Update
5 April 2011
Price
Market Cap
Algeta
Year
End
Revenue
(NOKm)
PBT*
(NOKm)
EPS*
(NOK)
DPS
(NOK)
P/E
(x)
Yield
(%)
12/09
30.7
(164.3)
(4.7)
0.0
N/A
N/A
12/10
270.9
23.1
0.6
0.0
208
N/A
12/11e
233.7
(20.8)
(0.5)
0.0
N/A
N/A
12/12e
233.7
(108.4)
(2.7)
0.0
N/A
N/A
NOK135
NOK5.3bn
Share price graph
Note: *PBT and EPS are normalised, excluding goodwill amortisation and exceptional items.
Investment summary: First thorium MAb deal
Algeta has entered into research collaboration with Genzyme on the development of
a thorium-linked tumour-targeting monoclonal antibody (MAb). The collaboration will
allow an initial evaluation of the thorium-227 linked version of the Genzyme MAb,
created using Algeta’s technology. If the initial studies are successful, the two
Share details
Code
Listing
Sector
Shares in issue
ALGETA
OSE
Pharmaceuticals
39.5m
companies expect to negotiate a collaboration for full development of the product.
Genzyme deal to evaluate MAb with thorium-payload
Price
52 week
Algeta and Genzyme (now owned by Sanofi-Aventis) have signed research
collaboration to allow the evaluation of a thorium-227 linked version of the
undisclosed Genzyme MAb. We presume this product candidate would be evaluated
in preclinical models, which, if successful, would provide the basis for the two
companies to negotiate a full development collaboration.
Breast cancer study data for Alpharadin soon
Meanwhile Algeta will shortly announce the results from its Phase II study of
Alpharadin (radium-223) in breast cancer, which may pave the way for partner Bayer
to initiate a Phase III study in this indication. Preclinical studies presented at AACR
suggest that Alpharadin may be effective in treating bone metastases characterised
by osteoclastic activity (as in breast cancer), which bodes well for any such studies.
ALSYMPCA interim analysis
High
NOK137.0
Balance sheet as at 31 December 2010
Debt/Equity (%)
N/A
NAV per share (NOK)
4.9
Net cash (NOKm)
479
Business
Algeta is a Norwegian biotech company
with the leading position in alphaemitting pharmaceuticals for oncology.
Its lead product Alpharadin, in
development for treatment of bone
metastases arising from prostate cancer,
is partnered globally with Bayer in an
$800m deal.
Valuation
2010
2011e
2012e
P/E relative
N/A
N/A
N/A
P/CF
N/A
N/A
N/A
EV/Sales
N/A
N/A
N/A
12%
N/A
N/A
The ongoing ALSYMPCA Phase III study of Alpharadin in CRPC bone mets will
shortly undergo an interim analysis that could, in exceptional circumstances, allow an
early registration filing. However, it should be presumed that the study will run to its
completion in 2012. The outcome of the interim analysis may be known by end Q2.
Low
NOK65.0
ROE
Valuation: Risked NPV of NOK6.4bn vs EV of NOK4.9bn
Our risk-adjusted NPV yields a valuation of $1.1bn (NOK6.4bn), which compares with
Algeta’s EV of NOK4.9bn. The valuation uses industry-standard risk-adjustments in
Revenues by geography
UK
Europe
US
Other
0%
0%
0%
100%
each indication for Alpharadin and hence would rise rapidly once higher probabilities
can be assumed (eg on a Phase III start in breast cancer). However, the market cap
currently reflects a relatively high proportion (c 82%) of the rNPV in comparison with
biotech industry norms, which may limit the upside potential in the short term.
Algeta is a research client of Edison Investment Research Limited
Analyst
Robin Davison
+44 (0)20 3077 5737
[email protected]
2 | Edison Investment Research | Update | Algeta | 5 April 2011
Update: First thorium deal links Genzyme antibody
Algeta has entered into a research collaboration with Genzyme (now owned by Sanofi-Aventis) to
evaluate a thorium-linked version of an undisclosed tumour-targeting monoclonal antibody (MAb).
The collaboration, which has a term of up to one year, will allow the creation and initial evaluation of
a thorium-227 linked version of the Genzyme MAb generated using Algeta’s technology. If the
initial study is successful, Algeta and Sanofi-Aventis can be expected to seek to negotiate a full
collaboration for further development of the product.
This agreement is an important first step in Algeta’s strategic plan to establish a second platform
based on thorium-linked drug conjugates. Algeta is actively seeking to in-license antibodies onto
which it can conjugate Thorium-227 and collaborate with companies that already have such
products in development. Hence, it expects to sign a number of other similar evaluation deals for
antibodies, whose cell killing anticancer effect could be enhanced by the delivery of alpha radiation.
The companies have not disclosed the antibody or its specific target, although it would be
reasonable to assume it targets a cell surface antigen that is highly abundant on a tumour. A
scientific paper by Teicher, interestingly of Genzyme, reviews this field and lists a large number of
such potential tumour antigens (Current Cancer Drug Targets, 2009, Vol. 9, No. 8).
227
Algeta has already published preclinical studies with Th
-linked linked versions of trastuzumab
1
2
(Herceptin, Roche) and rituximab (Rituxan, Roche). However, these molecules were created to
demonstrate proof-of-concept but for a variety of commercial/competitive reasons they are not
3
expected to be developed further. Algeta is currently evaluating the Lumi4 chelator technology,
under an option from the US biotech company Lumiphore, and this will presumably be used to link
the thorium to the antibody. The Lumi4 technology binds lanthanides and actinides (thorium is an
actinide) by forming a cage structure that can be covalently attached to a range of tumour-targeting
molecules.
Algeta is well positioned to exploit the growing industry interest in antibody-drug conjugates as the
second wave of antibody-based cancer therapeutics. These are products that carry either a toxin
or a radionuclide to deliver radiation to achieve or potentiate the desired anti-tumour cell killing
effect of the antibody. There are around a dozen different toxin-linked antibody drug conjugate
products in active clinical development and a smaller number of radionuclide-linked products,
although most are in small academic studies. Two beta-emitting radionuclide-linked antibodies are,
however, approved for therapeutic use (Zevalin and Bexxar).
The short range of alpha particles (2-10 cell diameters) means that damage to healthy cells (and
hence side-effects) is sufficiently less than with beta radiation. Hence it seems likely that the debate
in the industry will be between the merits of alpha radionuclide versus toxin-linked antibodies.
Algeta believes that alpha-emitters have a number of specific advantages including the fact that
they do not need to be internalised into the cell and their localised bystander effect (whereby
1
. Heyerdahl H et al. Int J Radiat Oncol Biol Phys. 2011 Feb 1; 79 (2): 563-70. Treatment of HER2-expressing
breast cancer and ovarian cancer cells with 227Th-trastuzumab
2
Dahle J et al. Int J Radiat Oncol Biol Phys. 2009 Nov 1; 75 (3): 886-95.
3
This would realistically need an agreement with Roche, which is developing its own toxin-linked version of
Herceptin (T-DM1 or trastuzumab emtansine) in collaboration with ImmunoGen.
3 | Edison Investment Research | Update | Algeta | 5 April 2011
tumour cells immediately adjacent to those bound to by the antibody may also be destroyed).
Algeta effectively achieved an exclusive commercial position in alpha-emitters, with its access to
thorium-227 source, a chelating technology and IP/know-how in this area. Selected radionuclidelinked antibodies are shown in Exhibit 1.
Exhibit 1: Radionuclide-linked antibodies for therapeutic use, approved and in clinical development
Note: there are a large number of radiopharmaceuticals (many based on Tc-99m, a gamma emitter) used for imaging and functional
studies of the brain, myocardium, thyroid, lungs, liver, gallbladder, kidneys, skeleton, blood and tumours, which are not shown.
Product
Company
Stage/Indication
Notes
Zevalin
(ibritumomab
tiuxetan)
Spectrum
Pharma/Bayer
Schering
Approved for treatment of
relapsed/refractory, lowgrade or follicular B cell
non-Hodgkin's lymphoma.
Approved for relapsed lowgrade or follicular nonHodgkin's lymphoma.
Phase II. GBM
Phase II. Prostate cancer.
Phase II. CNS cancer.
Phase I. Solid tumours.
Phase I. NSCLC; mCRC.
Phase I. Renal.
Radioisotope-linked anti-CD20 MAb. In111 linked antibody
is used to assess biodistribution (by gamma imaging)
followed by therapeutic dose with Y90. Each dose is
preceded by Rituxan to pre-deplete B lymphocytes.
Requires separate dosimetric and therapeutic steps. Each
step consists of a sequential infusion of naked
tositumomab followed by I131 tositumomab.
I131linked TNT-1/B MAb.
Lu177 linked HuJ591-GS MAb
I131 linked MAb 3F8.
Y90 linked anti-CD19 MAb.
Y90 linked anti-CEA MAb.
Y90 linked chimeric MAb cG250.
Bexxar
GSK
(tositumomab +
I131 tositumomab)
Cotara
Peregrine Pharma
J591
NCI/Cornell
I131 3F8
NCI
Y90 BU12
NCI
90
Y cT84.66
NCI
Y90 cG250
Ludwig Institute
Source: Edison Investment Research
The development of a second platform based on thorium-linked drug conjugates is an important
strategic goal for Algeta, as it looks to develop a pipeline of products to follow Alpharadin. Algeta’s
investment case is effectively entirely centred on the successful development and commercial
exploitation of Alpharadin, which is in Phase III studies for the treatment of bone metastases arising
from prostate cancer. Alpharadin, which is subject to a global commercial partnership with Bayer,
is in a pivotal Phase III study, termed ALSYMPCA, which has completed recruitment and will shortly
undergo an interim analysis that may, in exceptional circumstances, allow an early registration filing.
However, there is a high statistical hurdle and the study should be presumed to run to completion.
Details on the three ongoing studies with Alpharadin are shown in Exhibit 2.
Exhibit 2: Alpharadin clinical trial summary
Study
Design
Notes
Skeletal
metastases from
prostate cancer
(monotherapy)
(ALSYMPCA/
BC-06)
900-pt Phase III
study. Alpharadin
administered at
50kBq/kg bw q4w for
six cycles or placebo
(2:1 allocation ratio in
favour of drug hence
c 600 patients will
receive Alpharadin, c
300 placebo).
Skeletal
metastases from
prostate cancer
(combination
therapy) (BC110)
60-pt dose-ranging
Phase I/IIa study of
docetaxel ±
Alpharadin. Up to 5x
50 kBq/kg bw q6w
plus docetaxel
(75mg/m2 iv q3w).
Open-label 20-pt
Phase I/II trial of
Alpharadin 50kBq/kg
bw, q4w for four
cycles.
Primary endpoint: OS based on 640 events. The study will remain open to obtain threeyear follow up data (around December 2013).
Secondary endpoints: Time to occurrence of specified disease events; changes and time
to progression in serum PSA and total ALP concentrations; acute and long-term safety
profile; and quality of life.
Target population: Men with progressive symptomatic CRPC with ≥ 2 skeletal
metastases on bone scan and no visceral metastases with regular analgesic medication
use or EBRT for cancer-related bone pain.
Status: Recruitment completed Jan 2011. Interim analysis for efficacy at 320 events (likely
end H111), although this has a high statistical hurdle (p<0.00153), so the study is most
likely to continue to completion (expected in H112).
Primary endpoint: Assessment of DLTs (Phase I) and safety of Alpharadin with docetaxel.
Target population: Men with CRPC and ≥ two skeletal metastases on bone scan.
Status: Safety data from dose escalation portion, H112, bone marker data in 2012.
Notes: Dose and administration frequency of Alpharadin for Phase IIa portion are
established in the Phase I portion according to a dose escalation scheme. Docetaxel
given with 5mg prednisone bid continuously and dexamethasone pre-medication.
Skeletal
metastases from
breast cancer
(monotherapy)
(BC-109)
Source: Edison Investment Research
Primary endpoints: Biomarkers (including urine NTX and bone-alkaline phosphatase) for
bone turnover during the 16-week treatment period
Target population: Women with endocrine-refractory breast cancer and bone-dominant
metastatic disease.
Status: Results: H111.
4 | Edison Investment Research | Update | Algeta | 5 April 2011
Breast cancer study data soon
Meanwhile Algeta should shortly announce the results from its Phase II study of Alpharadin (radium223) in breast cancer, designed to pave the way for the initiation of a second Phase III study. This
study is measuring biomarker data but should nonetheless provide some evidence of clinical
activity in an indication where the bone metastases are characterised by predominant osteolytic
activity (dissolution of bone). Bone metastases arising from prostate cancer are, by contrast,
characterised by predominant osteoclastic activity (formation of new bone).
Results of preclinical studies (conducted by Bayer) in a breast cancer model were recently
presented at the American Association for Cancer Research. The authors, Suominen et al, reported
that Alpharadin inhibited the differentiation of osteoclasts and progression of established, osteolytic
breast cancer bone metastases in the in vivo model.
Market positioning in mCRPC
Patients with prostate cancer are usually diagnosed when the cancer is at the hormone responsive
stage, but after a period of time on anti-androgens these patients will progress to CRPC (where the
diagnosis is made on the basis of a rapidly rising PSA level). These patients are usually
asymptomatic or only mildly symptomatic and standard therapy is docetaxel. However, as the
disease progresses, they tend to develop painful bone metastases (which are seen in >90% of
patients). Bone metastases can give rise to a variety of problems (including pain, fractures and
spinal cord compression), collectively termed skeletal-related events (SREs).
Currently zoledronic acid (Zometa, Novartis) is the standard treatment for delaying the onset of
SREs in multiple tumour types (including breast, lung and prostate), although this is changing with
the recent introduction of Xgeva (denosumab, Amgen/GlaxoSmithKline). Xgeva is indicated for
prevention of skeletal-related events (SREs) associated with bone metastases and the label may be
widened to include delaying the occurrence of bone metastases, following a positive Phase III trial.
Alpharadin specifically targets the bone metastases, it seems likely that it will be introduced for use
after the failure of (or in combination with) docetaxel or other agents. Xgeva is likely to provide the
benchmark against which Alpharadin will be compared, although the two agents may be used in
combination. The drug has been studied in four Phase III studies, of which two were in mCRPC,
which demonstrated a significant improvement in terms of delaying the onset of SREs over
zoledronic acid and placebo, but no improvement in overall survival. Hence if the ALSYMPCA study
demonstrates an increase in overall survival, as expected, it should become a significant
competitive advantage. There appear to be few potentially competing direct anti-bone metastatic
drugs in development (see Exhibit 3).
Exhibit 3: Novel anti-bone metastatic drugs
Study
Design
Stage
Notes
ALX-0141
GLPG0187
BMTP-11
Ablynx
Galapagos
MD Anderson
Phase I
Phase I
Phase I
anti-RANKL nanobody (same target as Xgeva).
Integrin receptor antagonist
Protein targeting interleukin-11 receptor alpha.
Source: Edison Investment Research
5 | Edison Investment Research | Update | Algeta | 5 April 2011
Sensitivities
Algeta is exposed to typical biotech company drug development risks, including the unpredictable
outcome of clinical trials, combined with a high single product risk (with substantially all of its value
residing in Alpharadin). In addition, the relationship with Bayer is important and, as with any
commercial relationship, there is a risk that a clinical trial setback or change in its partner’s R&D
priorities (eg prompted by M&A activity) could affect the relationship. Algeta’s functional currency is
the Norwegian krone, but a majority of its payments (and receipts) are made in euros. Algeta has
partially hedged its euro exposure, which, under IFRS, may give rise to non-cash items in its
accounts as they are marked to market at balance sheet dates. Algeta remains relatively tightly held
with two significant VC shareholders, Abingworth and Healthcap, each with 17% shareholdings.
Valuation
Our risk-adjusted NPV yields a valuation of $1.1bn (NOK6.4bn), which compares with Algeta’s EV
of NOK4.9bn. The valuation is based entirely on Alpharadin and uses conservative assessments of
the probability of success, market penetration, pricing and the economics of the Bayer partnership
(comprising development, regulatory and sales milestones, cost of goods margin and profit share
on co-promotion in the US). The valuation uses industry-standard risk adjustments based on the
stage of development in each indication and would therefore rise rapidly as higher probabilities can
be safely assumed (eg on a Phase III start in breast cancer). We note that currently the market
capitalisation accounts for a relatively high proportion (c 82%) of the rNPV by comparison with
biotech industry norms, which may limit the upside potential in the short term.
Financials
Algeta’s year-end cash was NOK479m. We have modelled an R&D expenditure of NOK175m this
year (and a hypothetical NOK250m in FY12) with NOK150m reimbursed in both years by Bayer.
Algeta can earn some $160m of milestones from Bayer from development and regulatory events
(the majority are related to filing and first sales in prostate cancer), with some $580m of milestones
payable on achievement of sales targets. A summary of the terms of Algeta’s global
commercialisation deal with Bayer are summarised in Exhibit 4.
Exhibit 4: Global development deal with Bayer
Development
Milestones
Sales
milestones
Royalties
Development
funding
Copromotion
Up some $160m on development and regulatory events (the majority are related to filing and
first sales in prostate cancer).
Some $580m is payable on achievement of sales targets, believed to be mostly a significant
sum on achievement of blockbuster sales (eg >$1bn/year).
Tiered double-digit, understood to be rise to >20% of sales.
Bayer funds just over 70% of the costs for ongoing prostate and breast cancer studies and
will fund in full any additional late-stage trials that may be required to gain approval.
Algeta has an option to co-promote in the US (with up to 50% participation). It intends to
exercise this participation right in full, which will require a significant investment in the
establishment of commercial infrastructure.
Supply
Algeta is responsible for global commercial supply. It is establishing a manufacturing facility
at the Institute for Energy Technology (IFE), in Kjeller, Norway, for commercial production.
Source: Edison Investment Research
On this basis, we believe Algeta is funded comfortably well beyond 2013, when it expects to have
Alpharadin approved and launched. No milestones are reflected in the financial model until
received, as per our policy. Our financial model is shown in Exhibit 5.
6 | Edison Investment Research | Update | Algeta | 5 April 2011
Exhibit 5: Financials
Note: Revenue in 2009-12 includes deferred recognition of NOK355m upfront from Bayer.
N OK' 000
Year end 31 December
P R OF IT & L OS S
R e ve n u e
Cost of sales
Gross profit
E B ITD A
Ope ra ti n g prof i t ( be f ore GW a n d e xc e pt. )
Intangible amortisation
Exceptionals
S hare- based payments
Ope ra ti n g prof i t
Net interest
P rof i t be f ore ta x ( n orm)
P rof i t be f ore ta x ( F R S 3 )
Tax
P rof i t a f te r ta x ( n orm)
P rof i t a f te r ta x ( F R S 3 )
2008
IF R S
2009
IF R S
2010
IF R S
2011e
IF R S
2012e
IF R S
63
0
63
( 18 0, 9 28 )
( 18 2, 779 )
0
0
(2,734)
( 18 5, 513 )
11,963
( 170, 8 16 )
( 173 , 550)
0
( 170, 8 16 )
( 173 , 550)
3 0, 6 71
0
30,671
( 154, 9 3 8 )
( 157, 09 9 )
0
0
(5,8 24)
( 16 2, 9 23 )
(7,176)
( 16 4, 275)
( 170, 09 9 )
0
( 16 4, 275)
( 170, 09 9 )
270, 8 9 4
0
270,8 94
3 9 , 125
3 6 , 103
0
0
(10,210)
25, 8 9 3
(13,035)
23 , 06 8
12, 8 58
0
23 , 06 8
12, 8 58
23 3 , 6 8 4
0
233,68 4
( 26 , 23 3 )
( 3 0, 76 6 )
0
0
(10,210)
( 40, 9 76 )
10,000
( 20, 76 6 )
( 3 0, 9 76 )
0
( 20, 76 6 )
( 3 0, 9 76 )
23 3 , 6 8 4
0
233,68 4
( 109 , 474)
( 115, 141)
0
0
(10,210)
( 125, 3 51)
6,750
( 108 , 3 9 1)
( 118 , 6 01)
0
( 108 , 3 9 1)
( 118 , 6 01)
Average number of shares outstanding (m)
EPS - normalised (NOK)
EPS - FRS 3 (NOK)
Dividend per share (NOK)
16.5
(10.3)
(10.5)
0.0
34.6
(4.7)
(4.9)
0.0
39.4
0.6
0.3
0.0
39.5
(0.5)
(0.8 )
0.0
39.5
(2.7)
(3.0)
0.0
Gross margin (%)
EBITDA margin (%)
Operating margin (before GW and except.) (%)
100.0
N/A
N/A
100.0
N/A
N/A
100.0
N/A
N/A
100.0
N/A
N/A
100.0
N/A
N/A
6 , 518
0
6,518
0
140, 106
0
7,174
132,932
( 51, 48 2)
(51,48 2)
0
0
0
0
0
9 5, 142
9 , 3 19
0
9,319
0
58 0, 03 8
0
65,8 32
514,206
( 16 3 , 776 )
(8 1,798 )
0
(8 1,978 )
( 259 , 59 6 )
0
(259,596)
16 5, 9 8 5
26 , 774
0
26,774
0
53 4, 8 9 2
0
55,679
479,213
( 18 9 , 540)
(106,656)
0
(8 2,8 8 4)
( 179 , 58 2)
0
(179,58 2)
19 2, 544
42, 717
0
42,717
0
408 , 6 43
0
60,000
348 ,643
( 18 2, 8 8 4)
(100,000)
0
(8 2,8 8 4)
( 9 6 ,6 9 8 )
0
(96,698 )
171, 778
57, 527
0
57,527
0
202, 559
0
60,000
142,559
( 18 2, 8 8 4)
(100,000)
0
(8 2,8 8 4)
( 13 , 8 14)
0
(13,8 14)
6 3 ,3 8 8
( 158 , 13 2)
11,98 6
0
(2,265)
0
0
0
0
88
0
(148 ,323)
( 28 1, 255)
0
0
( 13 2, 9 3 2)
142, 3 57
8 ,761
0
(4,962)
0
0
0
0
235,118
0
38 1,274
( 13 2, 9 3 2)
0
0
( 514, 206 )
( 23 , 6 6 0)
5,652
0
(20,476)
0
0
0
0
3,491
0
(34,993)
( 514, 206 )
0
0
( 479 , 213 )
( 120, 09 4)
10,000
0
(20,476)
0
0
0
0
0
0
(130,570)
( 479 , 213 )
0
0
( 3 48 , 6 43 )
( 19 2, 3 58 )
6,750
0
(20,476)
0
0
0
0
0
0
(206,08 4)
( 3 48 , 6 43 )
0
0
( 142, 559 )
B ALANCE S HE E T
F i xe d a s s e ts
Intangible assets
Tangible assets
Investments
C u rre n t a s s e ts
S tocks
Debtors
Cash
C u rre n t l i a bi l i ti e s
Creditors
Other current liabilities
Deferred revenue (short term)
L on g- te rm l i a bi l i ti e s
Long- term borrowings
Deferred revenue (long- term)
N e t a s s e ts
C A S H F L OW
Ope ra ti n g c a s h f l ow
Net interest
Tax
Capex
Payment of deferred consideration
Capitalisation of development costs
Expenditure on intangibles
Acquisitions/disposals
Financing
Dividends
Net cash flow
Ope n i n g n e t de bt/( c a s h )
HP finance leases initiated
Other
C l os i n g n e t de bt/( c a s h )
Source: Edison Investment Research, Algeta accounts
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