GECR9 Jan 2014 22:10
GECR Recommendation - dated 08.01.14
Stance: Buy
Target Price: 84p
e-Therapeutics has reported that its cancer drug candidate (ETS2101) has shown no drug-related serious adverse events after five dose escalation steps in the phase I brain cancer trial. Accordingly, with an absence of safety concerns to date, the drug discovery and development company plans to evaluate at least one further higher dose level, before reporting the key safety data in 2014 (previously Q4 2013). While there is a slight delay in the reporting of key safety data, we see the lack of drug-related serious adverse events to date as encouraging. With both the company’s leading drug candidates under development (ETS6103 and ETS2101) making good progress, we maintain our stance of buy, with a target price of 84p.
Cancer Drug Candidate Update
The primary objective of the Phase I trial is to evaluate the safety of ETS2101 and establish an appropriate dose for further studies. Under the protocol, groups of patients are treated at successively higher doses until a maximum tolerated dose is found. Fifteen patients have now completed treatment at doses of up to 24mg/kg body weight. At all doses tested so far, ETS2101 has been generally well tolerated. No objective tumour responses have been reported based on the Response Assessment in Neuro-Oncology (RANO) Working Group Criteria. Detailed data on safety and other endpoints will be submitted to a medical meeting when treatment and follow up of all patients is completed.
Forecasts
We keep our forecasts unchanged for the time being on the back of this announcement. As the company seeks to make the most of the opportunities provided by its platform and pipeline, we expect to see a further ramp up in investment in discovery and development. For FY14, we are forecasting R&D expenditure to grow to £7.7m, leading to an operating loss of £8.9m. For FY15, we expect the group to maintain its investment momentum and are therefore forecasting an R&D expenditure of £10.0, leading to an operating loss of 11.2m. We expect that the current cash position, together with expected receipts from R&D tax credits and interest, will be sufficient to fund all of its planned discovery and development activities into CY18.
Valuation
The rNPV for the two drug candidates under development when assuming a 12.5% discount rate is $301 million or 71p. Add on current cash and subtract a perpetuity-estimated G&A cost and this leads us to a target price of 84p. We have been conservative with our assumptions, and see room for significant upside.
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