中外炉工業 (Company note – 2Q update)

CBA-1205 (humanised anti-DLK-1 monoclonal antibody) completed the first half of the Phase I clinical trial, and moving to the second half of the Phase I trial. CBA-1535 (humanised anti-5T4 and anti-CD3 multispecificity antibody) is being tested in Japan. In January 2021, a licence agreement with Shanghai Henlius Biotech, Inc. for LIV-2008 (humanised anti-TROP-2 monoclonal antibody), granting development, manufacturing and marketing rights in China, Taiwan, Hong Kong and Macau. The drug discovery support business saw sales rise thanks to orders from domestic pharmaceutical companies. 12/2021 BPS halved yoy.

Fine modality focusing on iPS cells, which could lead to interesting growth in regenerative therapy market. Aims at positive profitability by FY3/2024 by growing clinical iPS cell and clinical testing. The company’s iPS cells are compliant with regulations in Japan, the US and Europe, and are able to be used globally. The management estimates that stemchymal for spinocerebellar degeneration alone could generate revenue of 19 billion yen. The pipeline is short on items.

Cancer and leukemia markets attractive but competitive. A unique new drug creation by “module technology’, which utilises off-patent ingredients of existing drugs. Hence, faster development at lower risk. In return it makes the company biased towards small molecule medicines. Management’s best case revenue estimate is 225bn if all major programs make success. Three products may enter Phase 3 by 3/2024.

Telomelysin (OBP-301) for cancer is driving the pipeline growth with clinical trials for various therapies moving forward. However, In October 2021, Chugai terminated the Telomelysin licence agreement, so the company will take over clinical trials from Chugai. Phase 2 of the clinical trial for monotherapy with radiation, a therapy for oesophageal cancer, is most advanced. The company expects to file for approval in FY2024. Clinical trials for gastric and head and neck cancer are in Phase 2. OBP-2011 for COVID looks interesting.

The business makes money and the underlying earnings tend is positive thanks to steady royalty and milestone payments. Delivers reasonably high RoE. 5-year BPS CAGR of ca 14% is highly rated. Extensive pre-clinical lists though few are getting into clinical trials. Acquisition of a radiopharmaceutical business will add 33 products and 3 Phase 3 trials to the pipeline. Modality can be more diverse. Management believes that sales of 50 billion yen in the next three to six years is within reach. The risk of equity dilution is low as funding will be mainly through borrowing.

Growing cash flow thanks to steady biosimilar commercialisation. Following the launch of the third biosimilar in Dec 2021, the fourth will come on stream by FY2025. SHED(Stem cell from Human Exfoliated Deciduous teeth) could become interesting in the regenerative therapy market, but the drug will not be developed for quite some time. The pipeline is short on items.

Multiple antibody generation technologies, including the proprietary ADLib system, bode for interesting future. Well-managed drug development support business. The management is mainly targeting milestone payments, but it is unclear when and how much revenue will be obtained.　BPS has been declining over seven years.

Development is focused on glaucoma, which has a large global market. The development of the glaucoma treatment H-1337 is underway, following Granatec, which has already been launched. The company expects Phase 3 trial of H1337 to start in 2024 or later. Interesting exploration on AI drug discovery. Products include ophthalmic solution and agents for anti-platelet and anti-glaucoma. Drug pipeline is slightly short of items.

Sensible strategy to focus on early monetisation of late-stage clinical trials products. Keen on industry alliance and M&A. Focus on the nucleic acid drug is interesting, but success is a long way off. Fairly extensive drug pipeline thanks to strategic move such as the acquisition of AccuRna in CY2020.

A lot of backlog contracts. Cash flow generative thanks to robust revenue streams. 5-year BPS growth of ca 11% is rated well. A unique GPCR-focused drug discovery platform drives the business. An extensive list of preclinical trials and basic research. Remains acquisitive even after 2015 purchase of Heptares. Keen on more alliances. Interested to add late-stage clinical trials to the drug pipeline.  Finance ability and plenty of options on how to reallocate cash.

Revenue growing well thanks to drug research support business. iPS cells continues to attract attention as a key player in the spread of human cell experimentation. Stemchymal is in Phase 2 clinical trials and is being administered to subjects as planned. R&D moves are quiet, but the progress is felt to be positive.

Quiet pipeline development. However, the medium-term outlook is positive as development continues to point to three products moving to Phase 3 trials in the next 24 months. The pipeline remains slightly short of items.

Uncertainty in pipeline development due to Chugai’s licence termination. The company explains this is not because of safety and effectiveness. Although the company takes over the development, how to raise R&D costs is another major issue. OBP-2011 for COVID looks interesting. 51% yoy recovery in BPS thanks to finance.

Acquiring a radiphamaceutical business from Fuji Film. Fine momentum of the underlying earnings. Very good cash flow generation in 12/2021. A 14% yoy rise in 12/2021 BPS. Drug pipeline ceased to grow in number yoy though the quality remains to be felt positive.

The third biosimilar (GBS-007) launch in Dec 2021. Progress of regenerative medicine development, which included a couple of development contracts for designer cell and the start of manufacturing at MCB (Master Cell Bank).

Royalty of DW-1002 (internal border peeling) is growing. The drug was launched in Canada. DW-5LBT (post-herpetic neuralgia) received Completion of Review Report (CRL) from FDA. Filed for manufacturing and marketing approval in Japan for K-232 (combination drug of ripasudil hydrochloride hydrate and brimonidine tartrate). 

ENT103 (ear antimicrobials) achieved primary endpoints in Phase 3 clinical trials and is scheduled to be filed for marketing authorisation around spring 2022. The drug may be launched in about 18 months.

Robust revenue stream. Achieved major partnership with Neurocrine in Dec 2021 and received an upfront payment of 1 million dollars. Timely finance strengthened cash position.