e-Therapeutics: Full-Year Results

e-Therapeutics has announced full-year results which are in-line with expectations. The drug discovery and development company, which is focused on the new science of network pharmacology, has made some encouraging developments during the year, with its leading cancer drug candidate ETS2101 continuing to make progress in three phase I trials, and its major depressive disorder candidate ETS6103 advancing in a phase IIb trial. We update our forecast for FY16 while providing forecasts for FY17, and continue to classify the company as a growth stock.

Sufficiently Funded

For the year ended 31st January 2015, the operating loss increased to £10.18m (FY14: £6.72m) as research and development expenditure increased to £8.55m (FY14: £5.37m) and administrative expenses increased to £1.63m (FY14: £1.35). No revenues were recorded, as expected, but recognition of R&D tax credits of £2.04m (FY14: £1.06m) and net interest income of £0.36m (FY14: £0.62m) reduced the net loss to £7.77m (FY14: £5.04m). Cash as at year-end decreased to £33.8m (FY14: £43.1m) and the company has maintained that its current cash resources will be sufficient to fund all of its planned discovery and development activities into CY2019.

Encouraging Developments

Having established the Maximum Tolerated Dose (MTD) for the UK solid tumour trial, e-Therapeutics has finalised the protocol design and obtained the first of the regulatory approvals for the commencement of the first of the phase Ib studies. The first of these patients is expected to be dosed in April 2015. The US brain cancer trial is ongoing and the company anticipates reporting preliminary results on the current cohort in Q2 2015. The company will undertake further preclinical investigation before deciding on whether to progress an oral formulation into clinical development. Results from the major depressive disorder trial are expected to be revealed in H2 2015.

Forecasts

As the company seeks to make the most of the opportunities provided by its platform and pipeline, we expect to see a further ramp up in investment in discovery and development. For FY16, we are now forecasting R&D expenditure to grow to £10.0m, leading to an operating loss of £11.80m. For FY17, we are forecasting an R&D expenditure of £11.0m, leading to an operating loss of £12.80m.

Valuation

Our rNPV for the two drug candidates under development, when assuming a 12.5% discount rate, is $301 million, or 76p per share. Add current cash of £43.1m and subtract a perpetuity-estimated G&A cost and this leads us to a target price of 86p.