First Berlin – Formycon AG Research Update (07/06/2019)

First Berlin Equity Research has published a research update on Formycon AG (ISIN: DE000A1EWVY8). Analyst Simon Scholes reiterated his BUY rating and decreased the price target from EUR 53.00 to EUR 51.00.

Q1/19 results showed revenue of €9.5m (Q1/18: €13.7m) while EBIT came in at €0.2m (Q1/18: €6.7m). Prior year numbers were helped by credits of €8.5m at the sales level and €6.7m at the EBIT level relating to Formycon's (FYB) investment in FYB202 during 2013-16. On 4 June FYB announced that it has still to receive €12.3m of the €17.3m gross proceeds due from the March share issue to M&H Equity. Management are optimistic that M&H Equity will transfer the outstanding funds. However, if the money is not forthcoming the most likely solution would be to place the unpaid shares with another institution as the shares have already been entered into the commercial register (Handelsregister) and it is difficult to reverse this. FYB's cash position at end Q1/19 was €9.2m. FYB's management have emphasised that they expect no impact on current or planned development activities, most of which are financed through long term development partnerships. Given that we expect cash consumption of €2-3m during the remainder of this year, the company's financial position looks solid even without receipt of the outstanding funds from M&H Equity. In its May pipeline update, FYB announced that the FYB202 phase I clinical trial is due to start in mid-2019 and that the start of the FYB203 phase III trial is scheduled for mid-2020. However, FDA approval of FYB201 is now not expected until 2021. FYB had previously been aiming for 2020 to facilitate launch of the product soon after patent expiry of the reference product, Lucentis, in June 2020. The delay relates to problems in manufacturing sufficient quantities of FYB201, which in the meantime have been resolved. Despite the delay, we still expect FYB201 to be the first Lucentis biosimilar to reach the U.S. market. We maintain our Buy recommendation but lower the price target from €53.0 to €51.0 to reflect the later launch of FYB201 than we had previously modelled.