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Curetis (CURE-NL): European growth highlights US opportunity
Recommendation: OUTPERFORM
Target Price: EUR10.00
Current Price: EUR4.26 (COB on 21^st May 2018)

KEY TAKEAWAY

Growth in Europe in Q1/2018 strengthens our optimism for the US Unyvero launch. Less fragmented and more innovative the US presents a major opportunity. Infection and antibiotic resistance are increasing issues in commercially-driven US healthcare; threatening both patients and bottom line. Unyvero's unique capability and product pipeline should speed US adoption in severe disease. Longer term Curetis's unmatched anti-microbial resistance ("AMR") platform should secure market share for the lower priced Unyvero A 30 RQ platform in the congested, but far larger, routine testing market. The AMR platform also promises a source of cash generating deals. Given this positive outlook, including 2019E approval in China, we are optimistic investors will participate in an anticipated fund-raising. We reiterate our OUTPERFORM recommendation and EUR10 post-financing TP on this basis.

Europe gathering momentum - Given the previous slow pace of European Unyvero sales growth, the 518% year-on-year growth reported in Q1/2018 is clearly encouraging. We understand that there is increasing adoption of multiple cartridges by first adopters; further endorsing the Unyvero platform. Accelerating adoption in the fragmented and conservative European market also bodes well for the US launch.

US remains major opportunity - More integrated, innovative and commercially driven the US market represents the major opportunity for Curetis. With US hospitals increasingly penalised for poor infection control and subjected to antibiotic stewardship guidelines (20% - 50% of US patients receive antibiotics that they don't need) and the threat of litigation for misdiagnosis, commercial and regulatory incentives to adopt rapid infectious disease diagnostics in the US are clear. This is reflected in the feedback to us from US physicians. We expect strong uptake in China following the CFDA decision 2019E.

Antibiotic resistance a key driver - A global focus on antibiotic resistance provides a significant opportunity. Developed originally by Siemens and now within the Ares Genetics subsidiary, Curetis's AMR platform provides unique access to antibiotic resistance markers. These markers promise a differentiated diagnostic menu that should drive share in the much larger routine infection testing market, as well as deal flow.

Deal flow - Curetis has already announced R&D and supply agreements with MGI. Part of major Chinese diagnostic and next generation sequencing (NGS) player BGI, these agreements could form the basis of a major strategic partnership. Cash-generating deals on the AMR platform are anticipated with pharma players.

Financing opportunity - We estimate that the company will require a further EUR20m on top of the EUR4.1m and $10m equity line secured in April 2018 to achieve its 12 - 18 month objectives. We would see this as an attractive opportunity for investors at current levels given the increasingly positive outlook and potential upside post financing. Our analysis suggests a post-financing valuation of EUR9.2 - 13.3 / share.

Kind regards,

goetzpartners Healthcare Research Team | Research Team

Dr. Chris Redhead | Analyst

goetzpartners securities Limited

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

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

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