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Currency in CHF
Last close As at 25/03/2023
CHF5.96
▲ 0.14 (2.41%)
Market capitalisation
CHF104m
Research: Healthcare
Newron Pharmaceuticals is focused on the development of novel compounds for the treatment of various neurological conditions. Heading the R&D pipeline is evenamide, which is being investigated for the treatment of schizophrenia. In September 2021, the drug began a Phase III pivotal trial (Study 008A) in this indication, with top-line results expected in H123. Positive results here would represent the most significant near-term catalyst for the company, in our view. In June 2022, Newron reported positive safety and efficacy data for evenamide in a parallel trial (Study 014 focused on treatment-resistant schizophrenia), providing encouraging support for Study 008A. At end-June 2022, it had a total cash and liquid asset position of €28.4m, which we estimate will provide a cash runway to H223. We value Newron at CHF113.9m or CHF6.4 per share (previously CHF107m or CHF6 per share).
Newron Pharmaceuticals |
Evenamide catalyst approaching |
Company update |
Pharma and biotech |
15 September 2022 |
Share price performance
Business description
Next events
Analysts
Newron Pharmaceuticals is a research client of Edison Investment Research Limited |
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Newron Pharmaceuticals is focused on the development of novel compounds for the treatment of various neurological conditions. Heading the R&D pipeline is evenamide, which is being investigated for the treatment of schizophrenia. In September 2021, the drug began a Phase III pivotal trial (Study 008A) in this indication, with top-line results expected in H123. Positive results here would represent the most significant near-term catalyst for the company, in our view. In June 2022, Newron reported positive safety and efficacy data for evenamide in a parallel trial (Study 014 focused on treatment-resistant schizophrenia), providing encouraging support for Study 008A. At end-June 2022, it had a total cash and liquid asset position of €28.4m, which we estimate will provide a cash runway to H223. We value Newron at CHF113.9m or CHF6.4 per share (previously CHF107m or CHF6 per share).
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
5.26 |
(18.16) |
(1.09) |
0.0 |
N/A |
N/A |
12/21 |
5.76 |
(14.12) |
(0.79) |
0.0 |
N/A |
N/A |
12/22e |
6.60 |
(15.51) |
(0.87) |
0.0 |
N/A |
N/A |
12/23e |
7.89 |
(16.41) |
(0.92) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Xadago cedes focus to evenamide
While royalties for Newron’s marketed Parkinson’s disease (PD) drug Xadago continue to grow its top-line revenues, the near-term value driver for the company is the results from the Phase III Study 008A of evenamide in schizophrenia. New schizophrenia treatments address a significant unmet medical need, and we therefore continue to see a significant opportunity for evenamide in this market, should the drug be approved.
Cash past key catalyst
In our view, with a total cash and current financial asset position of €28.4m and an H122 cash burn of c €5.6m, Newron is sufficiently funded past the key Study 008A readout in H123 to H223. Assuming positive results from this, we anticipate the company will look to find a partner in key regions in mid-2023. Should a partnering deal be delayed or unavailable, the company would need to explore funding options to support its growing R&D pipeline.
Valuation: CHF113.9m or CHF6.4 per share
We value Newron at CHF113.9m or CHF6.4 per share (previously CHF107m or CHF6 per share). We include a risk-adjusted NPV calculation for Xadago in PD and PD levodopa-induced dyskinesias (PD-LIDs) and evenamide in schizophrenia and a net debt position of €15.5m. Value uplift comes from rolling our model forward by 12 months and updating our FX estimates (CHF0.96/€, previously CHF1.09/€ and US$1.0/€, previously US$0.85/€). These are partially offset by a higher net debt position and increased future R&D costs.
Evenamide results are the near-term catalyst
The near-term catalyst for the company revolves around the clinical development programme for evenamide, a glutamate modulator, in schizophrenia. The pivotal Phase III trial Study 008A (NCT04461119) was initiated in September 2021 and is a four-week randomised, double-blind, placebo-controlled study to investigate the use of evenamide in the treatment of chronic schizophrenia in patients already receiving anti-psychotic therapy (n=138). Results from the study are expected in H123 and, in our view, represent a major near-term catalyst for Newron.
Encouragingly, in June 2022 Newron announced interim safety and efficacy data for the use of evenamide as an add-on therapy in treatment-resistant schizophrenia (TRS). Data from the first 100 patients who completed the six-week, open-label Study 014 (assessing the drug candidate as an add-on in moderate-to-severe TRS) found evenamide treatment improved symptoms of psychosis and a high proportion (77%) of all treated patients responded to their antipsychotic therapy after the addition of evenamide. We note that nearly all of the 100 evaluated patients to date received either the 7.5mg or 15mg dose, hence there is a potential for even greater benefit to be shown in the 30mg dose arm once the study is completed. Of the original 100 patients, 90 have now been rolled over to an extended study (015) to observe longer-term safety and efficacy effects. Although we see the overall data from this trial as supportive of evenamide use in TRS, care must be taken when interpreting immature interim data. Patient recruitment in Study 014 is expected to be completed by end-2022 with readouts expected in Q123.
Additionally, Newron intend to initiate Study 003 investigating the safety and efficacy of evenamide as an add-on treatment in patients with TRS not responding to atypical antipsychotic treatment regimens. The eight-week, double-blind, placebo controlled, randomised study is expected to initiate in 2023 and, together with Study 008A, will form a critical part of the Phase II/III evenamide development programme data package, provided results are positive.
Valuation
We value Newron at CHF113.9m or CHF6.4 per share (previously CHF107m or CHF6 per share). Our valuation is based on a risk-adjusted NPV calculation for Xadago in PD and PD-LIDs and evenamide in schizophrenia (Exhibit 1). We include H122 net debt of CHF14.9m (€15.5m). We have revised our underlying R&D costs in FY22 and FY23 corresponding to the Phase III development programme for evenamide and Xadago (see below). Our remaining valuation assumptions are unchanged, but we will revisit them when full results for the Phase III Study 008A are communicated. Value uplift comes from rolling our model forward 12 months and significant changes in FX rates over this period (CHF0.96/€, previously 1.09 and USD1.0/€, previously 0.85), which is partially offset by a higher net debt position and increased future R&D costs.
Exhibit 1: Newron Valuation breakdown
Product |
Indication |
Launch |
Probability |
rNPV |
rNPV/share |
Xadago |
Parkinson's disease |
2015 |
45.6 |
2.6 |
|
Dyskinesia |
2024 |
50% |
14.3 |
0.8 |
|
Evenamide |
Schizophrenia |
2025 |
50% |
189.4 |
10.6 |
Total direct product value |
|
|
249.3 |
14.0 |
|
Direct costs to 2033 less tax |
(120.5) |
(6.8) |
|||
Cash at end-June 2022 |
27.2 |
1.5 |
|||
Loans (fair value June) |
(42.1) |
(2.4) |
|||
Valuation |
|
|
113.9 |
6.4 |
Source: Edison Investment Research. Note: Valuation figures are converted from to CHF from €.
Financials
In H122 Newron recognised total revenue of €2.8m (H121: €2.6m), comprised largely of royalty payments from partners on sales of Xadago. R&D expenses in H122 fell to €5.3m (H121: €6.8m), with lower costs due to the group conducting preclinical and clinical safety studies with evenamide in H121; however, R&D activities in 2022 have focussed primarily on the phase II/III Study 008A. Following an assessment of recoverability, the company did claim an R&D tax credit in FY21, however this will be deferred to later periods with management communicating that it may be recognised in FY22. In total, operating expenses for H122 amounted to €9.3m (H121: €10.6m) resulting in an operating loss of €6.4m, a decrease of 18% from a year prior (H121: €7.9m). The company reported a pre-tax loss in H122 of €8.6m (H121: €9.1m). Cash used in operations over H122 came to €5.6m, down 36% from €8.8m in H121. The company received the final two loan tranches from a financing agreement with the European Investment Bank (EIB) over FY21, amounting to €15m of non-dilutive funding. We note that the EIB financing agreement has provided the company with a total of €40m in funding since July 2019, with each tranche bearing an interest rate of 3% annually. An additional fixed rate (between 6.75% and 5.25% depending on the tranche) is also payable on expiry of the facility. As part of the agreement Newron issued 807,169 warrants to the EIB. As at end H122, the company had €43.9m in interest-bearing debt.
We estimate revenues for FY22 of €6.6m (FY21: €5.8m) as revenues from Xadago royalties continue to grow at a rate of c 10%. We then estimate revenues of €7.9m in FY23 from Xadago royalties alone. With the evenamide Phase III trial being the primary focus of R&D expenditures in FY22, we expect R&D costs of €11.7m, up from €10.7m in FY21. We expect this increase to be driven largely by increased enrolment in the evenamide Phase III schizophrenia trial, before an expected readout in H123. Further, we anticipate that R&D costs will move significantly higher in FY23 to €16.4m with initiation of the Xadago clinical programme and Study 003 as part of the evenamide Phase II/III clinical study. We therefore estimate operating losses for FY22 and FY23 of €12.6m and €16.4m, respectively.
At end-H122 Newron had a cash position of €18.9m, plus €9.5m in other current financial assets. Considering the H122 burn rate of €5.6m and accounting for our expected rise in operating expenses in FY22, we estimate a cash runway for the company into H223. We note that this is slightly shorter than the company’s guidance for a cash runway into 2024, including royalty income and Italian R&D tax credits, and can be attributed to materially higher R&D expenditure which we have incorporated in forecast years. Assuming a positive readout from Study 008A in H123, we expect Newron will pursue a partnership deal for evenamide in schizophrenia by mid-2023, payment from which may change our runway estimate. In the absence of any partnership deal for evenamide in schizophrenia, we expect management would need to raise additional capital in H223 to continue operations. We estimate a €30m capital requirement through 2024 (FY23: €15m, FY24: €15m), modelled as illustrative debt which, based on our forecasts, would be sufficient to fund the company’s operations until 2025.
Exhibit 2: Financial summary
Accounts: IFRS, year-end: 31 December, €’000s |
2019 |
2020 |
2021 |
2022e |
2023e |
||
PROFIT & LOSS |
|
|
|
|
|
|
|
Total revenues |
|
|
7,038 |
5,258 |
5,762 |
6,603 |
7,899 |
Cost of sales |
|
|
0 |
0 |
0 |
0 |
0 |
Gross profit |
|
|
7,038 |
5,258 |
5,762 |
6,603 |
7,899 |
Total operating expenses |
|
|
(27,937) |
(23,324) |
(18,119) |
(19,212) |
(24,316) |
Research and development expenses |
|
|
(17,440) |
(14,853) |
(10,725) |
(11,725) |
(16,434) |
SG&A |
|
|
(10,497) |
(8,471) |
(7,394) |
(7,487) |
(7,882) |
EBITDA (normalised) |
|
|
(18,567) |
(16,386) |
(11,386) |
(11,638) |
(16,243) |
Operating income (reported) |
|
|
(20,899) |
(18,066) |
(12,357) |
(12,609) |
(16,417) |
Finance income/(expense) |
|
|
737 |
(1,552) |
(2,527) |
(3,665) |
0 |
Exceptionals and adjustments |
|
|
0 |
0 |
0 |
0 |
0 |
Profit before tax (reported) |
|
|
(20,162) |
(19,618) |
(14,884) |
(16,274) |
(16,417) |
Profit before tax (normalised) |
|
|
(18,036) |
(18,157) |
(14,122) |
(15,512) |
(16,417) |
Income tax expense (includes exceptionals) |
|
|
(45) |
(1,380) |
(17) |
0 |
0 |
Net income (reported) |
|
|
(20,207) |
(20,998) |
(14,901) |
(16,274) |
(16,417) |
Net income (normalised) |
|
|
(18,081) |
(19,537) |
(14,139) |
(15,512) |
(16,417) |
Basic average number of shares, m |
|
|
17.8 |
17.8 |
17.8 |
17.8 |
17.8 |
Basic EPS (€) |
|
|
(1.13) |
(1.18) |
(0.84) |
(0.91) |
(0.92) |
Adjusted EPS (€) |
|
|
(1.01) |
(1.09) |
(0.79) |
(0.87) |
(0.92) |
BALANCE SHEET |
|
|
|
|
|
|
|
Property, Plant and Equipment |
|
|
116 |
105 |
87 |
14 |
86 |
Right of use assets (leases) |
|
|
136 |
629 |
490 |
490 |
490 |
Intangible Assets |
|
|
20 |
11 |
2 |
2 |
2 |
Non-current receivables (Tax credits) |
|
|
14,525 |
12,579 |
10,480 |
7,694 |
5,349 |
Total non-current assets |
|
|
14,797 |
13,324 |
11,059 |
8,200 |
5,927 |
Cash and equivalents |
|
|
22,052 |
13,213 |
25,019 |
12,623 |
12,604 |
Current financial assets |
|
|
17,111 |
18,037 |
9,575 |
9,575 |
9,575 |
Inventories |
|
|
0 |
0 |
0 |
0 |
0 |
Trade Accounts Receivable |
|
|
6,328 |
6,624 |
4,833 |
5,433 |
5,433 |
Total current assets |
|
|
45,491 |
37,874 |
39,427 |
27,631 |
27,612 |
Trade Accounts Payable |
|
|
5,535 |
6,741 |
3,504 |
5,123 |
4,248 |
Other Current Liabilities |
|
|
60 |
151 |
150 |
150 |
150 |
Total current liabilities |
|
|
5,595 |
6,892 |
3,654 |
5,273 |
4,398 |
Long-term Debt |
|
|
16,749 |
25,674 |
42,542 |
42,542 |
57,542 |
Leasing Obligations |
|
|
78 |
520 |
389 |
389 |
389 |
share based liabilities |
|
|
436 |
181 |
213 |
213 |
213 |
Long-term Provisions |
|
|
632 |
685 |
581 |
581 |
581 |
Total non-current liabilities |
|
|
17,895 |
27,060 |
43,725 |
43,725 |
58,725 |
Equity attributable to company |
|
|
36,798 |
17,246 |
3,107 |
(13,167) |
(29,583) |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
Pre-tax profit |
|
|
(20,162) |
(19,618) |
(14,884) |
(16,274) |
(16,417) |
Net Financial Income |
|
|
234 |
(531) |
(792) |
0 |
0 |
Depreciation and amortisation |
|
|
206 |
219 |
209 |
173 |
28 |
Share based payments |
|
|
2,126 |
1,461 |
762 |
0 |
0 |
Other adjustments |
|
|
(4,917) |
(842) |
3,524 |
2,786 |
2,345 |
Movements in working capital |
|
|
537 |
3,723 |
(264) |
1,019 |
(875) |
Cash from operations (CFO) |
|
|
(21,976) |
(15,588) |
(11,445) |
(12,296) |
(14,919) |
Capex |
|
|
(51) |
(34) |
(20) |
(100) |
(100) |
Acquisitions & disposals net |
|
|
(881) |
(581) |
8,440 |
0 |
0 |
Other investing activities |
|
|
0 |
(1) |
0 |
0 |
0 |
Cash used in investing activities (CFIA) |
|
|
(932) |
(616) |
8,420 |
(100) |
(100) |
Loans received |
|
|
17,500 |
7,500 |
15,000 |
0 |
0 |
Illustrative debt |
|
|
0 |
0 |
0 |
0 |
15,000 |
Loan repayments |
|
|
0 |
0 |
0 |
0 |
0 |
Equity issued |
|
|
0 |
0 |
0 |
0 |
0 |
Other Financing Cash Flows (leases) |
|
|
(163) |
(135) |
(169) |
0 |
0 |
Cash from financing activities (CFF) |
|
|
17,337 |
7,365 |
14,831 |
0 |
15,000 |
Cash and equivalents at beginning of period |
|
|
27,623 |
22,052 |
13,213 |
25,019 |
12,623 |
Increase/(decrease) in cash and equivalents |
|
|
(5,571) |
(8,839) |
11,806 |
(12,396) |
(19) |
Effect of FX on cash and equivalents |
|
|
0 |
0 |
0 |
0 |
0 |
Cash and equivalents at end of period |
|
|
22,052 |
13,213 |
25,019 |
12,623 |
12,604 |
Net (debt)/cash (including liquid resources) |
|
|
22,414 |
5,576 |
(7,948) |
(20,344) |
(35,363) |
Source: Company reports, Edison Investment Research
|
|
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