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Pivotal Phase III initiated

Pharnext 7 April 2021 Update
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Pharnext

Pivotal Phase III initiated

Clinical update

Pharma & biotech

7 April 2021

Price

€3.48

Market cap

€76m

€0.85/US$

Net cash (€m) at 30 June 2020

10.57

Shares in issue

21.9m

Free float

59%

Code

ALPHA

Primary exchange

Euronext Paris

Secondary exchange

OTC Pink

Share price performance

%

1m

3m

12m

Abs

4.4

1.0

(6.3)

Rel (local)

(1.4)

(6.8)

(33.8)

52-week high/low

€5.23

€2.96

Business description

Pharnext is developing new therapies for neurological disorders using its proprietary Pleotherapy platform that unearths new therapeutic effects from drug combinations. Its lead program is PXT3003 for Charcot-Marie-Tooth disease, which has entered Phase III. It also has PXT864 for Alzheimer’s disease, which has completed Phase IIa.

Next events

Phase III PREMIER trial

Ongoing

Analyst

Nathaniel Calloway

+1 646 653 7036

Pharnext is a research client of Edison Investment Research Limited

Pharnext announced on 31 March 2021 that it has enrolled its first patient in the pivotal Phase III study of PTX3003 for the treatment of Charcot-Marie-Tooth Disease (CMT) type Ia (the PREMIER study). The study has a target enrolment of 350 and will observe patients over 15 months. We are pleased to see that the study has started, and we expect this to be the major operational focus for the company in 2021 and beyond.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

6.8

(21.7)

(1.83)

0.00

N/A

N/A

12/19

3.6

(23.4)

(1.61)

0.00

N/A

N/A

12/20e

3.2

(17.8)

(0.96)

0.00

N/A

N/A

12/21e

1.8

(26.6)

(1.27)

0.00

N/A

N/A

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

Primary endpoint: ONLS improvement

The primary endpoint of the study will be improvement in the Overall Neuropathy Limitations Scale (‘ONLS’). We are pleased to see this because the drug has previously shown improvements in clinical studies as assessed by this metric, including the company’s previous Phase III clinical study. Additionally, the new study will assess patients on a range of other clinical parameters such as the 10-meter walk test, quantified muscular testing and patient assessments.

Based on FDA feedback, moving forward without SPA

The design of this clinical study was made based on feedback from the FDA and EMA. The company previously applied for a special protocol assessment and had received positive feedback from the FDA regarding this study design. The FDA determined that the study may be appropriate for a special protocol assessment (SPA) designation, but the company opted to move forward without the designation to avoid any further delay, because it had not yet reached a consensus on the statistical treatment for COVID-19 delays. The agency and the company agreed on the key aspects of the study design so it was determined that moving forward without an SPA would have no major impact on the study conduct.

Valuation: Increased to €283.2m on PXT3003 upgrade

We have increased our valuation to €283.2m, from €255.6m, although it is lower on a per share basis: €13.08 from €13.31, previously. We have upgraded the probability of success for PXT3003 to 70% from 60% based on the trial initiation and the reported FDA feedback. Additionally we have rolled forward our NPVs and updated for new net cash, including the February offering, which included a €6m equity component (1.75m units at €3.42 per unit, with each unit comprising one share and one half of a share purchase warrant exercisable at €4.45/share) and €5m in convertible debt (convertible at the lower of €4.25, or 93% of the 15-day VWAP).

PXT3003 in a new Phase III study

Pharnext has announced that the first patient has been enrolled in its now ongoing Phase III PREMIER clinical study of PXT3003. This is the company’s pleotropic therapy for the treatment of CMT1A, a rare congenital peripheral neuropathy. The PREMIER study is a randomized, double-blind, two-arm, placebo-controlled, pivotal study that will examine 350 patients for a range of functional assessments. The primary endpoint of the study will be improvement in ONLS, a 12-point functional assessment of the ability to perform tasks with the arms and legs. This primary endpoint was agreed upon after feedback from the EMA and FDA (more on this process below), and we are pleased because we believe that this is the right functional measure for this population, and because the company has previously shown improvement in clinical studies via this parameter. Other secondary endpoints will be the 10-meter walk test, quantified muscular testing of the hand and foot, Patient Global Impression of Severity (‘PGI-S’), Patient Global Impression of Change (‘PGI-C’), and Charcot-Marie-Tooth Neuropathy Score, version 2 (‘CMTNS-v2’).

This study design is largely similar to the company’s previous Phase III clinical study with the notable exception that only one dosing level will be tested, the ‘high dose’ from the previous study: 1.4mg naltrexone, 12mg baclofen, 420mg sorbitol. This previous study was disrupted by a manufacturing and quality control issue, but still managed to achieve statistical significance of improvement in ONLS in that ‘high dose’ arm among study completers (p=0.008) and in the intent-to-treat (ITT) population (0.04) (Exhibit 1).

Exhibit 1: PXT3003 Phase III results (modified SAP)

Source: Pharnext. Note: Dose 3=0.7mg, 6mg, 210mg; Dose 4=1.4mg, 12mg, 420mg; Dose 4 vs placebo, ANCOVA with multiple imputation (missing data implemented by multiple imputations following the placebo trend). *= p<0.05. **=p<0.01. ***=Average of 12 and 15 month, or 12 month if 15 month is missing.

In the preparations for this PREMIER study, the company sought feedback from the FDA by applying for an SPA. An SPA, if granted would have outlined the specific parameters by which the study results would be evaluated by the FDA. This can significantly reduce the uncertainty in running a clinical study if there is a consensus beforehand how it will be evaluated. The company however opted not to complete the SPA approval process, because it felt that it was largely in alignment already with the FDA on all major elements of study design based on the feedback to date and that formal approval would delay study initiation. A consensus regarding how disruptions from COVID-19 would be handled statistically had not been reached, but we consider this a relatively minor detail of the overall trial design. Moreover, this process of seeking FDA feedback via SPA discussions without formally completing the process is not an uncommon tactic to get the agency to weigh in on a trial design.

CMT is the most common inherited peripheral neuropathy and one of the most common inherited neurological disorders, affecting approximately 126,000 individuals in the US.1 CMT1A is well established as the most common genetic subtype of the disease, but there has been some variability in the rates reported in different studies, with most reporting rates in the range of 40–50% of all CMT patients. CMT1A is caused by duplication of the PMP22 gene, leading to overexpression of the PMP22 protein. Too much of this protein in the Schwann cells disrupts the formation of the myelin sheath, leading to loss of nerve function. When developing PXT3003, the Pleotherapy platform was used to identify a drug combination that would significantly reduce the overexpression of PMP22.

  NIH. Charcot-Marie-Tooth Disease Fact Sheet.

Valuation

We have increased our valuation to €283.2m from €255.6m, although it is lower on a per share basis: €13.08 from €13.31, previously. This increase is driven by an upgrade to our probability of success for the PXT3003 program to 70% from 60%. We have increased this value because we are pleased to see the initiation of the clinical study with what we consider achievable endpoints based on the company’s prior clinical work. Moreover, we are encouraged that the company was able to reach a consensus regarding these parameters with the FDA, despite not seeking an SPA. Additionally, we have rolled forward our NPVs for the program. These factors are offset by our new pro forma net cash estimate (€3.62m at FY20e, from €10.57m previously at H120), which uses an estimated net debt of €1.96m at the end of 2020 and the proceeds from the equity component of the recent offering (€6m gross, estimated €5.58m net).

Exhibit 2: Valuation of Pharnext

Development Program

Indication

Clinical stage

Prob. of success

Launch year

Patent/Exclusivity Protection

Launch Pricing ($/year)

Peak sales (US$m)

rNPV (€m)

PXT3003

CMT1A

Phase III

70%

2024

2031-2034

55,000

626

283.2

Total

283.2

Net cash (YE20 est. + offering) (€m)

3.62

Total firm value (€m)

286.8

Total basic shares (m)

21.9

Value per basic share (€)

13.08

Dillutive options, warrants, and convertible debt (m)

7.42

Total diluted shares

29.34

Value per diluted share

11.05

Source: Pharnext reports, Edison Investment Research

Financials

The company completed a financing in February 2021 that included a €6m equity component (1.75m units at €3.42 per unit, with each unit comprising one share and one half of a share purchase warrant exercisable at €4.45/share) and €5m in convertible debt (convertible at the lower of €4.25/share or 93% of 15-day VWAP). We have updated our financials to reflect this offering, which has reduced the expected financing requirement for the company to €80m (€50m in 2022, €30m in 2023) from €95m previously. Otherwise our financials remain unchanged, but we expect to update them for 2020 financial results when these are released.

Exhibit 3: Financial summary

€'k

2018

2019

2020e

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

6,829.0

3,597.4

3,204.9

1,759.9

3,140.6

Cost of Sales

0.0

0.0

0.0

0.0

0.0

Gross Profit

6,829.0

3,597.4

3,204.9

1,759.9

3,140.6

R&D

(17,664.7)

(15,178.1)

(9,294.8)

(16,587.3)

(17,930.4)

Admin & Marketing

(7,072.1)

(8,444.6)

(8,529.1)

(8,614.4)

(8,700.5)

EBITDA

 

 

(17,754.9)

(19,501.6)

(14,499.1)

(23,334.0)

(23,412.7)

Normalised operating profit

 

 

(18,310.9)

(20,093.0)

(14,454.1)

(23,276.8)

(23,325.3)

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Share-based payments

403.1

67.7

(165.0)

(165.0)

(165.0)

Reported operating profit

(17,907.8)

(20,025.3)

(14,619.1)

(23,441.8)

(23,490.3)

Net Interest

(3,408.8)

(3,283.9)

(3,316.7)

(3,369.1)

(3,509.3)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(21,719.8)

(23,376.9)

(17,770.8)

(26,645.9)

(26,834.6)

Profit Before Tax (reported)

 

 

(21,316.7)

(23,309.2)

(17,935.8)

(26,810.9)

(26,999.6)

Reported tax

0.0

0.0

0.0

0.0

0.0

Profit After Tax (norm)

(21,719.8)

(23,376.9)

(17,770.8)

(26,645.9)

(26,834.6)

Profit After Tax (reported)

(21,316.7)

(23,309.2)

(17,935.8)

(26,810.9)

(26,999.6)

Minority interests

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(21,719.8)

(23,376.9)

(17,770.8)

(26,645.9)

(26,834.6)

Net income (reported)

(21,316.7)

(23,309.2)

(17,935.8)

(26,810.9)

(26,999.6)

Basic average number of shares outstanding (m)

11.8

14.5

18.5

21.1

23.0

EPS - basic normalised (€)

 

 

(1.83)

(1.61)

(0.96)

(1.27)

(1.17)

EPS - diluted normalised (€)

 

 

(1.83)

(1.61)

(0.96)

(1.27)

(1.17)

EPS - basic reported (€)

 

 

(1.80)

(1.61)

(0.97)

(1.27)

(1.17)

Dividend (€)

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

1,333.7

1,526.5

1,247.0

1,139.3

1,061.6

Intangible Assets

32.3

12.1

0.0

0.0

0.0

Tangible Assets

401.0

293.2

185.4

77.6

0.0

Investments & other

900.5

1,221.2

1,061.6

1,061.6

1,061.6

Current Assets

 

 

29,663.9

21,645.1

16,979.4

2,843.5

26,446.4

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

0.0

0.0

526.8

289.3

516.3

Cash & cash equivalents

22,761.4

16,246.6

11,054.1

(2,844.3)

20,531.6

Other

6,902.5

5,398.5

5,398.5

5,398.5

5,398.5

Current Liabilities

 

 

(9,361.8)

(9,959.6)

(8,144.2)

(9,966.4)

(21,532.7)

Creditors

(9,173.7)

(5,792.7)

(4,324.7)

(6,146.8)

(6,506.7)

Tax and social security

0.0

0.0

0.0

0.0

0.0

Short term borrowings

0.0

(3,806.3)

(3,480.6)

(3,480.6)

(14,687.0)

Other

(188.1)

(360.5)

(338.9)

(338.9)

(338.9)

Long Term Liabilities

 

 

(47,981.3)

(20,457.9)

(19,334.3)

(24,334.3)

(63,127.9)

Long term borrowings

(38,772.8)

(11,181.4)

(9,532.1)

(14,532.1)

(53,325.7)

Other long term liabilities

(9,208.5)

(9,276.6)

(9,802.2)

(9,802.2)

(9,802.2)

Net Assets

 

 

(26,345.4)

(7,245.9)

(9,252.0)

(30,317.9)

(57,152.5)

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

(26,345.4)

(7,245.9)

(9,252.0)

(30,317.9)

(57,152.5)

CASH FLOW

0

Op Cash Flow before WC and tax

(18,158.0)

(19,569.3)

(14,334.1)

(23,169.0)

(23,247.7)

Working capital

2,532.2

(1,523.1)

(1,331.3)

2,059.7

132.9

Exceptional & other

(285.2)

(476.0)

0.0

0.0

0.0

Tax

0.0

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(15,911.1)

(21,568.4)

(15,665.4)

(21,109.3)

(23,114.8)

Capex

0.0

0.0

0.0

0.0

0.0

Acquisitions/disposals

(401.5)

193.5

0.0

0.0

0.0

Net interest

(1,827.2)

(1,412.9)

(3,316.7)

(3,369.1)

(3,509.3)

Equity financing

6,110.1

16,494.9

15,764.7

5,580.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

(1,267.5)

0.0

0.0

0.0

0.0

Net Cash Flow

(13,297.3)

(6,292.9)

(3,217.5)

(18,898.4)

(26,624.1)

Opening net debt/(cash)

 

 

2,714.1

16,011.4

(1,258.8)

1,958.7

20,857.1

FX

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

0.0

23,563.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

16,011.4

(1,258.8)

1,958.7

20,857.1

47,481.2

Source: Pharnext accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Pharnext and prepared and issued by Edison, in consideration of a fee payable by Pharnext. 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 2021 Edison Investment Research Limited (Edison).

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General disclaimer and copyright

This report has been commissioned by Pharnext and prepared and issued by Edison, in consideration of a fee payable by Pharnext. 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 2021 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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

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

1185 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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