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Basilea - Still capturing value from oncology

The decision by Basilea to focus on its well-established anti-infectives franchise at the expense of its nascent oncology pipeline has led to an improved financial expectation of sustainable profitability from 2023.

Various strategic actions have been taken to achieve this, including returning the rights of former lead programme derazantinib (an FGFR inhibitor) to originator Merck & Co (formerly Arqule). More recently, Basilea reported the sale of its preclinical DNA Damage Repair programme to Nodus Oncology. This programme was divested for a modest up-front and potentially substantial further payments of up to CHF241m in milestones and 5% of sales, should the programme ultimately prove successful.

The announcement today that Basilea has identified and secured a partner for its Phase 1 ready product candidate BAL0891 represents another successful component of Basilea's re-focus. BAL0891 was in-licensed from NTRC (a Dutch precision medicine company) in 2018 and represents a potentially novel mitotic checkpoint inhibitor targeting both threonine tyrosine kinase (TTK) and polo-like kinase 1 (PLK1), which together are responsible for activating the mitotic spindle assembly checkpoint (SAC). Disruption of this process by BAL0891 is expected to result in premature cell division and cancer cell death. Basilea had previously demonstrated the activity of BAL0891 in various cancer cell lines in vitro, and single agent efficacy in in-vivo human cancer models. The FDA approved an IND for BAL0891 in December 2021.

Under the terms of the asset purchase (and sub-license) agreement with oncology specialist SillaJen, Basilea will receive upfront and near-term milestone payments of $14m plus further potential payments of $320m in development, regulatory and sales milestones. Additionally, Basilea will receive up to double-digit % tiered sales royalties if BAL0891 is successfully commercialised. Basilea remains responsible for milestone and royalty payments to NRTC. As a specialist clinical-stage oncology company, we believe that Sillajen represents another safe pair of hands to entrust the future prospects for this important programme.

As a result of the agreement, Basilea has upgraded its financial guidance for 2022. The company has guided towards higher total revenues of CHF116m to CHF122m (from CHF106m to CHF112m), an improved operating result of CHF-10m to CHF-15m (from CHF -20m to CHF-25m) and improved cash flow from operating activities of CHF 0 to CHF-5m (from CHF-10m to CHF-15m).

For Basilea, this agreement represents another important step in exiting oncology and re-focusing on its long-standing and successful anti-infectives franchise. Further sales growth of the anti-fungal Cresemba and a successful US market introduction of the 5th generation cephalosporin antibiotic ceftobiprole will be key to delivering on the long-term potential. Additionally, we also look forward to Basilea progressing its recently acquired novel anti-fungal programme.

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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