Concerns about a potential revenue decline due to the absence of deferred revenue related to divested asset Toctino were allayed when Basilea reported H1/2019 revenue growth of 5.5% YoY, driven by strong contributions from antifungal Cresemba. Our 2019E estimates are broadly unchanged and in line with tightened financial guidance. Changes for 2020E and beyond reflect multiple adjustments including the impact of Pfizer taking over manufacturing of Cresemba in its territory during 2020E. We trim our target price to CHF105 (from CHF108) and maintain our OUTPERFORM recommendation, as the shares only appear to be pricing in Cresemba revenues in marketed regions. We anticipate multiple news flow items in the next 12-18 months – largely related to Basilea’s oncology pipeline – which coupled with steady revenue growth should drive share price performance. A key event in the longer term is Phase III data for ceftobiprole in S. aureus bacteraemia (“SAB”).
Cresemba US sales amounted to $67m and global sales to an estimated c.$100m in H1/2019E, giving us confidence that they will surpass our estimate of >$210m in 2019E and $658m in 2026E. The US accounts for an estimated two-thirds of Cresemba sales, due to an earlier launch and easier market access vs. other regions, but we expect the continued roll-out to increase the share of European and RoW sales. As of June 2019, Cresemba was marketed in 33 countries; Basilea assumes this figure will increase to 40 by the end of 2019E and 60 by YE2021E. We expect Basilea to retain 30% – 40% of Cresemba revenues over the life of its licensing and distribution agreements. Basilea has already received >CHF230m in total upfront and milestone payments related to both Cresemba and antibiotic Zevtera agreements, with up to $1.1bn still outstanding.
Since our FY2019E forecasts were largely in line with updated guidance, our revenue and operating loss forecasts for the year are broadly unchanged, while our estimate for net loss benefited from lower expected financial expenses. Changes to our revenue forecasts for 2020E and beyond reflect mainly the following: (1) earlier than expected recognition of the outstanding deferred revenue of CHF36.7m related to the Pfizer upfront payment, which will occur by YE2020E; (2) impact from the transfer of Cresemba manufacturing to partner Pfizer in the relevant territories by YE2020E, which has led us to remove both product sales and associated CoGS for out years, with a minimal impact on profitability; (3) higher than expected reimbursements from BARDA (total awards amounted to $94.9m at end June 2019); (4) changes to potential milestone payments.
Ceftobiprole recently produced strong data in the Phase III TARGET trial in patients with skin infections (ABSSSI), where it demonstrated non-inferiority to vancomycin / aztreonam for all endpoints. Basilea is also conducting a pivotal trial in SAB expected to report in H2/2021E. If positive, both trials will be used to file an NDA with the FDA to enter the US, the most important market for anti-MRSA antibiotics. We believe that the high unmet need in SAB and a niche positioning in skin infections, combined with ceftobiprole’s attractive clinical profile could lead to peak sales of c.$225m in the US. We note that daptomycin, which ceftobiprole will compete against, reached peak sales of > $1bn in the US in 2015 prior to loss of exclusivity
We believe that Basilea shares remain undervalued, as the current share price can be justified based on Cresemba sales in marketed regions alone. Cresemba is Basilea’s key value driver, accounting for 65% of our valuation. In the longer term, we expect the contribution from other products to increase as additional data points become available. Key events in the next 12 - 18 months include: (1) continued growth of marketed products, primarily Cresemba; and (2) key milestones for oncology pipeline assets, particularly derazantinib, which in addition to the ongoing registrational Phase II trial in bile duct cancer (iCCA) recently entered a clinical trial in urothelial carcinoma.