Pharnext — Approaching clinical validation

Pharnext (PAR: ALPHA)

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Research: Healthcare

Pharnext — Approaching clinical validation

We revisit our assessment for Pharnext after an eventful few weeks that saw the company announce encouraging new data (five years of trial time) from its PLEO-CMT-FU open-label extension study, complete patient enrolment in its pivotal Phase III PREMIER trial and make progress in raising new, non-dilutive financing. We maintain our outlook for the PREMIER study (likely to conclude in Q423), bolstered by the positive data from the extension study (sustained benefit to patients after five years of treatment). The recently announced €12m fixed-rate financing should ease the funding overhang in the short term, but we estimate the need to raise up to €10m in Q422 and a further €50m in FY23. We raise our overall valuation slightly to €267.4m (from €265.6m) but pare the per share valuation to €0.41 (from €2.0) following recent debt-to-equity conversions.

Jyoti Prakash

Written by

Jyoti Prakash

Analyst, Healthcare

Healthcare

Pharnext

Approaching clinical validation

Research update

Pharma & biotech

28 June 2022

Price

€0.003

Market cap

€2m

US$:€0.95

Estimated net debt (€m) at end H122

27.0

Shares in issue

660m

Free float

51%

Code

ALPHA

Primary exchange

Euronext Paris

Secondary exchange

OTC Pink

Share price performance

%

1m

3m

12m

Abs

(68.3)

(95.9)

(99.7)

Rel (local)

(65.8)

(95.5)

(99.7)

52-week high/low

€1.31

€0.00

Business description

Pharnext is an advanced clinical-stage biopharmaceutical company developing novel therapies for neurodegenerative diseases lacking curative and/or disease-modifying treatments. Its lead programme is PXT3003 for Charcot-Marie-Tooth disease type 1A, which has recently completed patient enrolment in a pivotal Phase III trial, with readout expected in Q423 (orphan drug designation in the US and Europe). PXT864 for Alzheimer’s disease has completed Phase IIa and will be further advanced through partnerships. Both of Pharnext’s lead assets originated from the Pleotherapy R&D approach.

Next events

Top-line data from animal factorial study

Q123

Conclusion of PREMIER trial

Q423

Analysts

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Soo Romanoff

+44 (0)20 3077 5700

Pharnext is a research client of Edison Investment Research Limited

We revisit our assessment for Pharnext after an eventful few weeks that saw the company announce encouraging new data (five years of trial time) from its PLEO-CMT-FU open-label extension study, complete patient enrolment in its pivotal Phase III PREMIER trial and make progress in raising new, non-dilutive financing. We maintain our outlook for the PREMIER study (likely to conclude in Q423), bolstered by the positive data from the extension study (sustained benefit to patients after five years of treatment). The recently announced €12m fixed-rate financing should ease the funding overhang in the short term, but we estimate the need to raise up to €10m in Q422 and a further €50m in FY23. We raise our overall valuation slightly to €267.4m (from €265.6m) but pare the per share valuation to €0.41 (from €2.0) following recent debt-to-equity conversions.

Year end

Revenue
(€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/20

2.8

(21.4)

(1.17)

0.00

N/A

N/A

12/21

3.6

(30.6)

(1.01)

0.00

N/A

N/A

12/22e

4.1

(29.2)

(0.07)

0.00

N/A

N/A

12/23e

3.0

(30.2)

(0.05)

0.00

N/A

N/A

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

PREMIER trial on track for readout in Q423

We view the on-time completion of enrolment in the pivotal Phase III PREMIER trial (387 participants versus the target of 350) as a key milestone for Pharnext and believe the company will meet its Q423 deadline for trial completion, based on current visibility. More importantly, we expect the positive data from the long-term, open-label PLEO-CMT-FU study (which continued to show a sustained benefit for patients after five years of treatment) to have a strong read-across for the PREMIER trial. Success would make PXT3003, which holds the orphan drug designation in the United States and Europe, the first drug to be approved for Charcot-Marie-Tooth disease type 1A (CMT1A), a potential $1bn market.

Fixed-rate loan eases short-term funding need

The drawdown of the 11th OCEANE-BSA tranche in May 2022 culminates the dilutive convertible debt financing, and we expect the €12m fixed-rate loan (9.5% interest) raised in June to ease the short-term funding need and allow the company to get rid of the €8m cash covenant related to the 2018 IPF Partners debt. We estimate the gross cash balance of €8m at end-FY21, along with the proceeds from the fixed-rate debt (€12m) and tranches 7–11 of the OCEANE facility (net proceeds of c €11) to be sufficient to fund operations and honour upcoming debt repayments up to Q422. We project the need to raise a further €10m in Q422 and €50m in FY23 (modelled as illustrative debt).

Valuation: €267.4m or €0.41 per basic share

Our total valuation for Pharnext goes up slightly to €267.4m from €265.6m due to lower opex assumptions and rolling forward our NPV, offset by higher net debt. The per share valuation, however, comes down materially to €0.41 (from €2.0), given the additional shares in circulation following the recent debt-to-equity conversions.

PLEO-CMT-FU latest data indicate continued benefit

Pharnext has been undertaking an open-label extension study (PLEO-CMT-FU) following the culmination of the earlier PLEO-CMT trial and recently presented five years’ worth of trial data (15 months of PLEO-CMT trial and nine months of PLEO-CMT-FU, trial period one; 36 months of PLEO-CMT-FU, trial period two), wherein PXT3003 continued to show a sustained benefit to the 126 CMT1A patients who had chosen to continue on the extension study. In trial period one, the high- and low-dose cohorts continued to receive their respective doses while the placebo arm was randomised between the high and low dose. In trial period two, all cohorts received the high-dose treatment (Exhibit 1).

Exhibit 1: Design of First double-blinded Phase III PLEO-CMT trial and open label extension studies

Source: Pharnext corporate presentation, June 2022

We note that while patients across all arms (placebo, low dose and high dose) of the initial study have maintained a meaningful improvement on the Overall Neuropathy Limitations Scale (ONLS),1 the strongest efficacy signal was observed in the cohort of patients treated with PXT3003 high-dose arm for the entire five-year duration (Exhibit 2). This high-dose formulation is the one being tested in the pivotal PREMIER trial. Another key observation came from patients treated with placebo in the double-blind phase, who showed an initial decline on the ONLS but who then improved when switched to PXT3003 in the ongoing open-label phase.

  The ONLS is a 12-point scale measuring functional motor disability; the higher the score, the more debilitating the condition.

Exhibit 2: PLEO-CMT-FU study results after five-year total trial time

Source: Pharnext. Note: Data as of 22 April 2022.

We highlight that while the improvement on the ONLS appears modest (for the high-dose arm, improvement has been 0.28 points over five years from the baseline), the delta is likely to be higher given CMT1A is a progressive disease if left untreated. Extrapolating the 15-month decline (0.17 points) in the placebo arm over five years could hypothetically mean a 0.68 point decline in five years without treatment, taking the effective improvement to around 1.0 points (0.68 + 0.28), which can be considered a meaningful outcome given the nature of the disease and no approved curative options (refer to our previous update note for more details). We see the highest benefit in the targeted mild-to-moderate cohort (defined as scoring below 20 on the 36-point Charcot-Marie-Tooth Neuropathy Score scale which, corresponded to between two and four points on the ONLS scale in the first Phase III PLEO-CMT study), which typically includes patients with certain gait abnormalities, although they continue to be functionally unimpaired. According to the company management, there are around 100,000 people afflicted with mild-to-moderate CMT1A in the United States and EU5 combined. For this cohort, timely treatment with PXT3003 can potentially halt progression to a debilitating state and, therefore, may have the highest implied benefit. We expect the most recently reported data from the extension study to have a positive bearing on the ongoing pivotal PREMIER study given that it is evaluating the identical high dose of PXT3003 and using the same primary efficacy ONLS endpoint as the long-term study.

PREMIER trial remains on track for a Q423 readout

On 30 May 2022, Pharnext announced completion of patient enrolment in the pivotal Phase III PREMIER trial, hitting its previously announced goal of Q222. The company confirmed 387 patients have been recruited to the study, against an original target of 350. As a reminder, the PREMIER trial is a randomised, double-blind, placebo-controlled study undertaken across 52 centres globally. The primary endpoint is improvement on the 12-point ONLS, which measures functional motor disability. The same scale is being used in the extension study. The 15-month study is expected to conclude in Q423 with an anticipated US launch by end-FY24/early FY25, if approved.

CMT1A is a genetic peripheral nerve disorder that causes progressive muscle weakness. It is the most common type of CMT and Pharnext estimates the disease afflicts over 150,000 people in the United States and Europe combined (1.5 million people worldwide), with the most severe cases (c 5% of patients) requiring wheelchairs. Pharnext estimates its target patient population to be more than 100,000 (mild-to-moderate CMT1A across the United States and EU5), translating into a market potential of $1bn. There are no approved therapies, with treatment restricted to supportive care such as orthotics, leg braces and physical and occupational therapy, followed by surgery with disease progression. If clinical development is successful, PXT3003 will be the first therapy approved for the indication and will have seven years and 10 years of market exclusivity courtesy of its orphan drug designation in the United States and Europe, respectively. The closest competitors to PXT3003 are in early clinical trials (Engensis/Helixmith, Phase I/IIa and IFB-088/InFlectis, Phase I). We estimate peak sales potential of $626m (€594m) for PXT3003.

Seeking non-dilutive sources of financing

While the underlying business fundamentals and pipeline potential for Pharnext have remained unchanged this past year, the dilutive convertible funding announced in June 2021 has continued to weigh in on the share price. Heeding shareholder concerns, in December 2021 Pharnext decided to prematurely terminate its convertible debt financing agreement with Global Tech Opportunities 13 (GTO13, subscribers of the June 2021 convertible bond issue), truncating the number of tranches to 12 from the earlier 35. While the first six tranches had been used before this announcement (for gross proceeds of €20.5m), the company has subsequently drawn down a further five tranches (7–11) for total gross proceeds of €15.5m (€3.5m in January, €6m in March across two tranches, €3m in April and €3m in May). We note for tranches 7–10 the company received net proceeds of €7.94m (against the €12.5m gross proceeds recorded), which we estimate would result in net proceeds of c €10.5m from the tranches drawn down in H122. According to the latest available information, Pharnext has fully converted the first seven tranches and partially converted the eighth tranche into equity. A total of €24.1m of the overall €36m gross debt issued has been converted to equity, resulting in the issued share count standing at 660m. This figure is likely to grow as there is still €11.9m in outstanding convertible debt (tranches 9–11 and partially tranche 8) that could be converted to equity, resulting in further dilution.

In June 2022, the company announced it has secured €12m in fixed-rate (9.5%) short-term financing from GTO13, a member of the Alpha Blue Ocean group and the company’s convertible debt (OCEANE-BSA) holder. As a result, the drawdown of the 12th OCEANE-BSA tranche (worth €3m) has been put on hold. The newly raised funds will be used by the company to pay off the outstanding €8m in venture debt obligations to IPF Partners (raised in 2018 at EURIBOR+11%), releasing Pharnext from the restrictive covenants that required it to maintain a €8m cash balance. The €12m loan is anticipated to be disbursed in five instalments (the first of €3m, followed by two instalments of €2.5m and two of €2m) from June 2022, and each instalment to be drawn down with at least a month’s gap in between. We estimate the end-FY21 cash balance of €8m along with the €12m proceeds from the fixed-rate loan and €10.5m from OCEANE-BSA (€30.5 in total) to support operations and debt repayments into Q422, but project the need to raise a further €10m in Q422, €50m in FY23 and €25m in FY24 before reaching profitability in FY25, provided PXT3003 is successfully commercialised. We are modelling all future raises as illustrative debt. While Pharnext has communicated it can potentially use the unused €45m from the original June 2021 OCEANE-BSA agreement (provided certain conditions are met or waived by GTO13), we expect the company to pursue alternate, non-dilutive options for future capital raising.

New board structure in sync with business strategy

After its 17 June 2022 AGM, Pharnext announced several board changes, most notably the appointment of Dr James Kuo as an independent, non-executive director. Dr Kuo has significant experience in the life sciences sector and is chairman of ImmunoPrecise Antibodies, chairman of Monarch Labs, which he co-founded, as well as a board director of Tryp Therapeutics, which he co-founded and took public as CEO. More importantly, Dr Kuo has raised multiple financing rounds as CEO and served as managing director of HealthCare Ventures, a $378m venture capital fund. We expect Pharnext management to seek to use Dr Kuo’s knowledge and experience in raising funds from the market to support its own ongoing capital-raising efforts.

Financials

Pharnext’s FY21 revenue was in line with our expectations, while the operating and net loss were slightly lower than our estimates. Revenue for the period stood at c €3.6m, almost entirely attributable to research and development (R&D) tax credits. The normalised operating loss stood at €22.9m, up from €18.7m recorded in FY20 but lower than our estimate of €25.1m. This difference is attributed to lower R&D and marketing expenses (€19.6m and €2.1m) versus our expectation of €20.8m and €3.5m, respectively. The R&D expense accounted for 74% of the company’s operating expenses for the period (versus 62% in FY20), which we attribute to the start of the pivotal PREMIER Phase III trial in March 2021. We expect this trend to continue in FY22 and decline thereafter after the conclusion of the PREMIER study in Q423. Administrative expenses (€4.7m) for the period were in line with our estimate of €4.5m. We have made minor revisions to our FY22–23 estimates based on the FY21 performance. The company ended the period to December 2021 with net debt of €13.9m (€8.0m cash and €21.9m in debt, including repayable advances).

Valuation

We have updated our valuation to reflect the FY21 financials as well as the latest drawdown of the OCEANE convertible debt tranches. Our expectations for the clinical progression and commercialisation of PXT3003 remain unchanged and we continue to attribute a 70% probability of success to the asset. Our risk-adjusted net present value (NPV) goes up slightly to €267.4m from €265.6m as we lower our operating expenses estimates slightly for the forecast years (based on the FY21 trend) and roll forward our NPV. This has been partially offset by a higher net debt position (H122e net debt of €27.0m versus net cash of €5.9m in our last update). An additional €10.5m of debt was converted to equity since we last wrote about the company, resulting in an increase in issued shares to 660m from 131.5m. This has resulted in our per share valuation coming down to €0.41 versus €2.0 previously. We also note that subsequent conversion of the remaining tranches (8–11) would lead to further dilution.

Exhibit 3: Pharnext valuation

Development programme

Indication

Clinical stage

Probability of success

Launch year

Patent/exclusivity protection

Launch pricing ($/year)

Peak sales (US$m)

rNPV
(€m)

PXT3003

CMT1A

Phase III

70%

2024

2031–34

55,000

626

294.4

Total

294.4

Net cash/(debt) (end FY21, pro forma adjusted for subsequent conversions of debt to equity) (€m)

(27.0)

Total firm value (€m)

267.4

Total basic shares (m)

660.0

Value per basic share (€)

0.41

Dilutive options and warrants (m)

22.4

Total diluted shares (m)

682.3

Value per diluted share (€)

0.39

Source: Pharnext reports, Edison Investment Research

Exhibit 4: Financial summary

€000s

2019

2020

2021

2022e

2023e

31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

3,597.4

2,810.5

3,564.8

4,127.1

3,024.0

Cost of Sales

0.0

0.0

0.0

0.0

0.0

Gross Profit

3,597.4

2,810.5

3,564.8

4,127.1

3,024.0

R&D

(15,178.1)

(13,548.4)

(19,614.0)

(23,261.2)

(17,044.2)

Admin & Marketing

(8,444.6)

(8,175.6)

(6,807.6)

(6,875.7)

(16,244.4)

EBITDA

 

 

(19,501.6)

(18,159.2)

(22,194.5)

(25,979.4)

(30,264.6)

Operating profit (before amort. and excepts.)

 

(20,093.0)

(18,716.5)

(22,858.9)

(26,011.8)

(30,266.6)

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

67.7

(197.0)

2.0

2.0

2.0

Reported operating profit

(20,025.3)

(18,913.5)

(22,856.9)

(26,009.8)

(30,264.6)

Net Interest

(3,283.9)

(2,650.5)

(7,760.8)

(3,172.7)

50.2

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)

 

 

(23,376.9)

(21,367.0)

(30,619.7)

(29,184.5)

(30,216.4)

Profit Before Tax (reported)

 

 

(23,309.2)

(21,564.1)

(30,617.6)

(29,182.5)

(30,214.4)

Reported tax

0.0

0.0

0.0

0.0

0.0

Profit After Tax (norm)

(23,376.9)

(21,367.0)

(30,619.7)

(29,184.5)

(30,216.4)

Profit After Tax (reported)

(23,309.2)

(21,564.1)

(30,617.6)

(29,182.5)

(30,214.4)

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)

(23,376.9)

(21,367.0)

(30,619.7)

(29,184.5)

(30,216.4)

Net income (reported)

(23,309.2)

(21,564.1)

(30,617.6)

(29,182.5)

(30,214.4)

Average Number of Shares Outstanding (m)

14.5

18.2

30.4

395.7

660.0

EPS - normalised (c)

 

 

(161.08)

(117.33)

(100.67)

(7.37)

(4.58)

EPS - normalised fully diluted (c)

 

 

(161.08)

(117.33)

(100.67)

(7.37)

(4.58)

EPS - basic reported (€)

 

 

(1.61)

(1.18)

(1.01)

(0.07)

(0.05)

Dividend (€)

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

1,526.5

855.4

906.4

876.1

876.1

Intangible Assets

12.1

7.4

0.2

0.0

0.0

Tangible Assets

293.2

146.3

30.1

0.0

0.0

Investments & other

1,221.2

701.8

876.1

876.1

876.1

Current Assets

 

 

21,645.1

20,398.4

15,545.2

5,658.3

6,665.0

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

0.0

9,320.2

7,577.2

678.4

497.1

Cash & cash equivalents

16,246.6

11,078.2

7,968.0

4,979.8

6,167.9

Other

5,398.5

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(9,959.6)

(15,516.6)

(19,305.3)

(29,153.5)

(11,476.6)

Creditors

(5,792.7)

(11,302.7)

(8,424.1)

(7,424.0)

(8,208.7)

Tax and social security

0.0

0.0

0.0

0.0

0.0

Short term borrowings

(3,806.3)

(3,926.0)

(8,713.2)

(19,561.5)

(1,100.0)

Other

(360.5)

(287.9)

(2,168.0)

(2,168.0)

(2,168.0)

Long Term Liabilities

 

 

(20,457.9)

(18,256.2)

(15,003.0)

(20,822.0)

(69,722.0)

Long term borrowings

(19,596.3)

(17,021.3)

(13,199.9)

(19,018.9)

(67,918.9)

Other long term liabilities

(861.7)

(1,234.8)

(1,803.1)

(1,803.1)

(1,803.1)

Net Assets

 

 

(7,245.9)

(12,519.0)

(17,856.7)

(43,441.2)

(73,657.6)

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

(7,245.9)

(12,519.0)

(17,856.7)

(43,441.2)

(73,657.6)

CASH FLOW

Operating Cash Flow

(19,569.3)

(17,962.2)

(22,196.5)

(25,981.4)

(30,266.6)

Working capital

(1,523.1)

1,797.7

(905.2)

5,898.7

966.0

Exceptional & other

(476.0)

82.5

(632.9)

0.0

0.0

Tax

0.0

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(21,568.4)

(16,081.9)

(23,734.7)

(20,082.7)

(29,300.7)

Capex

0.0

22.0

(46.5)

0.0

0.0

Acquisitions/disposals

193.5

(83.4)

72.3

0.0

0.0

Net interest

(1,412.9)

(1,622.2)

(1,089.0)

(3,172.7)

50.2

Equity financing

16,494.9

16,271.7

32,819.3

3,600.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

(47.5)

(199.5)

(4,294.3)

0.0

0.0

Net Cash Flow

(6,340.4)

(1,693.4)

3,727.2

(19,655.4)

(29,250.4)

Opening net debt/(cash)

 

 

24,673.2

7,156.0

9,869.2

13,945.2

33,600.6

FX

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

23,857.6

(1,019.7)

(7,803.2)

0.0

0.0

Closing net debt/(cash)

 

 

7,156.0

9,869.2

13,945.2

33,600.6

62,851.1

Source: Pharnext reports, Edison Investment Research

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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.

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

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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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 2022 Edison Investment Research Limited (Edison).

Australia

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.

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

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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Basilea Pharmaceutica — Anti-infective refocusing on schedule

Management has provided an update on Basilea’s strategy to refocus the business on anti-infectives, as part of which, the company will cease all oncology activities by end-2022. Basilea now intends to engage in separate transactions for the oncology asset BAL0891 (a dual TTK/PLK1 inhibitor) and other preclinical assets, which will be concluded in H222. In addition, management has confirmed it will not expand the ongoing Phase II biomarker-driven trial investigating the use of lisavanbulin (a tumour checkpoint inhibitor) in treating recurrent glioblastoma. The company continues to explore partnering options for lisavanbulin. Finally, the rights to derazantinib (a pan-fibroblast growth factor receptor inhibitor) will be transferred back to Merck by the end of the year. Management has reiterated guidance that oncology-related expenses will not be material beyond 2022 and sustained profitability will be reached in 2023. In our view, the recent strategic update supports this guidance. We value Basilea Pharmaceutica at CHF847.7m or CHF71.6/share.

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