Pharnext — Funding headroom to support PXT3003 progress

Pharnext (PAR: ALPHA)

Last close As at 24/02/2024

EUR0.10

0.03 (42.86%)

Market capitalisation

EUR1m

More on this equity

Pharnext — Funding headroom to support PXT3003 progress

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).

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Pharnext

Funding headroom to support PXT3003 progress

H122 results

Pharma & biotech

19 October 2022

Price

€0.0003

Market cap

€1.7m

US$:€1.03

Pro forma net debt (€m) at 18 October 2022

11.9

Shares in issue

5,687m

Free float

51%

Code

ALPHA

Primary exchange

Euronext Paris

Secondary exchange

OTC Pink

Share price performance

%

1m

3m

12m

Abs

(50.0)

(83.3)

(99.9)

Rel (local)

(49.7)

(83.1)

(99.9)

52-week high/low

€0.3

€0.0

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. 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

Soo Romanoff

+44 (0)20 3077 5700

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Pharnext is a research client of Edison Investment Research Limited

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*
(€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

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
(€m)

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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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 £60,000 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.

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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 £60,000 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.

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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 2022 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

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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.

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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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Actinogen Medical — Cognitive enhancer targeting key diseases

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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