Key Takeaways:
- The CEO of Everest Medicines resigned two days after the company announced its loss grew sharply in the first half of the year
- The company also lost an important potential new revenue source after transferring rights for one of its core products to another company
By Emily Chan
Everest Medicines Ltd. (1952.HK) may share the name with the world’s tallest mountain, but lately the innovative drug maker has skidded to one low after another on a string of bad news.
The latest in that string was the company’s announcement last week of poor results for the first half of the year, followed just two days later by its CEO’s resignation without a named successor. Just a week earlier Everest also came under fire after it announced selling the rights for one of its most promising drugs. With so much bad news, it’s no surprise investors have been dumping the stock lately, sending it to a new rock bottom.
Listed in Hong Kong in October 2020, Everest mainly operates using a “license-in” model that sees it license China rights for drugs developed by other companies. Of the more than 10 drugs in its portfolio, its breast cancer drug Sacituzumab Govitecan is its only product approved for sale in China.
Given its paucity of approved products for sale, the company surprised investors two weeks ago when it suddenly announced it had transferred its exclusive China rights for the breast cancer drug in Greater China, South Korea and certain Southeast Asian countries to U.S. drug company Gilead Sciences (NASDAQ:GILD). That deal will see Everest receive a total consideration of $455 million, including an upfront payment of $280 million and potential future milestone payments of $175 million.
Backlash to the announcement was swift. The company’s shares plunged 19% in a single day and fell for four consecutive days after the announcement, wiping out over HK$1.4 billion ($180 million) in market value.
Founded by CBC Group in 2017, Everest Medicines focuses on products in four major areas: oncology, anti-infection, immunology and cardiorenal disease. It acquired the rights for Sacituzumab Govitecan, used to treat patients with unresectable locally advanced or metastatic triple-negative breast cancer, from U.S. drug developer Immunomedics in 2019, and got the regulatory nod to sell the drug in China in June.
Unhappy investors
After taking more than two years to take Sacituzumab Govitecan through the approval process, Everest ultimately sold its rights for the drug back to Immunomedics, which was acquired by Gilead in 2020. While its reasons weren’t given, one thing that’s crystal clear is investor unhappiness with the decision.
Rubbing salt into its bleeding shares, Everest unveiled dismal interim results last Wednesday that showed its loss soared 74.4% year-on-year to 668 million yuan ($96.4 million) in the first half of this year. In that process, its cash and cash equivalents halved to 1.96 billion yuan from a year earlier. That may at least partly explain why the company sold the rights to its core product.
Some industry insiders note the move may not be entirely half-baked. Even though the drug has been approved for China, its actual commercialization will require heavy spending on distribution, sales and marketing, on top of the $710 million in future remaining milestone payments it would owe to Immunomedics. Therefore, selling the drug to Gilead, which gives it $280 million in an immediate upfront payment, will help it to free up capital to develop other drugs in its pipeline.
As a company with few saleable drugs in its pocket, Everest’s first-half revenue wasn’t much cause for excitement. The company generated just 1 million yuan in revenue during the six-month period from the sale of Xerava, a drug it sells only in Singapore for treatment of complicated intra-abdominal infections. The company has also applied to sell the drug in Taiwan.
Everest is also eying the booming market for Covid vaccines with its acquisition last September of the Asia rights for an mRNA vaccine developed by Canada’s Providence Therapeutics. Under that agreement, Everest made a $50 million upfront payment and promised to share profits on up to $100 million in eventual sales over the next 15 years for the right to manufacture and sell Providence’s PTX-Covid19-B Covid-19 mRNA vaccine throughout the region, including in China.
Providence will provide the necessary technology to Everest, which will construct a manufacturing facility expected to be operational in east China’s Zhejiang province by the end of this year. The facility will be able to make hundreds of millions of doses of the vaccine annually. To spread the cost of the vaccine’s development, Everest and China Resources Pharmaceutical Group (3320.HK) in April set up a company to take over rights to develop its mRNA vaccines.
The vaccine would have to compete with at least four potential other mRNA Covid-vaccines now being tested in China, though none of those has been approved.
CEO resignation
While the latest results and sale of its rights for Sacituzumab Govitecan didn’t sit well with many, investors were also almost certainly surprised by the sudden resignation of Kerry Levan Blanchard, Everest’s CEO who led the breast cancer drug through the approval process.
Blanchard, a 30-year industry veteran with experience in the U.S. and China, took over as Everest’s CEO in February 2020. In announcing his resignation, the company said a successor is still under discussion and will be announced once the appointment is confirmed. But the resignation with no named successor has raised some eyebrows.
Following announcement of that news, the company’s shares, which were already hovering near rock bottom, hit a new all-time low of HK$11.16 on Monday, down nearly 80% from its IPO price of HK$55 two years ago. The shares have done a “dead cat bounce” since then, but are only up slightly from those lows.
Credit Suisse forecasts the company will record a profit of 3.56 yuan per share this year thanks to the $280 million advance payment for the Sacituzumab Govitecan rights. But since that’s just one-time revenue, it expects the company to return to the red with losses of 2.2 yuan per share and 1.12 yuan per share in 2023 and 2024, respectively. The bank maintains its “outperform” rating, but has cut its target price in half from HK$42 to HK$21, which is still nearly double the current level.
In terms of valuation, Everest’s latest price-to-book (P/B) ratio stands at 0.52 times, a fraction of the 3.7 times for Zai Lab Ltd. (NASDAQ:ZLAB) and 3.9 times for Innovent Biologics. After its shares have plumbed such lows, it seems Everest will need to show some stronger numbers for its pipeline drugs, and introduce a competent new leader, before it can start scaling some of its former heights.
