Epigenomics (ECX-DE): Q3 -Milestone completion triggers more commercial momentum

Free to access research and investor meetings in a post-MiFID2 world.

This research report is intended for use only by persons who qualify as professional investors or eligible counterparties (institutional investors) in the applicable jurisdiction, and not by any private individuals or other persons who qualify as retail clients.

Published to the market and investors on 8^th November 2018 @ 9.54am (London time).

Epigenomics (ECX-DE): Q3 - Milestone completion triggers more commercial momentum Recommendation: OUTPERFORM Target Price: EUR4.01 Current Price: EUR2.14 (CoB on 7^th November 2018)

KEY TAKEAWAY

Epigenomics reported solid Q3 sales of EUR0.5m (57% YoY) and narrowed its FY2018E revenue forecast to EUR1.5m - EUR2.5m, slightly below our estimates. We expect revenue generation to be catalysed by the variety of positive recent news flow, such as the successful CE-marking of HCCBloodTest, the latest addition to Epigenomic's growing portfolio of liquid biopsy tests, which allows for blood-based detection of liver cancer. This will add to the increasing momentum around Epi proColon with reimbursement rate of $192, making it the highest reimbursed molecular screen test in the US and paving the way for inclusion in the 2019 Clinical Laboratory Fee Schedule expected to be published 11/2018. We continue to see the positive commercial outlook of Epigenomic's liquid biopsy tests due to a differentiated profile, fast readouts, large target markets and a significant health-economic impact. We maintain and reiterate our OUTPERFORM recommendation and our TP of EUR4.01.

Q3/2018 financial results and adjusted outlook for FY2018E

Epigenomics reported Q3/2018 sales of EUR0.5m (57% YoY), bringing the 9M/2018 revenue to EUR1.3m. The increase was mainly due to a 73% increase in product revenue and additional licensing income. The gross margin of 77% remained relatively level vs. 79% in Q3/2017, however, the increase in gross profit was offset mainly by a 123% increase in R&D costs and a 157% increase in SG&A costs, which were mainly driven by one-off payments associated with the post-approval study for Epi proColon in the US and legal costs. Epigenomics closed Q3 with a net loss of EUR3.0m and a cash position of EUR5.8m (EUR6.6m including marketable securities) and narrowed its revenue forecast for FY2018E to EUR1.5m - EUR2.5m from EUR2.0m - 4.0m, which is slightly below our forecast of EUR3.9m.

CE mark obtained for liquid biopsy test for liver cancer detection

Epigenomics recently received CE-marking for its blood-based liquid biopsy test ("HCCBloodTest") for the detection of liver cancer in high-risk patients with cirrhosis. In order to pave the way for FDA approval, Epigenomics intends to initiate a prospective trial in the US in 2019. In addition, the company is also evaluating strategic avenues to gain CFDA approval to be able to capitalise on the substantial commercial opportunity represented by the Chinese market. A c.EUR3bn global market together with the growing trend towards liquid biomarkers make liver cirrhosis surveillance for HCC a promising opportunity for Epigenomics.

US study launched to investigate screening adherence impact of Epi proColon

Epigenomics recently announced that the Veterans Administration in New York is conducting a study to assess the impact of a blood-based colorectal cancer ("CRC") test on screening adherence in patients who have refused other forms of testing such as colonoscopy or stool-based screening. CRC is the fourth most common cancer in the US and current screening rates are far from optimal. Since regular CRC screening can drastically improve disease management and treatment outcomes, we see a strong need for less invasive blood-based screens such as Epi proColon that can reduce the number of unscreened patients, thus reducing mortality and unnecessary treatment expenditures.

Gross proceeds of EUR22.3m from recent capital increase

Epigenomics successfully completed a capital increase with subscription rights in October, which generated gross proceeds of EUR22.3m. 67% of new shares were issued to existing shareholders, the remaining shares were subsequently offered to institutional investors as part of an international private placement.

Valuation suggests ample upside

With the recent CE marking for HCCBloodTest, in our view, the key uncertainty remains coverage and inclusion into medical guidelines for Epi proColon. With the new product candidate de-risking the commercial outlook, Epigenomics offers a highly attractive investment opportunity with significant potential for growth. We maintain and reiterate our OUTPERFORM recommendation and TP of EUR4.01.

Kind regards,

Martin Brunninger | Analyst

goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

The Stanley Building, 7 Pancras Square, London, N1C 4AG, England, UK.

T +44 (0) 203 859 7725 | martin.brunninger@goetzpartners.com / healthcareresearch@goetzpartners.com

www.goetzpartnerssecurities.com

Registered in England No. 04684144.

Managing Directors: Dr Stephan Goetz, Martin Brunninger and Ulrich Kinzel.

goetzpartners securities Limited - Team Members

Equity Research Analysts - Martin Brunninger, Brigitte de Lima, Chris Redhead and Martin Piehlmeier. Sales / Marketing - Erland Sternby. Corporate Finance - Ulrich Kinzel, Wolf Dornbusch and Youchen Xin. Corporate Access and IR - Tanya Tracey and Bettina Ellinghorst. Compliance - Paul W. Dunne.

Click here to see our privacy policy.

GPSL has a formal client relationship with Epigenomics AG.

GPSL publishes and distributes "Investment" Research and "Corporate Sponsored" Research. Our Corporate Sponsored Research and investor meetings (e.g. NDRs, 1 to 1 meetings) are free to access and attend and is not classified as an inducement in a post-MiFID2 world, this is because the issuer is paying GPSL. GPSL does not offer any execution or market making services. This is a marketing communication as defined by the Financial Conduct Authority ("FCA"). The information herein is considered to be an acceptable minor non-monetary benefit as defined under FCA COBS 2.3A19(5).

In accordance with the General Data Protection Regulation ("GDPR") - if you would like to be removed / unsubscribed from our CRM (also please note that you are free to contact GPSL at any time in the future to have your e-mail subscription amended), please e-mail: researchproduction@goetzpartners.com

About GPSL: goetzpartners securities Limited is a member of the goetzpartners group, and a leading pan European investment bank and research company. We bring together a wide range of expertise, insights and innovations to advance the interests of our clients around the world. The fast-changing environment brings challenges for businesses and investors. Research innovation, digital transformation and disruptive business ideas reshuffle the corporate world at a relentless pace. Our sector knowledge and our global footprint bring together corporate intelligence and a deep understanding of the industry with a wide network of top decision makers. These collective insights help our clients to stay at the leading edge of change.

This research report is intended for use only by persons who qualify as professional investors or eligible counterparties (institutional investors) in the applicable jurisdiction, and not by any private individuals or other persons who qualify as retail clients.

This communication (including any attachments) from goetzpartners securities Limited ("GPSL") is confidential and may contain information which is proprietary, privileged or otherwise legally protected against unauthorised use or disclosure. If you receive this communication in error or are not the intended recipient of this communication, please delete and destroy all copies in your possession, notify the sender that you have received this communication, and note that any review or dissemination of, or the taking of any action in reliance on this communication is expressly prohibited. GPSL shall not be liable for the improper or incomplete transmission of the information contained in this communication nor for any delay in its receipt or damage to your system. GPSL does not guarantee that the integrity of this communication has been maintained nor that this communication is free of viruses, interceptions or interference and makes no warranties in relation to these matters. This is not an offer or a solicitation to buy or sell securities or investment products, or an official confirmation. GPSL record electronic and phone communications in accordance with FCA and MiFID2 regulations, they will be monitored for regulatory and training purposes. GPSL is authorised and regulated by the Financial Conduct Authority of the United Kingdom (Firm Reference Number: 225563).

Click on the following link for the GPSL MiFID2 Investor Guidance Notice

GPSL Equity Research publications are available on the following aggregators and via news distribution circuits (For Institutional Use Only): AlphaMetry, AlphaSense, Bloomberg (GOET), Capital IQ, EQS, FACTSET, ResearchFN, Research Tree, RNS Reach, Sentieo and Thomson Reuters.

Please copy the below link and paste it into your browser for the full pdf version of the equity research report:

https://gp.bluematrix.com/sellside/EmailDocViewer?encrypt=2e707c3f-b7d9-47f8-be5d-6525e2cb689c&mime=pdf&co=gp&id=paul.dunne@goetzpartners.com&source=libraryView

Free to access research and investor meetings in a post-MiFID2 world.

This research report is intended for use only by persons who qualify as professional investors or eligible counterparties (institutional investors) in the applicable jurisdiction, and not by any private individuals or other persons who qualify as retail clients.