Xbrane has commissioned Nordea Markets to produce a research report with the aim of providing investors with quality research on the company.
Off to a solid start – Updated 15 May 2018
Performance in line with expectations
Xbrane reported its Q1 2018 results yesterday. Revenue reached SEK 8.6m, implying sales growth of 26% y/y, beating our estimate of SEK 8.0 by SEK 0.6m (~7%). Milestone payments from the Chinese Spherotide deal amounted to SEK 13.7m, below our estimate of SEK 22.3m. This miss resulted in EBITDA and EBIT below our estimates, but adjusted for this deviation, the underlying development of the operations was in line with our expectations. Revenue was generated solely from Spherotide’s sales in Iran, a scenario we believe will continue in the remaining quarters of 2018. We lower our estimates for milestone payments, and expect revenue and EBITDA to reach SEK 30m and SEK -32m at the end of the year. We are confident that Xbrane will meet these near-term estimates.
Long-term opportunities are intact
The Q1 report did not contain much news, and we therefore stick to our long-term investment case. We believe that several underlying structural growth opportunities have been created for biosimilar developers, and that Xbrane is well-positioned to take advantage of these through its low-cost production technique. We continue to view the upcoming clinical trials for approval of Xlucane and Spherotide in the US and Europe as the most important short-term valuation triggers. According to our estimates, Xbrane will turn profitable in 2023, while the first positive cash flow will be reported in 2024. Based on the announced product development timeline, we expect Spherotide to be launched in South Korea in 2019, while Xlucane will also be launched in Iran, thus increasing the diversification of sales.
In our view, a DCF model provides the most comprehensive valuation of Xbrane. We use a sum-of-the-parts (SOTP) DCF model to value Xbrane, and derive an equity value range of SEK 77-95 per share, based on different scenarios regarding regulatory approvals and market launches for the company’s products.
(Bio)Similar, yet different – Updated 6 April 2018
Challenging the biopharmaceutical market
Xbrane is a biotechnology company focused on developing biosimilars and complex long-acting injectable generics. The company was founded after developing a protein production technology which enables it to produce biosimilars eight times more efficiently than other standard systems, at a cost of up to 85% lower.
Structural growth opportunity
In our view, there are three market drivers which create a strong structural growth opportunity for Xbrane and other biosimilar developers: 1) The biopharmaceutical market is undergoing a “patent cliff”, as originator products with sales of SEK ~1,000bn are approaching patent expiration towards 2025; 2) Regulations have been created by medical agencies in recent years to ease the way for biosimilars to enter the market; 3) Several governments have become more focused on obtaining savings in health care spending.
All about EU and US regulatory approval
With Spherotide launched in Iran during 2017, and distribution partners signed in China, South Korea and Israel, Xbrane is on the verge of establishing a solid position in the market. Signing of distribution partners and regulatory acceptance in the US and Europe offers the largest potential valuation triggers. We use a sum-of-the-parts (SOTP) DCF model to value Xbrane, and derive an equity value range of SEK 77-96 per share, based on different scenarios regarding regulatory approvals and market launches for the company’s products.
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Conflict of interest
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This report has been reviewed, for the purpose of verification of fact or sequence of facts, by the issuer of the relevant financial instruments mentioned in the report prior to publication. The review has led to changes of facts in the report. Completion date: 15 May 2018, 08:15 CET