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Elanix Biotechnologies AG (ELN-DE): Progenitor cells for accelerated tissue healing
Recommendation: OUTPERFORM
Target Price: EUR6.40
Current Price: EUR1.96 (cob on 21^st March 2018)

KEY TAKEAWAY

We initiate coverage of Elanix Biotechnologies with an OUTPERFORM recommendation and a target price of EUR6.4/share. Elanix is a commercial-stage Swiss regenerative medicine company focused on tissue regeneration products and specialty cosmetics for dermatology and gynaecology applications. The company's core competence is its proprietary progenitor cell technology and the main focus is advanced wound care: the first product candidate, FirstCover, is expected to be launched in early 2020E for the treatment of acute wounds and in 2022E for chronic wounds. Elanix is already generating revenues from its specialty cosmetic GYNrepair for women's health, launched in May 2017. A second product, SKINrepair for eczema, is projected to enter the market in H1/2018E. We forecast strong top-line growth, as reflected in our 2017A-2022E revenue CAGR of 146%, and expect Elanix to achieve sustainable profitability in 2020E.

FirstCover: differentiated treatment for acute and chronic advanced wound care

FirstCover is an off-the-shelf product based on progenitor skin cell derivatives in development for acute and chronic advanced wound care, a c.$6.9bn market growing at c.4% per year. Elanix intends to start a 30-40 patient trial in the acute wound setting by YE2018E, paving the way for approval by early 2020E. Elanix plans to enter the larger, but more competitive and lower priced chronic wound care market (e.g. diabetic foot, pressure ulcers, venous leg ulcers) in 2022E. We forecast combined revenues of nearly EUR30m in 2024E, based on in-market sales of EUR72m, and believe that the product could reach peak sales of c.EUR250m ten years after launch.

Specialty Cosmetics backed by clinical data

The specialty cosmetics portfolio, which is based on animal-derived progenitor cell derivatives, includes GYNrepair for the treatment of vulvodynia, a painful gynaecological condition that affects at least 8% of women, and SKINrepair for atopic dermatitis (eczema). GYNrepair was launched in May 2017 and generated an estimated EUR300k in sales in 2017E, while SKINrepair is due to reach the market in H1/2018. We forecast combined sales of nearly EUR30m in 2021E and peak sales of c.EUR175m in 2028E, of which we expect Elanix to book c.40% as revenues.

Valuation analysis suggests ample room for upside

We value Elanix based on an EV/sales multiple using our EUR33m revenue estimate for 2022E, and further validate our analysis using a discounted cash flow model that better captures the long-term growth potential. Our EV/Sales analysis, which is based on a multiple of 3.6x, a discount rate of 12% and assumes a 65% probability of Elanix achieving our forecasts, yields a fair value of EUR6.4/share, which is the basis of our target price. Our DCF analysis yields a higher fair value of EUR10.4/share.

Kind regards,

Brigitte de Lima, PhD, CFA | Analyst

Martin Piehlmeier | Analyst
goetzpartners Healthcare Research Team | Research Team

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