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21-Mar-2019

Marinomed Biotech AG (MARI-AT): Solving the insoluble

goetzpartners securities Limited

21-March-2019 / 08:15 GMT/BST


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Published to the market and investors on 21st March 2019 @ 7.48am (GMT).


Marinomed Biotech AG (MARI-AT): Solving the insoluble
Recommendation: OUTPERFORM
Target Price: EUR95.00
Current Price: EUR78.00 (CoB on 20th March 2019)

KEY TAKEAWAY

We initiate coverage of Marinomed Biotech AG ("MARI") with an OUTPERFORM recommendation and a target price ("TP") of EUR95 per share (>20% upside). Marinomed uses its proprietary Marinosolv technology to dissolve hardly soluble therapeutic compounds to improve their bioavailability and hence efficacy and safety. Pivotal Phase III data for lead asset Budesolv in hay fever (allergic rhinitis, "AR") is expected in Q2/2019E, paving the way for approval and launch in 2021E into a >$12.2bn market. We model peak sales of EUR750m (<4% market share), with Marinomed retaining up to 16% of value through distribution deals. Tacrosolv is due to enter Phase II for eye diseases in 2019E. Marinomed already generates revenues from six marketed over the counter ("OTC") products for cough and colds, discovered and developed in-house based on the patented and clinically validated Carragelose platform.

Budesolv Phase III data in allergic rhinitis in Q2/2019E the key catalyst

Budesolv contains the steroid budesonide, used for allergy and autoimmune diseases. It is being developed as a nasal spray for AR, an inflammation of the nasal mucous membranes that affects up to 30% of people. The ongoing Phase III trial is designed to show non-inferiority vs. Johnson & Johnson's OTC product Rhinocort Aqua (budesonide suspension), which generated sales of $250m in 2017, less than 2 years after the Rx-to-OTC switch. Marinomed plans to differentiate Budesolv based on faster onset of relief - minutes rather than days - through a secondary endpoint. This would position it as a competitor to market leader Flonase, which had sales of c.$1.6bn in 2017.

Tacrosolv is targeted at common and debilitating, yet underserved eye diseases

Tacrosolv is based on tacrolimus, an established immunosuppressant used in organ transplantation. Marinomed intends to develop the compound as a prescription drug for local application to the eye to treat allergic conjunctivitis and dry eye syndrome. The addressable markets were c.$1.4bn and c.$2.2bn, respectively, in 2017. Preclinical studies have demonstrated excellent tissue permeation and bioavailability at doses well below those used when tacrolimus is administered systemically. A Phase II challenge study in allergic conjunctivitis is due to start in 2019E, paving the way for pivotal Phase III studies in 2020E. We expect Marinomed to partner Tacrosolv after Phase II in a EUR500m deal including 12.5% royalties on sales and model peak sales of EUR1bn, of which dry eye accounts for 75%.

Marketed Carragelose-based products target a c.$28bn OTC market

The efficacy of Carragelose, which is based on a biopolymer with antiviral properties, has been demonstrated in four clinical trials in 650 adults and children, which showed a reduction in the duration of the cold (by 2 - 3 days), its symptoms, and the number of relapses. Marinomed has six Carragelose products targeting the cough, cold and allergy ("CCA") market worth c.$28bn in 2017 and growing at 4% - 5% per year. They are marketed through partners worldwide and generated sales between EUR28m - EUR43m in 2017, yielding EUR4.8m in total revenue to Marinomed. We forecast peak sales of c.EUR260m in 2030E (<1% market share) - with Marinomed entitled to c.16% - driven by continued growth of existing products in markets where they are already launched, entry into new countries that are covered by existing partnerships and launch of new products.

TP of EUR95 per share suggests >20% upside

Marinomed develops products based on two proprietary platforms (OTC medicines and new, aqueous formulations of existing drugs) that have distinct risk / reward profiles. We feel that the valuation methodology that best captures their different risk / reward profiles as well as their long-term potential is a sum-of-the-parts ("SoTP") analysis based on risk-adjusted net present values ("rNPVs") for Carragelose products and projects from the Marinosolv technology platform. The most valuable asset is Budesolv, accounting for c.43% of our valuation, followed by Carragelose products (31%). Positive data for Budesolv in Q2/2019E would lift our valuation to EUR107 per share.

Kind regards,


Brigitte de Lima | Analyst

goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

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Last Updated: 21-Mar-2019