Vernalis has provided a year-end trading and operational update ahead of its FY17 results due to be announced on 12 September. Total revenues are expected to be ahead of current market expectations, largely due to higher than anticipated R&D-related milestones. This and tighter cost control means that operating loss for the full year is expected to be lower than consensus estimates. In terms of prescription (Rx) growth, Tuzistra XR continued its steady growth in volumes y-o-y; reported net revenue will depend on the impact of rebates and vouchers on gross revenues for the year. Our valuation remains unchanged at £399m (76p per share).
Total revenues for FY17 are expected to be higher than current market expectations. The benefit is largely due to higher than anticipated R&D milestones from its current collaborators, including the $2m milestone received from Servier (announced in April) relating to the oncology drug discovery collaboration. Operating loss for the year is expected to be lower than current consensus estimates as higher revenues and careful cost control are expected to positively affect the bottom line. Net cash at 30 June 2017 is expected to be £61m. We leave our forecasts unchanged until the FY results are announced.
Investment into addressing barriers to higher Tuzistra XR prescribing continues to translate into higher Rx rates; Tuzistra Rx grew threefold to ~35k in the year to 30 June 2017 (second year on the market) versus ~11k in the comparable year; net revenue in FY17 will depend on the impact of discounts and coupons. Vernalis is targeting a similar rate of growth in Rx during the 2017/18 financial year (guided to total Rx of ~105,000-115,000), which implies that we need to adjust downwards our 2018 Tuzistra XR forecasts. Vernalis plans to start actively promoting Moxatag (o.d amoxicillin) from September 2017 based on current in-house inventory and progress on securing a new supplier, which is expected to come on stream in 2018.
We value Vernalis at £399m (76p per share). Our valuation continues to consist of US cough cold and NCE pipeline rNPV, explicit cost modelling and inclusion of cash; we assume zero NPV for the research business. In our view, this valuation reflects the downside scenario for CCP-07 approval timelines (Complete Response Letter issued by the FDA following the 20 April PDUFA date). Clarity on CCP-07 NDA resubmission, portfolio progress, launches and sales upgrades would unlock upside.