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goetzpartners securities Limited

08-Nov-2018 / 10:45 GMT/BST

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Published to the market and investors on 8th November 2018 @ 9.54am (London time).


Epigenomics (ECX-DE): Q3 – Milestone completion triggers more commercial momentum
Recommendation: OUTPERFORM
Target Price: EUR4.01
Current Price: EUR2.14 (CoB on 7th November 2018)


Epigenomics reported solid Q3 sales of EUR0.5m (57% YoY) and narrowed its FY2018E revenue forecast to EUR1.5m – EUR2.5m, slightly below our estimates. We expect revenue generation to be catalysed by the variety of positive recent news flow, such as the successful CE-marking of HCCBloodTest, the latest addition to Epigenomic’s growing portfolio of liquid biopsy tests, which allows for blood-based detection of liver cancer. This will add to the increasing momentum around Epi proColon with reimbursement rate of $192, making it the highest reimbursed molecular screen test in the US and paving the way for inclusion in the 2019 Clinical Laboratory Fee Schedule expected to be published 11/2018. We continue to see the positive commercial outlook of Epigenomic’s liquid biopsy tests due to a differentiated profile, fast readouts, large target markets and a significant health-economic impact. We maintain and reiterate our OUTPERFORM recommendation and our TP of EUR4.01.

Q3/2018 financial results and adjusted outlook for FY2018E

Epigenomics reported Q3/2018 sales of EUR0.5m (57% YoY), bringing the 9M/2018 revenue to EUR1.3m. The increase was mainly due to a 73% increase in product revenue and additional licensing income. The gross margin of 77% remained relatively level vs. 79% in Q3/2017, however, the increase in gross profit was offset mainly by a 123% increase in R&D costs and a 157% increase in SG&A costs, which were mainly driven by one-off payments associated with the post-approval study for Epi proColon in the US and legal costs. Epigenomics closed Q3 with a net loss of EUR3.0m and a cash position of EUR5.8m (EUR6.6m including marketable securities) and narrowed its revenue forecast for FY2018E to EUR1.5m – EUR2.5m from EUR2.0m – 4.0m, which is slightly below our forecast of EUR3.9m.

CE mark obtained for liquid biopsy test for liver cancer detection

Epigenomics recently received CE-marking for its blood-based liquid biopsy test (“HCCBloodTest”) for the detection of liver cancer in high-risk patients with cirrhosis. In order to pave the way for FDA approval, Epigenomics intends to initiate a prospective trial in the US in 2019. In addition, the company is also evaluating strategic avenues to gain CFDA approval to be able to capitalise on the substantial commercial opportunity represented by the Chinese market. A c.EUR3bn global market together with the growing trend towards liquid biomarkers make liver cirrhosis surveillance for HCC a promising opportunity for Epigenomics.

US study launched to investigate screening adherence impact of Epi proColon

Epigenomics recently announced that the Veterans Administration in New York is conducting a study to assess the impact of a blood-based colorectal cancer (“CRC”) test on screening adherence in patients who have refused other forms of testing such as colonoscopy or stool-based screening. CRC is the fourth most common cancer in the US and current screening rates are far from optimal. Since regular CRC screening can drastically improve disease management and treatment outcomes, we see a strong need for less invasive blood-based screens such as Epi proColon that can reduce the number of unscreened patients, thus reducing mortality and unnecessary treatment expenditures.

Gross proceeds of EUR22.3m from recent capital increase

Epigenomics successfully completed a capital increase with subscription rights in October, which generated gross proceeds of EUR22.3m. 67% of new shares were issued to existing shareholders, the remaining shares were subsequently offered to institutional investors as part of an international private placement.

Valuation suggests ample upside

With the recent CE marking for HCCBloodTest, in our view, the key uncertainty remains coverage and inclusion into medical guidelines for Epi proColon. With the new product candidate de-risking the commercial outlook, Epigenomics offers a highly attractive investment opportunity with significant potential for growth. We maintain and reiterate our OUTPERFORM recommendation and TP of EUR4.01.

Kind regards,

Martin Brunninger | Analyst

goetzpartners Healthcare Research Team | Research Team

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