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28-Mar-2019

Epigenomics (ECX-DE): 2018 results highlight strong underlying growth momentum

goetzpartners securities Limited

28-March-2019 / 19:54 GMT/BST


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Published to the market and investors on 28th March 2019 @ 12.03pm (GMT).


Epigenomics (ECX-DE): 2018 results highlight strong underlying growth momentum
Recommendation: OUTPERFORM
Target Price: EUR4.01
Current Price: EUR1.76 (CoB on 27th March 2019)

KEY TAKEAWAY

Having reached a number of critical milestones throughout 2018, Epigenomics reported FY2018 product sales of 0.8m (47% YoY), highlighting the company's strong underlying growth momentum. While total sales of EUR1.5m (-18% YoY) were slightly below our revenue expectations, largely due to a reduction in licensing revenue associated with a one-off patent sale in Q4/2017, product sales in Q4/2018 increased by 7% YoY. We are revising our sales forecasts for FY2019E and out-years as a result of the recently announced termination of the collaboration with Chinese licensing partner BioChain and to account for the recently published 2019E revenue guidance in the range of EUR3.0m to EUR6.0m. We continue to see the positive commercial outlook of Epigenomic's liquid biopsy tests due to a differentiated profile, fast readouts, large target markets and a significant health-economic impact. We maintain and reiterate both our OUTPERFORM recommendation and EUR4.01 target price ("TP").

Strong underlying growth momentum expected to carry forward into 2019E

Epigenomics has reached a number of significant milestones throughout 2018, including a final reimbursement rate for Epi proColon of $192.00, CE marking of HCCBloodTest for liver cancer as well as a successful capital increase. Reimbursement coverage remains a primary focus for the company going forward, with FDA submission for HCCBloodTest also expected later this year. Success on both fronts would represent a turning point for the company and lay a strong foundation for sustainable long-term growth.

FY2018 financial review

Epigenomics reported total revenue for FY2018 of EUR1.5m and an operating loss of EUR12.9m. The EUR2.1m increase in R&D expenditure (48% YoY) is mainly attributable to the post approval study, we therefore anticipate lower R&D expenses for 2019E. Strengthened by a recent capital increase with gross proceeds of EUR22.3m, YE2018 cash stood at EUR17.1m, which should allow the company to fund operations into 2020E.

Adjusting 2019E sales and beyond

We have updated our 2019E and out-year forecasts to reflect the recent termination of the license agreement with BioChain and to account for 2019E revenue guidance of EUR3.0m to 6.0m. We expect Epigenomics to enter a phase of rapid growth, fuelled by a positive coverage decision for Epi proColon, and believe the results of the microsimulation study will facilitate much-anticipated inclusion into the American Cancer Society ("ACS") updated colorectal screening guidelines.

Valuation suggests ample upside

With the recent CE marking for HCCBloodTest, in our view, the key uncertainty remains medicare coverage and inclusion into medical guidelines for Epi proColon. With the new liver product de-risking the commercial outlook, Epigenomics offers a highly attractive investment opportunity with significant potential for growth. We maintain and reiterate both our OUTPERFORM recommendation and TP of EUR4.01.

Kind regards,


Martin Piehlmeier | Analyst

goetzpartners Healthcare Research Team | Research Team

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Last Updated: 28-Mar-2019