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Basilea - H1 results show continued commercial and strategic progress

2022 has already proven to be a significant period for Basilea, with a decision taken to refocus the business on the anti-infectives franchise, effectively exiting the oncology R&D effort. This has involved returning rights to the FGFR inhibitor derazantinib to originator Merck & Co. while looking for a development partner for the microtubule checkpoint controller lisavanbulin.

Fortunately for Basilea, the continued strong performance of the anti-fungal Cresemba provides a strong platform for the anti-infectives franchise. Despite its maturity in established markets like the US, it continues to deliver impressive growth through a combination of excellent commercial partners and the addition of new geographies such as China, where Cresemba has recently been launched. Basilea's ability to attract strong commercial partners has been driven by the unmet need and Cresemba's differentiated profile. As a reminder, it has been the growth of the immunosuppressed patient population, largely on the back of more aggressive chemotherapy regimens, that has represented the unmet need. The majority of royalty revenues have come from Astellas in the US and Pfizer in Europe and Asia Pac. As a result, H1 2022 recorded strong Cresemba royalty income of CHF 28.9m, representing 22.5% growth and helping Basilea deliver total revenue growth of 8.2% to CHF 58.6m. Basilea has confirmed its 2022 financial guidance with royalty income of CHF 59m anticipated, Cresemba & Zevtera-related revenue is expected to be CHF 98m to CHF 104m, bringing total revenues of CHF 106m to CHF 112m. Separately, we note that Cresemba has generated $344m in global in-market sales for the 12 months to the end of March 2022, representing impressive growth of 31%.

Although the 5th generation cephalosporin ceftobiprole is currently a modest contributor to sales, the prospect of entering the important US antibiotic market with a differentiated label promises significant sales potential. Ceftobiprole has delivered overtly positive results in both bacteraemia (ERADICATE) and severe skin infections (TARGET). We look forward to the presentation of more detailed data, from ERADICATE in particular, and regulatory submission around the year-end 2022 (which will also explore possible approval for community-acquired bacterial pneumonia (CABP).

The decision to exit oncology R&D will also significantly reduce the commitment to R&D spending, with total operating expenses expected to reduce by 30% in 2023 versus 2022. In the meantime, however, the company is in a transition period, with H1 2022 still reflecting ongoing oncology R&D (largely for derazantinib). Nevertheless, R&D declined modestly to CHF 37.1m, reflecting the (largely reimbursed by BARDA) costs of the ceftobiprole Phase 3 programme and the oncology pipeline progress. Basilea delivered a positive operating performance through a combination of improved cash inflows and careful cost management, which resulted in cash, restricted cash and investments of CHF 141.9m at the period end. Basilea confirmed 2022 guidance for net cash used in operating activities of between CHF 10m to CHF 15m.

For us, one of the key consequences of this strategic refocusing has been the near-term prospect of sustainable profitability. Company guidance and our own forecasts suggest that Basilea will attain this objective in 2023. In addition, we look forward to the continued growth of the anti-fungal franchise as new geographies are added (Japan, for example) while noting the recent in-licensing efforts which have added a novel preclinical anti-fungal programme. Additionally, we expect ceftobiprole to finally deliver on its commercial potential after expected US approval.

We calculate a discounted cash flow fair value of CHF120 per share for Basilea.

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Calvine Partners LLP is authorised and regulated by the Financial Conduct Authority.

Basilea Pharmaceutica is a client of Calvine Partners, and as such, this publication is not independent and should be considered a marketing communication under FCA Rules. None of the information contained in this publication should be considered as any form of advice.



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