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Basilea Pharmaceutica AG (BSLN-CH): Reaping the rewards of an intense BD period
Recommendation: OUTPERFORM
Target Price: CHF107
Current Price: CHF66.55 (cob on 16^th March 2018)

KEY TAKEAWAY

We initiate coverage on Basilea, a commercial-stage Swiss biotech company focused on treatment-resistant infections and cancers, with an OUTPERFORM recommendation and target price of CHF107/share, which is c.60% above the share price. Basilea recently completed a busy period during which it signed commercialisation agreements with global and regional leaders for its two-marketed hospital anti-infectives, antifungal Cresemba (isavuconazole) and MRSA antibiotic Zevtera (ceftobiprole), in most key markets. We expect revenue from these deals to fuel a 2018E-2023E revenue CAGR of c.18% (based on 2018E revenues of CHF109m) and lead to profitability from 2020E, driving share price upside, in our view. We see increasing visibility on the de-risked ceftobiprole US programme and clinical milestones for Basilea's early-stage oncology pipeline as additional share price drivers.

Cresemba off to a good start, Zevtera to benefit from global roll-out

Cresemba is Basilea's most valuable product, accounting for >60% of our sum-of-the-parts valuation. Following first launch in the US in March 2015 by Astellas, the drug achieved global sales of c.$100m in 2017. We forecast peak sales of >$680m, based on the drug's best-in-class profile compared to its closest competitor voriconazole. Zevtera's uptake in hospitalised pneumonia since European launch in December 2014 has been slow, but we expect sales growth to accelerate as the drug is rolled out globally. We forecast peak sales outside the US of $175m, driven by high MRSA rates in hospitals and use in high-risk patients who require treatment with a broad-spectrum agent.

De-risked ceftobiprole US opportunity a key mid-term driver

Our forecasts include sales for ceftobiprole in the US, where Basilea is following a de-risked strategy consisting of two cross-supportive Phase III trials in S. aureus bacteraemia (starts in H1/2018) and severe skin infections (ongoing), largely funded by BARDA. We expect high MRSA rates in the US to drive use and forecast $225m in peak sales, based on launch in 2022E and Basilea entering a US licensing deal prior to FDA approval.

Oncology pipeline to drive second leg of growth

Basilea is building an oncology pipeline focused on tumours with limited therapeutic options. The most advanced asset is BAL101553, a microtubule-targeting agent in Phase I/II development for solid tumours including glioblastoma. We believe the compound could achieve peak sales of $500m and assume that Basilea enters a lucrative licensing deal following Phase III data.

Sum-of-the-parts valuation suggests c.60% upside

Our target price is based on a sum-of-the-parts valuation that includes (risk-adjusted) net present values for Cresemba (64% of our valuation), Zevtera (18%), ceftobiprole US (9%), BAL101553 (4%) and net cash (5%) at YE2018E.

Brigitte de Lima, PhD, CFA | Analyst
goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

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