer, head and neck cancer, gastric cancer, prostate cancer and non-small cell lung cancer (NSCLC). SPL has previously reported results from animal studies of DEP docetaxel, which demonstrated that DEP docetaxel has superior efficacy to docetaxel alone across a wide range of tumours namely prostate, lung, ovarian and breast. At this stage for SPL, we model DEP docetaxel’s opportunity for the two disclosed indications for DEP docetaxel in the ongoing Phase 2 trial of prostate cancer and non-small cell lung cancer (NSCLC). Further expansion of DEP docetaxel into additional indications could considerably increase the market opportunity for this asset and represents an upside to our current estimates. Forthcoming Milestones In terms of news flow in FY18, we expect the following announcements to act as catalysts for a potential re-rating of the stock: • 2QFY18 - Licensing deal for VivaGel for BV (all indications) with upfronts and milestones; • 2QFY18 - Potential initiation of Phase I trial with DEP Cabazitaxel; • 9th-12th Dec’17 – Potential release of pre-clinical data on lead candidate under AZN/SPL partnership at the high profile ASH (American Society of Hematology) conference; • 3QFY18 – Completion of NDA filing for VivaGel for Treament of Bacterial Vaginosis (BV) and prevention of recurrence of Bacterial Vaginosis (R-BV) to US FDA for approval in US market; • 3QFY18 – Potential initiation of Phase I trial with first DEP AstraZeneca drug under partnership triggering a US$3m milestone payment to SPL; • 3QFY18- Launch of VivaGel OTC (Over the counter) product for symptomatic relief of BV by Aspen in ANZ; • 2HFY18 - Launch of VivaGel coated condom in Japan by Okamoto; In addition, we expect that over the next 12 months SPL’s collaboration with AstraZeneca on the new DEP program announced in July 2016, could advance to a commercial licensing deal. Page 5 Starpharma (SPL) 22 November 2017 Also, we note that activities related to obtaining regulatory approval in China for SPL’s VivaGel coated condom for the government segment of the Chinese condom market have commenced and are progressing well. The process could take several months and at this stage it is difficult to estimate a timeline for approval and launch. We believe there is a possibility for the approval to be received sometime in CY18. Page 6 Starpharma (SPL) 22 November 2017 Starpharma Holdings Ltd. (SPL) COMPANY DESCRIPTION Starpharma is a Melbourne-based platform company commercialising the science of nanoscale polymers called dendrimers. Its proprietary dendrimer technology is versatile with wide applicability across the pharmaceuticals sector. SPL’s lead product is VivaGel which is being developed as an anti-microbial coating for condoms offering protection against Sexually Transmitted Infections, as well as a topical microbicide for treating and preventing the recurrence of the common vaginal infection in women, Bacterial Vaginosis (BV). SPL is also working on improved formulations of leading cancer drugs both internally and with external partners including AstraZeneca. Substantial shareholders Allan Gray, M&G and Fidelity, in combination hold ~31% stock. INVESTMENT STRATEGY We believe FY18 is already proving to be a transformational year for SPL with the momentum expected to continue based on significant progress expected across its DEP drug delivery business and approval and licensing of its late stage VivaGel BV product. In recent months SPL has released positive Top-line results from its Phase 1 DEP docetaxel trial and initiated Phase 2 trials for the drug. This was followed by the unveiling of AZN/SPL’s promising oncology candidate AZD0466, the approval for VivaGel BV in Australia and the NDA submission for marketing approval in US for both indications for VivaGel BV. SPL’s strong cash position of ~A$56.9m and sharpened focus on pharmaceuticals following sale of its agrochemical business underpins its future growth and we expect SPL to add value in the medium term through commercial revenue from the condom coating asset, the AstraZeneca drug delivery partnership, VivaGel for BV, as well as through progressing clinical trials for DEP docetaxel and other internal DEP candidates. We also are encouraged between the deepening ties between AstraZeneca and SPL. KEY RISKS We see the following key stock specific risks to our investment thesis on Starpharma: • Clinical risk: SPL’s clinical trials primarily the ongoing Phase 2 DEP docetaxel trial may fail to demonstrate meaningful safety and efficacy. This may jeopardise the potential for SPL to license the products and/or pursue further clinical development. • Technology risk: SPL is a platform company, with its entire pipeline based on its proprietary dendrimer technology. Any setback clinically or commercially is likely to put the viability of the company’s technology at risk. • Regulatory risk: Delays in receiving marketing approval or launch for VivaGel coated condom or BV product will negatively impact our revenue forecasts. This risk also extends to other pipeline products in terms of getting regulatory agreement to conduct clinical trials and marketing approval for launch in various markets. • Partnering risk: The basic premise behind our investment thesis for SPL is that all its major products get licensed at attractive terms with the partner being responsible for all commercialisation and any further development as required. If SPL fails to secure partnerships at attractive terms, our forecasts will be negatively impacted. Furthermore, if any of SPL’s existing collaborations should be terminated, it is likely to shake the markets confidence in SPL’s technology and its commercial viability. • Commercial risk: The VivaGel coated condom sales and revenue from partnerships with Okamoto/Humanwell Healthcare could fail to meet our expectations due to poor commercialization effort, delays in launch, unfavourable experience of consumers with the product, better performance of a competing product etc. • Funding risk: Delays in partnering of products and/or increase in costs of trials beyond what we currently estimate may impact SPL’s funding position. Page 7 Starpharma (SPL) 22 November 2017 Starpharma as at 22 November 2017 Recommendation Buy, Speculative Price $1.425 Valuation $1.78 Table 5 - Financial summary SOURCE: BELL POTTER SECURITIES ESTIMATES Starpharma (SPL) Share price (A$) $1.425 As at 22 November 2017 Market cap (A$m) 528.0 Profit and Loss Valuation data Y/e June 30 (A$m) 2016A 2017A 2018E 2019E 2020E Y/e June 30 2016A 2017A 2018E 2019E 2020E Revenue* 7.3 6.2 25.5 50.5 24.5 Net profit (A$m) -22.7 -15.2 4.8 24.3 8.8 EBITDA -22.5 -15.5 6.3 33.9 11.5 EPS (c) -6.6 -4.1 1.3 6.5 2.3 Depreciation & Amortisation -0.9 -0.3 -0.4 -0.4 -0.5 EPS growth (%) N/A N/A NM 400.1% -63.9% EBIT -23.5 -15.9 5.9 33.4 11.1 P/E ratio (x) N/A N/A 109.7 21.9 60.7 Net interest & Other Income/(Expense) 0.8 0.7 1.0 1.3 1.6 CFPS (c) -5.2 -4.6 2.1 8.1 3.1 Pre-tax profit (loss) -22.7 -15.2 6.9 34.7 12.6 Price/CF (x) -27.6 -30.9 67.6 17.6 45.7 Tax 0.0 0.0 2.1 10.4 3.8 DPS ( c ) 0.0 0.0 0.0 0.0 0.0 NPAT (adjusted) -22.7 -15.2 4.8 24.3 8.8 Yield (%) 0.0% 0.0% 0.0% 0.0% 0.0% Less minority interests 0.0 0.0 0.0 0.0 0.0 Franking (%) N/A N/A N/A N/A N/A Net profit (loss) to shareholders -22.7 -15.2 4.8 24.3 8.8 EV/EBITDA -20.9 -30.3 75.3 13.9 40.9 Reported net profit (loss) to shareholders -22.7 8.2 4.8 24.3 8.8 EV/EBIT -20.1 -29.7 80.2 14.1 42.6 Cashflow Y/e June 30 (A$m) 2016A 2017A 2018E 2019E 2020E Share price now $1.425 Reported NPAT -22.7 8.2 4.8 24.3 8.8 Valuation: $1.78 Non-cash items 2.3 -20.6 2.5 2.6 2.8 Premium (discount) to price 25% Working capital 2.7 -4.5 0.5 3.4 0.1 Recommendation: Buy Other operating cash flow -0.1 0.0 0.0 0.0 0.0 Risk Rating Speculative Operating cashflow -17.8 -17.0 7.8 30.3 11.7 Profitability ratios Y/e June 30 2016A 2017A 2018E 2019E 2020E Capex -0.1 -0.6 -0.5 -0.5 -0.5 EBITDA/revenue (%) N/A N/A 24.6% 67.1% 47.0% Investments 0.0 0.0 0.0 0.0 0.0 EBIT/revenue (%) N/A N/A 23.1% 66.3% 45.1% Other investing cash flow 0.1 33.3 0.0 0.0 0.0 Return on assets (%) -38.4% -22.9% 6.5% 24.2% 7.9% Investing cashflow 0.0 32.7 -0.5 -0.5 -0.5 Return on equity (%) -45.9% -25.0% 7.1% 25.7% 8.4% Return on funds empl’d (%) -45.9% -24.9% 7.1% 25.7% 8.4% Change in borrow ings 0.0 0.0 0.0 0.0 0.0 Dividend cover (x) N/A N/A N/A N/A N/A Equity issued 32.6 0.0 0.0 0.0 0.0 Effective tax rate (%) 0.0% 0.0% 30.0% 30.0% 30.0% Dividends paid 0.0 0.0 0.0 0.0 0.0 Other financing cash flow 0.0 0.0 0.0 0.0 0.0 Liquidity and leverage ratios Financing cashflow 32.6 0.0 0.0 0.0 0.0 Y/e June 30 2016A 2017A 2018E 2019E 2020E Net cash (debt) (A$m) 46.0 61.1 68.5 98.3 109.5 Net change in cash 14.8 15.7 7.3 29.8 11.2 Net debt/equity (%) N/A N/A N/A N/A N/A Net interest cover (x) N/A N/A NM NM NM Cash at end of period* 46.0 61.2 68.5 98.3 109.5 Current ratio (x) 5.3 11.9 12.5 16.5 17.8 * I nc l ude s e f f e c t of e x c ha nge r a t e f l uc t ua t i ons on c a sh ba l a nc e Free cash flow -17.9 -17.6 7.3 29.8 11.2 Balance sheet Interims Y/e June 30 (A$m) 2016A 2017A 2018E 2019E 2020E Y/e June 30 (A$m) 1H16A 2H16A 1H17A 2H17A 1H18E Cash 46.0 61.2 68.5 98.3 109.5 Revenue* 5.3 2.1 2.0 4.3 9.7 Current receivables 4.1 4.2 4.0 0.8 0.9 EBITDA -9.8 -12.7 -8.9 -6.6 0.5 Inventories 0.0 0.0 0.0 0.0 0.0 Depreciation & Amortisation -0.5 -0.5 -0.5 0.1 -0.2 Other current assets 0.2 0.3 0.3 0.3 0.3 EBIT -10.3 -13.2 -9.4 -6.5 0.3 Current assets 50.3 65.7 72.8 99.4 110.7 Net interest & Other Income (Expense) 0.3 0.6 0.3 0.3 0.5 Pre-tax profit -10.0 -12.6 -9.0 -6.2 0.9 PPE 0.7 0.9 1.0 1.1 1.1 Tax 0.0 0.0 0.0 0.0 0.3 Non-current receivables 0.0 0.0 0.0 0.0 0.0 NPAT (adjusted) -10.0 -12.6 -9.0 -6.2 1.1 Intangible assets 8.1 0.0 0.0 0.0 0.0 Less minority interests 0.0 0.0 0.0 0.0 0.0 Other non-current assets 0.0 0.0 0.0 0.0 0.0 Net profit to shareholders -10.0 -12.6 -9.0 -6.2 1.1 Non-current assets 8.8 0.9 1.0 1.1 1.1 *Includes R&D Tax incentive Total assets 59.0 66.6 73.8 100.5 111.8 Payables 8.8 4.7 5.0 5.2 5.4 Debt 0.0 0.1 0.0 0.0 0.0 Provisions 0.8 0.9 0.9 0.9 0.9 Other liabilities 0.0 0.0 0.0 0.0 0.0 Total liabilities 9.6 5.6 5.9 6.1 6.3 Shareholders’ equity 49.4 61.0 67.9 94.4 105.6 Minorities 0.0 0.0 0.0 0.0 0.0 Total shareholders funds 49.4 61.0 67.9 94.4 105.6 Total funds employed 59.0 66.6 73.8 100.5 111.8 W/A shares on issue 345.0 368.2 372.1 374.1 376.7 * Includ ing R &D t ax incent ive, milest o nes and royalt ies. FY 18 revenue numb er includ es po t ent ial upf ront f rom V ivaGel B V deal ( all ind icat ions) and milest o ne f ro m B V t reat ment ( U S) and A Z N d eals. F Y 19 revenue numb er includes p ot ent ial milest one f rom B V deal and upf ront f ro m D EP d o cet axel d eal. F Y 2 0 revenue number includes po t ent ial milest one f ro m B V , D EP d ocet axel and A Z N deals. Page 8 Starpharma (SPL) 22 November 2017 Bell Potter Securities Limited ABN 25 006 390 7721 Level 38, Aurora Place 88 Phillip Street, Sydney 2000 Telephone +61 2 9255 7200 www.bellpotter.com.au Recommendation structure Buy: Expect >15% total return on a 12 month view. For stocks regarded as ‘Speculative’ a return of >30% is expected. Hold: Expect total return between -5% and 15% on a 12 month view Sell: Expect <-5% total return on a 12 month view Speculative Investments are either start-up enterprises with nil or only prospective operations or recently commenced operations with only forecast cash flows, or companies that have commenced operations or have been in operation for some time but have only forecast cash flows and/or a stressed balance sheet. Such investments may carry an exceptionally high level of capital risk and volatility of returns. Research Team Staff Member TS Lim Industrials Sam Haddad Chris Savage Jonathan Snape Tim Piper John Hester Tanushree Jain Financials TS Lim Lafitani Sotiriou Resources Peter Arden David Coates Duncan Hughes Associates James Filius Alexander McLean Title/Sector Head of Research Industrials Industrials Industrials Industrials Healthcare Healthcare/Biotech Banks/Regionals Diversified Resources Resources Resources Associate Analyst Associate Analyst Phone 612 8224 2810 612 8224 2819 612 8224 2835 613 9235 1601 612 8224 2825 612 8224 2871 612 8224 2849 612 8224 2810 613 9235 1668 613 9235 1833 612 8224 2887 618 9326 7667 613 9235 1612 612 8224 2886 @bellpotter.com.au tslim shaddad csavage jsnape tpiper jhester tnjain tslim lsotiriou parden dcoates dhughes jfilius amclean The following may affect your legal rights. 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Biotechnology developers usually seek US FDA approval for their technology which is a long and arduous three phase process to prove the safety, effectiveness and appropriate application or use of the developed drug and even after approval a drug can be the subject of an FDA investigation of subsequently discovered possible links between the drug and other diseases not previously diagnosed. Furthermore, the Australian exchange listed biotechnology sector is subject to influence by the global biotechnology sector, particularly that in the USA. Consequently, Australian exchange listed biotechnology stocks can experience sharp movements, both upwards and downwards, in both valuations and share prices, as a result of a re-rating of the sector both globally and in the USA, in particular. Investors are advised to be cognisant of these risks before buying such a stock including Starpharma. For a list of risks specific to Starpharma please refer to Page 6 of this note. 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