Crossject held a presentation at the end of last week to disclose its new strategy, in particular in the light of its extended patnership with Cenexi.
To make a long story short, Crossject has decided to review its strategy, particularly by insisting first on emergency NTEs amongst its current portfolio of 7 NTEs, and, more specifically, on the products that could lead to early distribution agreements (with upfront fees) in the US and could get market approvals through a “fast-track” procedure. The group has also extended the initial partnership with Cenexi through a global five-year exclusive agreement, whereby Cenexi will commit itself to €5m capex to increase production capacities to about 10m (vs 2m initially) and to build a “fast-track” production line in H1 17 aimed at producing the lots needed for regulatory approvals. Also, Crossject intends to internalise all “non-pharmaceutical” operations at its own site (tubes finishing, packaging…). This will not only simplify the production process, but also enable Crossject to benefit from Cenexi’s experience and record, in both the US and EU, and make the company independent of other smaller suppliers. As a result of these new developments, the calendar is delayed for all products, compared to what it was in our initiation of coverage report dated 25 February 2016. As examples, the dates for filing for approval in Europe and the US for Sumatriptan, Midazolam and Adenaline are postponed by a year, which basically implies that the first products to reach the market in Europe will do so in FY19 and FY20 in the US. Of course, this will have an impact on our valuation (i.e. cash flows will be discounted over a longer period of time), but Crossject will also be able to spend less on capex, since the bulk of investment will be made by Cenexi. At the end of the day, the outcome is a decrease in the industrial risk and capex for Crossject, which comes with a delayed access to the market though. We believe the move makes sense and secures future production and revenues, with the only reservation that this comes at the price of another delay, which the market by definition does not appreciate, particular when this is not the first time the company has acted in this way.
Altogether it is our impression that the valuation has to go down, since the company’s products will reach the market c. one year later than initially thought. Even though we like the idea of a larger (and sole) industrial partner, the delay comes as a disappointment and is most likely to cost in terms of valuation despite the savings on capex. We will revise our valuation, which should go down after these annoucements, mainly on time-to-market issues.
