CDNF early data show biological promise

Herantis Pharma 5 March 2020 Update
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Herantis Pharma

CDNF early data show biological promise

Results update

Pharma & biotech

5 March 2020

Price

€8.7

Market cap

€58m

SEK:€0.095

Net debt (€m) at 31 December 2019

0.2

Shares in issue

6.7m

Free float

73.8

Code

HRTIS

Primary exchange

NASDAQ OMX

Secondary exchange

Nasdaq First North Growth Market

Share price performance

%

1m

3m

12m

Abs

21.7

(10.8)

61.1

Rel (local)

29.2

(12.7)

62.9

52-week high/low

€10.1

€5.2

Business description

Herantis Pharma is a Finnish innovative biopharmaceutical company focusing on regenerative medicines for unmet needs. Key assets include CDNF for Parkinson’s disease and Lymfactin for breast cancer-associated lymphedema.

Next events

CDNF PD Phase I/II extension study data

Q320

Lymfactin BCAL Phase II data

Q121

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

John Priestner

+44 (0)20 3077 5700

Herantis Pharma is a research client of Edison Investment Research Limited

Herantis has announced top-line data from the first part of the Phase I/II clinical trial on novel asset CDNF in Parkinson’s disease (PD). Data reported for the first six months are preliminary in this first-in-human clinical study for this novel MOA drug class. Safety and tolerability have been confirmed but, interestingly, the early biological efficacy signals (seen on PET imaging) serve as validation of the scientific hypothesis for CDNF’s potential neuroprotective and neurorestorative effects. Herantis expects data from the six-month extension study in Q320. It raised gross cash of €10m through two equity issues in 2019, which has extended the cash runway to key value inflection points. We increase our valuation to €66.9m (€10.0/share).

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

0.0

(4.2)

(0.8)

0.0

N/A

N/A

12/19

0.0

(8.0)

(1.4)

0.0

N/A

N/A

12/20e

0.0

(5.3)

(0.8)

0.0

N/A

N/A

12/21e

0.0

(5.6)

(0.8)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

CDNF data, early efficacy signals encouraging

CDNF is a neuroprotective factor that is believed to promote neuronal survival and could potentially slow down disease progression in PD. Slowing down disease progression is an unmet need and the holy grail for an ideal PD treatment. Early-stage data are impressive in small patient numbers and we await the six-month follow-up data to see whether the early biological activity has been sustained before the start of the Phase II study. Herantis’s second clinical asset, Lymfactin, has completed enrolment of the Phase II trial for the treatment of breast cancer-associated lymphedema (BCAL); 12-month proof-of-concept safety and efficacy data are expected in Q121. If the Phase II trial completes successfully, a Phase III programme in BCAL could initiate in 2021 – either by Herantis or a potential development and commercialisation partner.

Financials: Cash runway into 2021

R&D expenses increased to €4.0m in FY19 (FY18: €2.1m), reflecting the ongoing progress in the CDNF and Lymfactin clinical trials plus the preclinical work on targets for non-invasive CDNF. The FY19 net loss was €8.0m (FY18: €4.2m). In the near term, Herantis will continue to be cash consumptive and operate as a non-revenue generating biotech. We note that most of the funding for the Phase I/II CDNF trial comes from an EU grant. Herantis raised €5.8m in March and €4.2m in December through equity issues. Cash burn amounted to €6.0m in FY19, implying a cash runway to 2021.

Valuation: €66.9m or €10.0 share

Our valuation is €66.9m (€10.0/share) versus €60.8m (€9.1/share) previously. It includes reported net debt of €0.2m at 31 December 2019, and is based on an rNPV of CDNF in PD (€3.9/share) and Lymfactin in BCAL (€6.1/share). Our product forecasts are unchanged, and we have rolled our model forward and updated FX.

CDNF: Phase II top-line data early but encouraging

Herantis currently has two ongoing clinical trials: a Phase I/II trial testing its recombinant CDNF (cerebral dopamine neurotrophic factor) in patients with PD and a Phase II trial testing its Lymfactin gene therapy in patients with BCAL secondary lymphedema.

Herantis recently reported preliminary data from a first-in-human Phase I/II study with CDNF in patients with advanced PD. This study has a long follow-up period of four years after the data from the main and extension studies complete. The main study read out at six months and met its primary endpoint on safety and tolerability of CDNF, with all patients volunteering to continue in an extension study, in which they will receive either lower or higher CDNF doses for another six months (Exhibit 1). Similar safety profiles to the placebo group were confirmed in the two CDNF dosing groups. However, two patients discontinued from the study due to infections that were probably related to the drug delivery device.

The secondary and exploratory endpoints of the study evaluated initial signs of efficacy. Promising signals were observed in some patients by dopamine transporter (DAT) PET imaging, which is an indirect measure of the dopaminergic function. Specifically, there was a marked difference between DAT binding potential in the putamen area of the brain between placebo and one CDNF group (-6 to -21% decrease) and the other CDNF group (increase of 17%). Two patients in the CDNF group showed a 37-51% increase in DAT binding potential in the putamen. We highlight that these data are preliminary and based on small patient numbers in a trial powered for safety and not for efficacy.

However, this is an encouraging observation at this early stage, as the patients are at an advanced disease stage and therefore less susceptible to the potential neuroprotective properties of CDNF. This suggests that dosing CDNF in patients with earlier signs of PD could be beneficial given that more dopaminergic neurons are available to potentially protect.

Exhibit 1: CDNF study design: three groups, three parts

Source: Herantis corporate presentation

Top-line results from the extension study are expected in Q320 and, if positive, will suggest that CDNF’s activity is sustained for a year after the first dose. If positive, Herantis plans to start a Phase II trial that will assess the efficacy of CDNF in earlier-stage, well characterised PD patients. This study will use a longer treatment period and recruit a larger number of patients. Patient enrolment is expected in 2021.

Neurotrophic/neuroprotective factors (such as CDNF, MANF and GDNF) are endogenous secretory proteins that have been shown to have neuroprotective and neurorestorative effects, presenting the opportunity for their use in the treatment of PD. CDNF-based therapy is being evaluated for its potential neuroprotective and neurorestorative properties in PD. CDNF is a recombinant factor, large molecule-based treatment that is unable to cross the blood-brain barrier in its current formulation. It therefore needs to be administered into the exact region of the brain (the putamen) where it can target its effect. CDNF is dosed intracranially once a month (two- to three-hour infusion in the outpatient setting) using an implanted drug delivery device with portal access located behind the patient’s ear. The novel drug delivery system (DDS) being used in the study has been developed by Renishaw, a global metrology company headquartered in the UK.

Herantis has in-licensed the global rights to a second generation of CDNF (from the University of Helsinki in July 2018). It has been developing a non-invasive way of delivering CDNF (such as subcutaneous) and has identified a number of candidates that will enter into the lead optimisation phase of preclinical development in 2020.

Lymfactin Phase II AdeLE data expected at the end of 2020

Herantis is developing its Phase II asset, Lymfactin gene therapy, as a potential therapy for BCAL, administered as a single-dose injection in combination with lymph node transfer surgery. The 12-month Phase I follow-up results announced in April 2019 demonstrated that the treatment was safe, with no serious adverse events reported. The study enrolled 15 patients from three universities in Finland (Helsinki, Tampere and Turku). 12-month data from the Phase II AdeLE (adenovirus gene therapy for the treatment of lymphedema) trial in BCAL patients is expected by the end of 2020 (enrolment has completed). If the data readout is positive, a Phase III registrational trial in BCAL could be initiated in 2021 – either by Herantis or a potential development and commercialisation partner. Furthermore, positive safety and efficacy data in BCAL would provide validation of the therapy for investigation in lymphedema from other secondary causes.

Financials: Cash runway extended

Herantis reported an FY19 net loss of €8.0m (€4.2m in FY18). R&D expenses increased to €4.0m (FY18: €2.1m), reflecting the advancement of the R&D pipeline including the start of the preclinical work associated with in-licensed asset, non-invasive CDNF (xCDNF). We note that the majority of the funding for the Phase I/II study (TreatER) of CDNF in PD is essentially from a (Horizon 2020) grant of €6.0m. In the near term, Herantis will continue to be cash consumptive and operate as a non-revenue generating biotech. Cash and cash equivalents at 31 December 2019 were reported at €7.0.m and debt at €7.2m (Business Finland loans).

In FY19, Herantis completed two financing rounds through share issues raising €5.8m in March and €4.2m in December. The latter issued 0.6m new shares (subscription price of 71 SEK), which should enable a cash runway into late 2021. Cash burn amounted to €6.0m in FY19 (FY18: €3.7m).

Valuation: €66.9m or €10.0/share

We value Herantis at €66.9m or €10/share based on a risk-adjusted NPV analysis, which includes €0.2m net debt at the end of December 2019 and risk-adjusted contributions for CDNF in PD and Lymfactin in BCAL. We have rolled forward our model and updated for net cash, but kept our operating assumptions unchanged. The breakdown of our NPV valuation, which uses a 12.5% discount rate, is shown in Exhibit 2. As detailed in our Herantis initiation note, we have applied a top-down analysis of the PD and BCAL markets, which form the basis of our sales projections.

Exhibit 2: Valuation breakdown

Product

Indication

Phase

Probability of success

rNPV
(€m)

Per share
(€)

CDNF

Parkinson's disease

I/II

5%

26.4

3.9

Lymfactin

BCAL

II

10%

40.7

6.1

Net debt at 31 December 2018

 

 

 

(0.2)

0.0

Valuation

 

 

 

 

66.9

10.0

Source: Edison Investment Research

Exhibit 3: Financial summary

Accounts: IFRS, year-end: December, €000s

 

2017

2018

2019

2020e

2021e

INCOME STATEMENT

 

 

 

 

 

 

Total revenues

 

0

0

0

0

0

Cost of sales

 

0

0

0

0

0

Reported gross profit

 

0

0

0

0

0

SG&A (expenses)

 

(1,024)

(1,244)

(1,403)

(1,417)

(1,431)

R&D costs

 

(1,400)

(2,100)

(4,000)

(2,800)

(2,828)

Other (includes exceptionals)

 

(303)

(324)

(705)

225

225

Depreciation

 

(1,218)

(1,202)

(1,047)

(762)

(610)

Adjusted EBIT

 

(3,945)

(4,871)

(7,155)

(4,754)

(4,644)

Reported EBIT

 

(3,945)

(4,871)

(7,155)

(4,754)

(4,644)

Finance income/(expense)

 

1,780

691

(849)

(565)

(965)

Other income (expense) (includes exceptionals)

 

0

0

0

0

0

Adjusted PBT

 

(2,165)

(4,180)

(8,005)

(5,319)

(5,609)

Reported PBT

 

(2,165)

(4,180)

(8,005)

(5,319)

(5,609)

Income tax expense

 

0

0

0

0

0

Adjusted net income

 

(2,165)

(4,180)

(8,005)

(5,319)

(5,609)

Reported net income

 

(2,165)

(4,180)

(8,005)

(5,319)

(5,609)

Earnings per share

 

 

 

 

 

 

Basic EPS (€)

 

(0.5)

(0.8)

(1.4)

(0.8)

(0.8)

Diluted EPS (€)

 

(0.5)

(0.8)

(1.4)

(0.8)

(0.8)

Adjusted basic EPS (€)

 

(0.5)

(0.8)

(1.4)

(0.8)

(0.8)

Adjusted diluted EPS (€)

 

(0.5)

(0.8)

(1.4)

(0.8)

(0.8)

Average number of shares - basic (m)

 

4.2

4.9

5.5

6.7

6.7

Average number of shares - diluted (m)

 

4.9

5.5

6.7

6.7

6.7

BALANCE SHEET

 

 

 

 

 

 

Property, plant and equipment

 

7

5

4

3

2

Goodwill

 

0

0

0

0

0

Intangible assets

 

5,663

4,735

3,807

3,046

2,437

Other non-current assets

 

392

118

0

0

0

Total non-current assets

 

6,061

4,857

3,811

3,049

2,439

Cash and equivalents

 

5,402

2,186

6,998

2,441

2,443

Inventories

 

0

0

0

0

0

Trade and other receivables

 

109

105

262

262

262

Other current assets

0

0

0

0

0

Assets classified for sale

 

0

0

0

0

0

Total current assets

 

5,511

2,290

7,260

2,703

2,704

Non-current loans and borrowings

 

6,022

5,878

7,206

7,206

12,206

Trade and other payables

 

0

0

0

0

0

Other non-current liabilities

 

0

0

0

0

0

Total non-current liabilities

 

6,022

5,878

7,206

7,206

12,206

Trade and other payables

 

278

200

1,625

1,625

1,625

Current loans and borrowings

 

547

507

6

6

6

Other current liabilities

 

634

651

383

383

383

Liabilities of assets held for sale

 

0

0

0

0

0

Total current liabilities

 

1,460

1,358

2,014

2,014

2,014

Equity attributable to company

 

4,090

(89)

1,851

(3,468)

(9,076)

Non-controlling interest

 

0

0

0

0

0

CASH FLOW STATEMENT

 

 

 

 

 

 

Profit before tax

 

(2,165)

(4,180)

(8,005)

(5,319)

(5,609)

Depreciation of tangible assets

 

1,218

1,202

1,047

762

610

Amortisation of intangible assets

 

0

0

0

0

0

Share based payments

 

(2,021)

(3)

0

0

0

Other adjustments

 

240

(688)

849

565

965

Movements in working capital

 

372

(79)

1,000

0

0

Net cash from operating activities (pre-tax)

 

(2,355)

(3,747)

(5,109)

(3,992)

(4,034)

Interest paid/received

 

(244)

15

(849)

(565)

(965)

Income taxes paid

 

0

0

0

0

0

Cash from operations (CFO)

 

(2,599)

(3,732)

(5,958)

(4,557)

(4,999)

Capex (includes acquisitions)

 

0

0

0

0

0

Other investing activities

 

(0)

7

0

0

0

Cash used in investing activities (CFIA)

 

(0)

7

0

0

0

Net proceeds from issue of shares

 

4,680

0

9,945

0

0

Movements in debt

 

0

509

826

0

5,000

Other financing activities

 

492

0

0

0

0

Cash from financing activities (CFF)

 

5,172

509

10,771

0

5,000

Currency translation differences and other

 

0

0

0

0

0

Increase/(decrease) in cash and equivalents

 

2,573

(3,216)

4,812

(4,557)

1

Cash and equivalents at beginning of period

 

2,829

5,402

2,186

6,998

2,441

Cash and equivalents at end of period

 

5,402

2,186

6,998

2,441

2,443

Net (debt)/cash

 

(1,168)

(4,200)

(214)

(4,770)

(9,769)

Movement in net (debt)/cash over period

 

4,123

(3,033)

3,987

(4,557)

(4,999)

Source: Company accounts, Edison Investment Research

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This report has been commissioned by Herantis Pharma and prepared and issued by Edison, in consideration of a fee payable by Herantis Pharma. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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New Zealand

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1,185 Avenue of the Americas

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Level 4, Office 1205

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NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Herantis Pharma and prepared and issued by Edison, in consideration of a fee payable by Herantis Pharma. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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