First Berlin – Formycon AG Research Update (14/10/2020)

First Berlin Equity Research has published a research update on Formycon AG (ISIN: DE000A1EWVY8). Analyst Simon Scholes reiterated his BUY rating and increased the price target from EUR 39.00 to EUR 43.00.

Abstract
A biosimilar candidate is largely derisked once the regulatory authorities have accepted the equivalence between the biosimilar and the reference product. This is achieved through the submission of an analytical package confirming that the biosimilar candidate is highly similar to the reference product in terms of its physicochemical and biological characterisation. If the analytical package indicates this high degree of similarity, clinical benefit can be largely assumed. Subsequent clinical studies then serve essentially to confirm the findings of the analytical package and eliminate residual risk. With biosimilars it is the analytical package, not the phase III trial which is truly pivotal. This is shown by the fact that so far no biosimilar candidate has failed in a phase III trial. Formycon has concluded partnerships with respect to all three of the biosimilar candidates (FYB201, FYB202 and FYB203) for which it has named the reference product. In all three cases the partnership was entered into in advance of the submission of the analytical data package. Formycon has indicated that the funds from the recently completed private placement to Active Ownership Group (gross proceeds: €25.75m) will be used to advance non-partnered pipeline projects such as FYB206 through the analytical package stage without reliance on a partner. This opens up the possibility of substantially better deal terms than for biosimilar candidates which were partnered before the analytical package submission stage. We raise our royalty rate assumption for FYB206 and other non-partnered pipeline products from 9% to 18%. Our royalty rate assumption for FYB201, FYB202 and FYB203 remains unchanged at 9%. We have raised our price target from €39.00 to €43.00 and maintain our Buy recommendation.