Conseil KBC Securities: Accumuler - Objectif de cours 20 €
GLPG reported FY13 top-line financial results just meeting the guidance, driven by non-cash revenue recognitions, higher subsidies and a last-minute Servier milestone recognition. Services performed below expectation and struggles with margins. The key pipeline elements remain on track.
Our View:
GLPG reported FY13 revenues of € 160m, exactly in-line with guidance. R&D revenues were € 76m (KBCSe € 77m, of which an estimated € 55m relates to non-cash revenue recognitions of AbbVie upfronts, €48m of RA pill GLPG634 and € 7m from the 3Q13 cystic fibrosis deal). Services reached € 61m (KBCSe € 66m, -7% vs FY12 actual, +2% on a like for like basis), below the mid-single digit corrected guidance at the 1H13 report (services were before assumed to grow ~10%). The Service gross margin declined (on a like for like basis) from 35.9% to 35.4%. On an actual basis, the REBITDA margin dropped from 16.9% to 15%. No information was provided on the potential divestment process (cfr our morning note of 31 January). ‘Other income’ was € 22m (€ 18m expected), up 30% driven by higher French Credit d’impot de recherche inflows (€ 6m) and higher subsidy income.
As expected, operating expenses saw a stiff increase due to the ongoing mid stage clinical studies, which drove R&D expenses from € 80m to € 99m. G&A increased by 7% to € 26m, while Services’ sales&marketing costs of € 2.4m increased by 13%. The operating loss of -€ 11m worsened by 66% y/y. A flattish financial result (versus a positive result of € 1.5m in FY12) and a € 3m (non-cash) recognition of deferred tax asset (details to be elaborated on during the 10 AM call) result in a net loss of € 8m, 41% worse versus FY12. The YE13 cash position of € 141.5m was well ahead of the guided € 135m, and does not include € 6m which are recognized in the 2013 top-line nor the € 33m of future French R&D tax rebates.
For FY14, GLPG guides for € 180m of revenues. We believe the majority of the increase versus FY13 is driven by an additional € 20m upfront recognition of the AbbVie cystic fibrosis deal (we estimate the total non-cash upfront recognition in FY14 to be around € 75m). Assuming a flat ‘other income’ level and a small increase in service income, the FY14 guidance implies milestone driven R&D income of ~€ 20m (flattish versus the FY13 level).
GLPG expects in 2014 to report on the interim data of the phase IIb GLPGP634 trial by late 2014 (on track), while GSK’184 in psoriasis and GLPG974 in UC are also expected to report data (assume before mid 2014). Multiple additional clinical and preclinical programs, both proprietary and from partners, are expected before YE14 (in-line with previous communications).
Conclusion:
GLPG’ FY13 revenue line just met the guidance thanks to scrapping every penny. The 2H13 Service division saw a soft top-line growth versus the weak 2H12 comparable, though the profitability suffers and no news was given on the divestment ambitions. While the optics of the FY14 revenue guidance look nice, we are not impressed as it is strongly driven by non-cash upfronts & subsidies. More important is that the key value drivers in the clinical pipeline are on track to report data as planned. Accumulate & TP maintained.
