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We revisit our estimates for Pharnext following a busy period marked by completion of patient enrolment in the pivotal PREMIER Phase III trial, initiation of the long-term extension study (PREMIER-OLE) and, more importantly, signing a €21m strategic financing deal with Neovacs. This cash infusion, combined with another €26m from available OCEANE-BSA tranches, alleviates the funding overhang and extends the runway into Q124, past the crucial final data readout from the PREMIER trial in Q423. We maintain our outlook for the Phase III study and tweak our estimates for the H122 results and new funding arrangements. Our overall valuation remains largely unchanged at €268.9m, although the ongoing and sizeable dilution remains a risk, leading to a significant downgrade in our per-share valuation to €0.05 (versus €0.41 previously).
Pharnext |
Funding headroom to support PXT3003 progress |
H122 results |
Pharma & biotech |
19 October 2022 |
Share price performance
Business description
Next events
Analysts
Pharnext is a research client of Edison Investment Research Limited |
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We revisit our estimates for Pharnext following a busy period marked by completion of patient enrolment in the pivotal PREMIER Phase III trial, initiation of the long-term extension study (PREMIER-OLE) and, more importantly, signing a €21m strategic financing deal with Neovacs. This cash infusion, combined with another €26m from available OCEANE-BSA tranches, alleviates the funding overhang and extends the runway into Q124, past the crucial final data readout from the PREMIER trial in Q423. We maintain our outlook for the Phase III study and tweak our estimates for the H122 results and new funding arrangements. Our overall valuation remains largely unchanged at €268.9m, although the ongoing and sizeable dilution remains a risk, leading to a significant downgrade in our per-share valuation to €0.05 (versus €0.41 previously).
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
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 |
2.4 |
(31.7) |
(0.01) |
0.00 |
N/A |
N/A |
12/23e |
2.5 |
(30.9) |
(0.01) |
0.00 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
PREMIER extension study a step in the right direction
While completion of the Phase III PREMIER trial in Q423 should be a key inflection event for Pharnext, we note the importance of the ongoing extension studies in building on the data readouts, given the slow and progressive nature of Charcot-Marie-Tooth disease type 1A (CMT1A). The PLEO-CMT-FU study has reported a sustained benefit for patients after five years on the treatment and first patient enrollment in the PREMIER extension study (PREMIER-OLE) in August is another positive development. Data from these studies, if encouraging, should help support Pharnext build a stronger case for regulatory approval, in our opinion.
Improved headroom but dilution remains a risk
A key concern for Pharnext has been accessing adequate funds to progress its clinical programmes given ongoing dilution concerns, further exacerbated by a tight capital market. Under the scenario, we see the deal with Neovacs as a positive development, allowing Pharnext to focus on progressing PXT3003 through crucial Phase III trials. The €21m raised (for a potential 33% stake), along with another €26m available under the OCEANE-BSA agreement, should be sufficient to take Pharnext into Q124, by which time there will be readouts from the PREMIER trial. However, we note that the convertible instruments and warrants attached to these raises imply further dilution for shareholders in the run-up to commercialisation.
Valuation: €268.9m or €0.05 per basic share
We make slight adjustments to our estimates based on the H122 results, forex movements and the latest net debt position. Overall, our valuation remains largely unchanged at €268.9m (from €267.4m), although the continued convertible debt-led dilution results in a significant downgrade to our per-share valuation (€0.05 versus €0.41 previously). We also estimate the need to raise another €3m in FY24.
Financials: H122 results in line with expectations
Pharnext’s H122 results were broadly in line with our expectations. Revenue for the period was c €1.2m, largely attributable to R&D tax credits for its activities in France. The H122 R&D tax credit of €984k was lower than the H121 figure of €1.9m, which the company attributes to lower expenses eligible for this credit during the period. The normalised operating loss was €13.4m, up from €11.2m in H121, but slightly below our estimate due to lower-than-expected R&D expenses (€10.4m versus €99m in H121, our estimate was c €11.5m). The R&D expense accounted for 72% of Pharnext’s operating expenses for the period, which can be attributed to the ongoing pivotal PREMIER Phase III trial. This is typical of a late development-stage biopharma company. We expect this trend to continue in FY22–23 and decline thereafter following the conclusion of the PREMIER study in Q423. Administrative and marketing expenses (€2.9m and €1.2m) for the period were in line with our estimates. We have made minor revisions to our FY22–23 projections based on the H122 performance.
Pharnext ended the period to June 2022 with net debt of €19.7m (€1.2m cash and €20.9m in debt, including €9.6m in repayable advances). During the period, it also repaid the outstanding €8m IPF loan raised in 2018. The company had drawn down the first €3m tranche of the €12m fixed-rate loan from the Alpha Blue Ocean (ABO) group in June 2022, followed by a second €2.5m tranche post period.
Following much-discussed dilution concerns around the June 2021 OCEANE-BSA financing, Pharnext has been seeking to secure non-dilutive sources of financing to alleviate investor concerns. The recently announced €21m deal with Neovacs is strategic in nature (refer to our note for more details), which may see the company take a one-third stake in Pharnext beginning in 2024). Management asserts that cash proceeds from the deal, along with an additional €26m available under the truncated OCEANE-BSA facility, should be sufficient to fund clinical development and operations into Q124, past the crucial Q423 milestone for final readouts from the PREMIER trial. Following repayment of the €5.5m drawn-down portion of the fixed-rate ABO loan and the initial €2.5m fixed-rate loan raised in August from Neovacs, we estimate potential cash proceeds of c €40m available to Pharnext between Q422 and FY23. Assuming successful commercialisation in FY24, we anticipate the need to raise another €3m before reaching break-even.
Accounting for the aforementioned post period raises, we calculate pro forma net debt at €11.9m (incorporating only the amounts drawn down to date from the available facilities).
Valuation
We have updated our valuation to reflect the H122 results, further drawdown of the OCEANE convertible debt tranches and the latest post-period debt raises. Our expectations for the clinical progression and commercialisation of PXT3003 are unchanged and we continue to attribute a 70% probability of success to the asset. Our risk-adjusted net present value (NPV) remains largely unchanged at €268.9m (versus €267.4m previously) as we adjust our operating expense estimates for the forecast years (based on the H121 trend), roll forward our NPV, factor in forex changes and new pro forma net debt. With further OCEANE-BSA tranches having been converted since we last valued the company, the current share count is 5,687m (previously 660m). This results in our per-share valuation coming down to €0.05 versus €0.41 previously. We note that subsequent conversion (expected by late October) of the remaining tranches (10–11) would lead to significant further dilution.
Exhibit 1: Pharnext valuation
Development programme |
Indication |
Clinical stage |
Probability of success |
Launch year |
Patent/exclusivity protection |
Launch pricing (US$/year) |
Peak sales (US$m) |
rNPV |
|
PXT3003 |
CMT1A |
Phase III |
70% |
2024 |
2031–34 |
55,000 |
626 |
280.8 |
|
Total |
280.8 |
||||||||
Net debt at end H122, pro forma adjusted post-period raises (€m) |
11.9 |
||||||||
Total firm value (€m) |
268.9 |
||||||||
Total basic shares (m) |
5,687 |
||||||||
Value per basic share (€) |
0.05 |
||||||||
Source: Pharnext reports, Edison Investment Research
Dilution risk remains an overhang
We reiterate that while the underlying business fundamentals and pipeline potential for Pharnext have not changed over the last year, the convertible funding announced in June 2021 has continued to weigh on the share price and has resulted in significant dilution for shareholders, despite the company’s ongoing mitigation efforts. Of the 11 initial tranches of the OCEANE-BSA convertible debt, Pharnext has fully converted the first nine tranches and we expect the remaining two to be converted in the run-up to the late October deadline following Pharnext’s decision to undertake a share consolidation (refer to our note for more details). We believe that the recent deal with Neovacs and the revised OCEANE-BSA deal (reducing the tranches from 22 to 13) has the potential to reduce the ongoing overhang on the stock, although sizeable dilution is still expected if Pharnext chooses to draw down the convertible debt facility. We expect the company to continue to evaluate non-dilutive sources of funding as an alternative.
Exhibit 2: Financial summary
€000s |
2020 |
2021 |
2022e |
2023e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|
|||||
Revenue |
|
|
2,810.5 |
3,564.8 |
2,400.4 |
2,466.7 |
Cost of Sales |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Profit |
2,810.5 |
3,564.8 |
2,400.4 |
2,466.7 |
||
R&D |
(13,548.4) |
(19,614.0) |
(20,475.9) |
(21,041.1) |
||
Admin & Marketing |
(8,175.6) |
(6,807.6) |
(7,302.2) |
(9,904.5) |
||
EBITDA |
|
|
(18,159.2) |
(22,194.5) |
(25,345.2) |
(28,449.9) |
Operating profit (before amort. and excepts.) |
|
(18,716.5) |
(22,858.9) |
(25,377.7) |
(28,478.9) |
|
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
(197.0) |
2.0 |
0.0 |
0.0 |
||
Reported operating profit |
(18,913.5) |
(22,856.9) |
(25,377.7) |
(28,478.9) |
||
Net Interest |
(2,650.5) |
(7,760.8) |
(6,311.2) |
(2,451.5) |
||
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) |
|
|
(21,367.0) |
(30,619.7) |
(31,688.9) |
(30,930.4) |
Profit Before Tax (reported) |
|
|
(21,564.1) |
(30,617.6) |
(31,688.9) |
(30,930.4) |
Reported tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit After Tax (norm) |
(21,367.0) |
(30,619.7) |
(31,688.9) |
(30,930.4) |
||
Profit After Tax (reported) |
(21,564.1) |
(30,617.6) |
(31,688.9) |
(30,930.4) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(21,367.0) |
(30,619.7) |
(31,688.9) |
(30,930.4) |
||
Net income (reported) |
(21,564.1) |
(30,617.6) |
(31,688.9) |
(30,930.4) |
||
|
||||||
Average Number of Shares Outstanding (m) |
18.2 |
30.4 |
2,909.3 |
5,687.0 |
||
EPS - normalised (c) |
|
|
(117.33) |
(100.67) |
(1.09) |
(0.54) |
EPS - normalised fully diluted (c) |
|
|
(117.33) |
(100.67) |
(1.09) |
(0.54) |
EPS - basic reported (€) |
|
|
(1.18) |
(1.01) |
(0.01) |
(0.01) |
Dividend (€) |
0.00 |
0.00 |
0.00 |
0.00 |
||
|
||||||
BALANCE SHEET |
|
|||||
Fixed Assets |
|
|
855.4 |
906.4 |
874.0 |
845.0 |
Intangible Assets |
7.4 |
0.2 |
0.0 |
0.0 |
||
Tangible Assets |
146.3 |
322.2 |
290.0 |
261.0 |
||
Investments & other |
701.8 |
584.0 |
584.0 |
584.0 |
||
Current Assets |
|
|
20,398.4 |
15,545.2 |
8,721.3 |
5,829.7 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
9,320.2 |
7,577.2 |
5,102.4 |
5,243.2 |
||
Cash & cash equivalents |
11,078.2 |
7,968.0 |
3,618.9 |
586.5 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(15,516.6) |
(19,305.3) |
(15,937.8) |
(16,947.7) |
Creditors |
(11,302.7) |
(8,424.1) |
(8,856.6) |
(9,866.5) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
(3,926.0) |
(8,713.2) |
(4,913.2) |
(4,913.2) |
||
Other |
(287.9) |
(2,168.0) |
(2,168.0) |
(2,168.0) |
||
Long Term Liabilities |
|
|
(18,256.2) |
(15,003.0) |
(33,703.0) |
(60,703.0) |
Long term borrowings |
(17,021.3) |
(13,199.9) |
(31,899.9) |
(58,899.9) |
||
Other long term liabilities |
(1,234.8) |
(1,803.1) |
(1,803.1) |
(1,803.1) |
||
Net Assets |
|
|
(12,519.0) |
(17,856.7) |
(40,045.6) |
(70,976.0) |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
(12,519.0) |
(17,856.7) |
(40,045.6) |
(70,976.0) |
|
||||||
CASH FLOW |
|
|||||
Operating Cash Flow |
(17,962.2) |
(22,196.5) |
(25,345.2) |
(28,449.9) |
||
Working capital |
1,797.7 |
(905.2) |
2,907.4 |
869.1 |
||
Exceptional & other |
82.5 |
(632.9) |
0.0 |
0.0 |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
(16,081.9) |
(23,734.7) |
(22,437.9) |
(27,580.9) |
Capex |
22.0 |
(46.5) |
0.0 |
0.0 |
||
Acquisitions/disposals |
(83.4) |
72.3 |
0.0 |
0.0 |
||
Net interest |
(1,622.2) |
(1,089.0) |
(6,311.2) |
(2,451.5) |
||
Equity financing |
16,271.7 |
32,819.3 |
9,500.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(199.5) |
(4,294.3) |
0.0 |
0.0 |
||
Net Cash Flow |
(1,693.4) |
3,727.2 |
(19,249.1) |
(30,032.4) |
||
Opening net debt/(cash) |
|
|
7,156.0 |
9,869.2 |
13,945.2 |
33,194.3 |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
(1,019.7) |
(7,803.2) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
9,869.2 |
13,945.2 |
33,194.3 |
63,226.7 |
Source: Source: Pharnext reports, Edison Investment Research
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Actinogen Medical is developing its lead asset, small molecule Xanamem, a selective 11β-HSD1 inhibitor designed to cross the blood-brain barrier and target excess brain cortisol, which has been associated with cognitive impairment (CI). Actinogen is targeting two CI indications: for patients with mild CI (MCI) in the early stages of Alzheimer’s disease (AD), and for patients with major depressive disorder (MDD). Positive XanaHES and Phase Ib XanaMIA results in healthy adults demonstrate the drug’s initial efficacy, and a recent analysis of biomarker-positive patients using newly available plasma samples from the previous XanADu study in mild AD also showed clinical activity. Actinogen plans to start the Phase IIb portion on XanaMIA in patients with biomarker-confirmed early AD in H1 CY23. The XanaCIDD proof-of-concept Phase II trial in MDD is also planned to start in Q422. Our valuation is A$651m or A$0.36 per share.
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