Pharnext — Back in the saddle again

Pharnext (PAR: ALPHA)

Last close As at 17/07/2024

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Research: Healthcare

Pharnext — Back in the saddle again

In many respects, 2020 was a year of rebuilding for Pharnext following the disruption in its previous Phase III clinical study of PXT3003 for the treatment of Charcot-Marie-Tooth disease, type 1A (CMT1A). While showing positive results, the study’s high dose arm was prematurely discontinued due to a manufacturing issue. In 2020, Pharnext completed gathering data from the study and met with the FDA and other authorities in preparation for the re-initiation of its pivotal Phase III clinical program, which started in March 2021.

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Healthcare

Pharnext

Back in the saddle again

Earnings update

Pharma & biotech

4 May 2021

Price

€3.35

Market cap

€72m

€0.85/US$

Net cash (€m) at end FY20 + offering

4.57

Shares in issue

21.9m

Free float

47.4%

Code

ALPHA

Primary exchange

Euronext Paris

Secondary exchange

OTC Pink

Share price performance

%

1m

3m

12m

Abs

(3.0)

(3.1)

(15.4)

Rel (local)

(5.9)

(13.6)

(38.4)

52-week high/low

€4.22

€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

In many respects, 2020 was a year of rebuilding for Pharnext following the disruption in its previous Phase III clinical study of PXT3003 for the treatment of Charcot-Marie-Tooth disease, type 1A (CMT1A). While showing positive results, the study’s high dose arm was prematurely discontinued due to a manufacturing issue. In 2020, Pharnext completed gathering data from the study and met with the FDA and other authorities in preparation for the re-initiation of its pivotal Phase III clinical program, which started in March 2021.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

3.6

(23.4)

(1.61)

0.00

N/A

N/A

12/20

2.8

(21.4)

(1.17)

0.00

N/A

N/A

12/21e

2.6

(25.0)

(1.19)

0.00

N/A

N/A

12/22e

3.1

(26.0)

(1.13)

0.00

N/A

N/A

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

Recovering from an unfortunate turn

2020 began with Pharnext reporting final results from the extension portion of its previous pivotal Phase III study (PLEO-CMT) for CMT1A. Earlier, the trial had to halt enrolment due to a manufacturing issue and could not be used as a pivotal study. Despite this, even under the most stringent statistical interpretation of the data, it reached statistical significance (p=0.04 in favour of the high dose arm). The open-label extension portion study further supported the utility of the treatment and a statistically significant improvement in the Overall Neuropathy Limitations Scale (ONLS) was seen compared to the prior placebo arm (p=0.001).

Focused on PREMEIRE Phase III

The final results of PLEO-CMT strongly supported running a new Phase III clinical study, and despite the potential disruption of the COVID-19 pandemic, the company was able to initiate the PREMIER Phase III study on schedule in March 2021. This trial design is based on feedback from the FDA. The primary endpoint of the study will be improvement in ONLS and it will enrol 350 patients.

Update from long-term extension study

The company previously reported interim results from its long-term extension study, PLEO-CMT-FU, in January 2020 and provided an update on 29 April 2021. The data showed that the improvement in ONLS scores seen in the earlier data were maintained and continued (p-value not presented). The patients presented in the new data have been on PXT3003 for up to 54 months and no safety issues were raised.

Valuation: Increased to €287.7m or €13.12

Our valuation is up slightly at €287.7m or €13.12 per share, from €283.2m or €13.08 per share. We have updated our estimated net cash (€4.57m) based on the company’s reporting. Otherwise, our valuation remains unchanged.

Executing on re-entering the clinic

Pharnext reported its financial results for FY20 at the end of April 2021 and reflected on its progress over the year. The main operational goal for 2020 was to prepare for the re-initiation of clinical studies into its lead asset, PXT3003, for the treatment of CMT1A. During 2020, Pharnext applied for a special protocol assessment (SPA) from the FDA. An SPA is a special agreement with the agency that sets out the specific parameters by which a drug or treatment will be evaluated following clinical trials. The company received feedback it describes as constructive from the FDA as part of this application process but decided not to pursue an official SPA before initiating clinical studies. The only remaining topic was the statistical treatment of COVID-19-related dropouts under a particular analysis (the modified intent to treat (mITT) population). This is a minor factor in the overall trial design, and it is understandable that the company did not want to delay further on account of this point. The FDA provided extensive feedback as part of the application process and a consensus was reached on all other details. The parameters for the study will be similar to the previous PLEO-CMT Phase III clinical trial: the endpoint will be ONLS, and secondary endpoints will be the 10-metre 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 the Charcot-Marie-Tooth Neuropathy Score, version 2 (CMTNS-v2). The main difference from the prior clinical study is that only the ‘high dose’ will be examined (1.4mg naltrexone, 12mg baclofen, 420mg sorbitol) vs placebo. The study has an estimated completion date of October 2023.

Update on PLEO-CMT-FU long-term study

Pharnext’s previous Phase III clinical study PLEO-CMT was disrupted in 2018 following a manufacturing issue that required the study to halt enrolment. The halt was not due to any safety or efficacy issues on the part of the treatment. On the contrary, patients on the high dose arm of the study who completed treatment saw a statistically robust response (improvement of 0.37 in ONLS, p=0.008). The study even showed statistical significance on an intent-to-treat (ITT) basis (p=0.04), a much harsher statistical treatment that counts all discontinuations as treatment failures. These results were further supported by data gathered from an extension study, which Pharnext reported in early 2020 (the PLEO-CMT-FU study). Patients examined for this interim analysis had been treated (with either PXT3003 or placebo) for a total of 24 months. The study showed improvements in ONLS across all three original trial cohorts. When these patients were pooled in a post-hoc analysis, the trend showed a statistically significant improvement compared to the prior placebo arm of the study (0.30 points, p=0.001).

On 29 April 2021, the company provided an update on PLEO-CMT-FU. ONLS data were gathered from patients after 54 months on treatment. A total of 187 patients were evaluable at this time point. Additionally, in this second part of the extension study, all patients were treated with the high dose, as defined in the previous PLEO-CMT study (but were still stratified by their original treatment arm). On a numerical basis, all patient groups saw continued improvement compared to the 24-month data (Exhibit 1). However, Pharnext did not present a statistical analysis of these data (p values etc), so it is hard to draw definitive conclusions, although the direction of the data is definitively positive.

There should always be a caveat when evaluating unblinded data like those presented here. However, we find the consistency of the data compelling. All patient groups saw improvements and these improvements continued to increase over time. It is rare to see improvements in ONLS in CMT studies, and the effect sizes seen here are far larger than those in many other studies.1

  Mandel J, et al. (2015) A meta-analysis of randomized double-blind clinical trials in CMT1A to assess the change from baseline in CMTNS and ONLS scales after one year of treatment. Orphanet J Rare Dis 10, 74.

Moreover, no safety issues were raised.

Exhibit 1: 54-month data from PLEO-CMT-FU

Source: Pharnext

Financial results

The company reported an operating loss of €18.9m for 2020, down slightly from 2019 (€20.0m). The mix of expenses was different, with lower R&D (€13.5m from €15.2m) and marketing expenses (€2.1m from €3.5m), but higher administrative expenses (€6.1m from €5.0m). We assume these higher administrative expenses are associated with hiring Pharnext’s new CEO in mid-2020. We forecast R&D expenses increasing in 2021 (€16.6m) and beyond due to the expense of the PREMIER clinical study. These are unadjusted from our previous estimates. Revenue for the period was €2.8m, almost entirely from R&D tax credits, as in other years.

The company ended the period with €11.1m in cash and €12.1m in debt. This has since been supplemented by an offering completed in February 2021, which included €6m in equity (1.75m units at €3.42 per unit, with each unit comprising one share and one half-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 include €80m in expected additional financing for the company to complete the PREMEIR study and launch PXT3003 for CMT1A in 2024. This is included on our balance sheet as illustrative debt (€50m in 2022, €30m in 2023).

Valuation

We have made no adjustments to our valuation apart from updating net cash based on the company’s report (€1.01m net debt at the end of the period + €5.58m estimated net cash from the February offering). This has lifted our valuation slightly to €287.7m or €13.12 per share, from €283.2m or €13.08 per share.

Exhibit 2: Valuation of Pharnext

Development program

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

283.2

Total

283.2

Net cash (YE20 + offering) (€m)

4.57

Total firm value (€m)

287.7

Total basic shares (m)

21.9

Value per basic share (€)

13.12

Dilutive options, warrants, and convertible debt (m)

7.42

Total diluted shares (m)

29.34

Value per diluted share (€)

11.09

Source: Pharnext reports, Edison Investment Research

Exhibit 3: Financial summary

€'000s

2019

2020

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

3,597.4

2,810.5

2,565.2

3,140.6

Cost of Sales

0.0

0.0

0.0

0.0

Gross Profit

3,597.4

2,810.5

2,565.2

3,140.6

R&D

(15,178.1)

(13,548.4)

(16,587.3)

(17,930.4)

Admin & Marketing

(8,444.6)

(8,175.6)

(8,614.4)

(8,700.5)

EBITDA

 

 

(19,501.6)

(18,159.2)

(22,521.3)

(23,451.8)

Normalised operating profit

 

 

(20,093.0)

(18,716.5)

(22,439.4)

(23,293.3)

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

Share-based payments

67.7

(197.0)

(197.0)

(197.0)

Reported operating profit

(20,025.3)

(18,913.5)

(22,636.4)

(23,490.3)

Net Interest

(3,283.9)

(2,650.5)

(2,551.5)

(2,658.1)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(23,376.9)

(21,367.0)

(24,991.0)

(25,951.4)

Profit Before Tax (reported)

 

 

(23,309.2)

(21,564.1)

(25,188.0)

(26,148.4)

Reported tax

0.0

0.0

0.0

0.0

Profit After Tax (norm)

(23,376.9)

(21,367.0)

(24,991.0)

(25,951.4)

Profit After Tax (reported)

(23,309.2)

(21,564.1)

(25,188.0)

(26,148.4)

Minority interests

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

Net income (normalised)

(23,376.9)

(21,367.0)

(24,991.0)

(25,951.4)

Net income (reported)

(23,309.2)

(21,564.1)

(25,188.0)

(26,148.4)

Basic average number of shares outstanding (m)

14.5

18.2

21.0

23.0

EPS - basic normalised (€)

 

 

(1.61)

(1.17)

(1.19)

(1.13)

EPS - diluted normalised (€)

 

 

(1.61)

(1.17)

(1.19)

(1.13)

EPS - basic reported (€)

 

 

(1.61)

(1.18)

(1.20)

(1.14)

Dividend (€)

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

1,526.5

855.4

740.3

701.8

Intangible Assets

12.1

7.4

0.0

0.0

Tangible Assets

293.2

146.3

38.5

0.0

Investments & other

1,221.2

701.8

701.8

701.8

Current Assets

 

 

21,645.1

20,398.4

937.0

25,395.5

Stocks

0.0

0.0

0.0

0.0

Debtors

0.0

9,320.2

421.7

516.3

Cash & cash equivalents

16,246.6

11,078.2

515.4

24,879.2

Other

5,398.5

0.0

0.0

0.0

Current Liabilities

 

 

(9,959.6)

(15,516.6)

(9,088.3)

(21,483.4)

Creditors

(5,792.7)

(11,302.7)

(6,137.1)

(6,508.5)

Tax and social security

0.0

0.0

0.0

0.0

Short term borrowings

(3,806.3)

(3,926.0)

(2,663.3)

(14,687.0)

Other

(360.5)

(287.9)

(287.9)

(287.9)

Long Term Liabilities

 

 

(20,457.9)

(18,256.2)

(24,518.9)

(62,495.1)

Long term borrowings

(11,181.4)

(8,157.4)

(14,420.1)

(52,396.4)

Other long-term liabilities

(9,276.6)

(10,098.8)

(10,098.8)

(10,098.8)

Net Assets

 

 

(7,245.9)

(12,519.0)

(31,929.9)

(57,881.3)

Minority interests

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

(7,245.9)

(12,519.0)

(31,929.9)

(57,881.3)

CASH FLOW

0

Op Cash Flow before WC and tax

(19,569.3)

(17,962.2)

(22,324.3)

(23,254.8)

Working capital

(1,523.1)

1,797.7

3,733.0

276.7

Exceptional & other

(476.0)

82.5

0.0

0.0

Tax

0.0

0.0

0.0

0.0

Net operating cash flow

 

 

(21,568.4)

(16,081.9)

(18,591.3)

(22,978.1)

Capex

0.0

22.0

0.0

0.0

Acquisitions/disposals

193.5

(83.4)

0.0

0.0

Net interest

(1,412.9)

(1,622.2)

(2,551.5)

(2,658.1)

Equity financing

16,494.9

16,271.7

5,580.0

0.0

Dividends

0.0

0.0

0.0

0.0

Other

0.0

(199.5)

0.0

0.0

Net Cash Flow

(6,292.9)

(1,693.4)

(15,562.8)

(25,636.2)

Opening net debt/(cash)

 

 

16,011.4

(1,258.8)

1,005.6

16,568.4

FX

0.0

0.0

0.0

0.0

Other non-cash movements

23,563.0

(571.0)

0.0

0.0

Closing net debt/(cash)

 

 

(1,258.8)

1,005.6

16,568.4

42,204.6

Source: Pharnext reports, Edison Investment Research

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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.

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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.

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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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Sareum Holdings — Treading the TYK2 trail

Kinase inhibitor specialist Sareum develops small molecule therapeutics with application in oncology and autoimmune disease areas. Lead asset SDC-1801 targets the autoimmune space and is nearing an inflection point, with a planned clinical trial application (CTA) filing in mid-2021 and clinical progression in Q421. The other candidate, SDC-1802, is focused on cancer and holds first-in-class promise with value to be unlocked with clinical validation. The out-licensed assets, SRA737 and FLT3+Aurora kinase, are currently de-prioritised but offer upside potential on revived activity.

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