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Research: Healthcare
Hepion reported a loss from operations of $4.8m in Q220, compared to $4.2m in Q120, along with R&D costs of $3.0m, compared to $2.6m in Q120. We believe strained pharmaceutical supply chains as a result of the pandemic have contributed to the increase in drug supply costs that pushed R&D expenses higher for a second consecutive quarter. As such, we have increased our FY20 R&D forecast from $9m to $10.3m.
Written by
Hepion Pharmaceuticals |
Increased operating expenses |
Earnings update |
Pharma & biotech |
21 August 2020 |
Share price performance
Business description
Next events
Analysts
Hepion Pharmaceuticals is a research client of Edison Investment Research Limited |
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Hepion reported a loss from operations of $4.8m in Q220, compared to $4.2m in Q120, along with R&D costs of $3.0m, compared to $2.6m in Q120. We believe strained pharmaceutical supply chains as a result of the pandemic have contributed to the increase in drug supply costs that pushed R&D expenses higher for a second consecutive quarter. As such, we have increased our FY20 R&D forecast from $9m to $10.3m.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
0.0 |
(9.8) |
(55.87) |
0.0 |
N/A |
N/A |
12/19 |
0.0 |
(7.9) |
(4.32) |
0.0 |
N/A |
N/A |
12/20e |
0.0 |
(16.2) |
(1.91) |
0.0 |
N/A |
N/A |
12/21e |
0.0 |
(12.4) |
(1.44) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortization of acquired intangibles, exceptional items and share-based payments.
Clinical program moving along
Hepion progressed to the next phase of its clinical program on 5 August 2020 with the initiation of its Phase IIa pilot study AMBITION. The primary endpoint is to assess the safety and tolerability of CRV431 at a 75mg dose, while the company will also gather data on a range of biomarkers to assess if the drug has meaningful clinical activity before moving into larger clinical trials. Study data are expected in Q420. Meanwhile, on 29 June 2020, Hepion announced it had commenced the final dose level of 375mg in the Phase Ib multiple ascending dose study. The study is expected to conclude in Q320, with data in the same quarter.
Increased R&D spending
Hepion reported a loss from operations of $4.8m in Q220, compared to $4.2m in Q120, while R&D expenses were $3.0m, compared to $2.6m in Q120. As in Q120, the company cited increased drug supply costs as contributing to this quarter’s R&D costs, which we believe is a result of strained pharmaceutical supply chains due to the ongoing pandemic. We have increased our 2020 R&D expense estimate from $9m to $10.3m, which includes the Phase Ib and Phase IIa studies. We also increased our 2020 G&A expense forecast from $6.1m to $6.9m.
Valuation: Lowered to $52.5m or $5.82/basic share
Cash and equivalents were $17.4m at quarter end, compared to $16.0m in Q120. The company had about $4.6m in positive financing cash flows in Q220, much of which was related to the at-the-market equity facility (with $11.2m raised year-to-date). We have lowered our valuation slightly to $52.5m or $5.82/basic share ($5.80 diluted), from $53.5m or $5.93/basic share, previously. This movement is driven by lower net cash and increases in our R&D cost assumptions, offset by rolling forward our NPVs. We continue to the expect the company will need $115m in additional capital to complete development of CRV431, which is recorded as illustrative debt amounting to $15m in 2020, $50m in 2023 and $50m in 2025.
Financials
Hepion reported a loss from operations of $4.8m in Q220, compared to $4.2m in Q120. The company had R&D expenses of $3.0m, compared to $2.6m in Q120, with the increase mainly due to drug supply costs and clinical study related expenses (relating to the Phase Ib study and for the initiation of the Phase IIa trial). The company stated that drug supply costs contributed to increased R&D expenses in both Q120 and Q220, but did not provide additional details as to why drug costs had increased. We believe drug supply costs may have increased as a result of the pandemic since pharmaceutical supply chains have been strained and we expect drug supply costs to remain at the current level until year end. General and administrative costs for the quarter were $1.8m, compared to $1.5m in Q120, while cash and cash equivalents were $17.4m at quarter end, compared to $16.0m in Q120; the company had about $4.6m in positive financing cash flows in Q220, much of which was related to the at-the-market equity facility described below.
We expect R&D costs to remain steady in the coming quarters as the company continues to progress with the ongoing Phase IIa clinical trial, with no additional planned clinical trial activity for the rest of the year. We have slightly increased our forecasted R&D expenses from $9m to $10.3m in 2020, which includes the Phase Ib and Phase IIa studies. We have also increased our forecasted general and administrative costs from $6.1m to $6.9m in 2020. We expect the operating cash flow loss to be $11.6m in 2020, which is a minor change from our prior forecast of a $11.7m outflow.
We continue to expect the company will need $115m in additional capital to complete development of CRV431, which is recorded as illustrative debt amounting to $15m in 2020, $50m in 2023 and $50m in 2025. The $15m in 2020 is in addition to the $11.2m in net proceeds the company has already raised year-to-date via an ongoing at-the-market equity facility. Under the Sales Agreement, a total of 5.3m shares were sold as of 30 June 2020.
Valuation
We have lowered our valuation to $52.5m or $5.82/basic share ($5.80 diluted), from $53.5m or $5.93/basic share, previously. This movement is driven by lower net cash ($17.4m at 30 June 2020, compared to our prior $20.6m pro-forma Q120 net cash measure inclusive of post-Q1 ATM proceeds) and increasing our R&D cost assumptions, offset by rolling forward our NPVs.
Exhibit 1: Valuation
Program |
Market |
Prob. of success |
Launch Year |
Peak Revenue ($m) |
Valuation ($m) |
|||||||||
CRV431 |
US |
10% |
2026 |
370.8 |
24.42 |
|||||||||
Europe |
10% |
2027 |
373.0 |
20.00 |
||||||||||
R&D & milestones |
100% |
(9.31) |
||||||||||||
Total |
35.12 |
|||||||||||||
Net cash and equivalents (Q220) |
17.39 |
|||||||||||||
Total firm value ($m) |
52.50 |
|||||||||||||
Total basic shares (m) |
9.03 |
|||||||||||||
Value per basic share ($) |
5.82 |
|||||||||||||
Convertible preferred stock (m) |
0.02 |
|||||||||||||
Dilutive options and warrants (m) |
0.0 |
|||||||||||||
Total diluted shares (m) |
9.1 |
|||||||||||||
Value per diluted share ($) |
5.80 |
|||||||||||||
Source: Edison Investment Research
Exhibit 2: Financial summary
$'000 |
2018 |
2019 |
2020e |
2021e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
Cost of Sales |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Profit |
0.0 |
0.0 |
0.0 |
0.0 |
||
R&D |
(7,593.7) |
(3,184.1) |
(10,295.6) |
(6,477.3) |
||
SG&A |
(7,000.4) |
(4,586.0) |
(6,886.5) |
(7,093.1) |
||
EBITDA |
|
|
(14,340.9) |
(7,677.2) |
(15,961.9) |
(12,378.3) |
Normalised operating profit |
|
|
(14,359.6) |
(7,703.9) |
(15,990.0) |
(12,378.3) |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
(234.5) |
(66.2) |
(1,192.1) |
(1,192.1) |
||
Reported operating profit |
(14,594.2) |
(7,770.1) |
(17,182.1) |
(13,570.3) |
||
Net Interest and financial income |
4,608.9 |
(175.9) |
(217.6) |
0.0 |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(9,750.8) |
(7,879.8) |
(16,207.5) |
(12,378.3) |
Profit Before Tax (reported) |
|
|
(9,985.3) |
(7,946.0) |
(17,399.6) |
(13,570.3) |
Reported tax |
536.0 |
1,227.3 |
2,687.5 |
2,096.0 |
||
Profit After Tax (norm) |
(10,274.2) |
(8,832.6) |
(18,113.0) |
(14,283.7) |
||
Profit After Tax (reported) |
(9,449.3) |
(6,718.7) |
(14,712.1) |
(11,474.3) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Deemed Dividend |
(8,451.9) |
(5,442.9) |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(10,274.2) |
(8,832.6) |
(18,113.0) |
(14,283.7) |
||
Net income (reported) |
(17,901.1) |
(12,161.6) |
(14,712.1) |
(11,474.3) |
||
Basic average number of shares outstanding (m) |
184 |
2,043 |
9,476 |
9,950 |
||
EPS - basic normalised ($) |
|
|
(55.87) |
(4.32) |
(1.91) |
(1.44) |
EPS - diluted normalised ($) |
|
|
(55.87) |
(4.32) |
(1.91) |
(1.44) |
EPS - basic reported ($) |
|
|
(97.35) |
(5.95) |
(1.55) |
(1.15) |
Dividend ($) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
5,221.2 |
6,043.9 |
5,923.2 |
5,759.2 |
Intangible Assets |
1,870.9 |
1,870.9 |
1,870.9 |
1,870.9 |
||
Tangible Assets |
32.4 |
57.2 |
61.1 |
61.1 |
||
Investments & other |
3,317.8 |
4,115.9 |
3,991.1 |
3,827.1 |
||
Current Assets |
|
|
2,968.0 |
14,388.7 |
29,349.3 |
17,630.6 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
0.0 |
0.0 |
0.0 |
0.0 |
||
Cash & cash equivalents |
2,832.4 |
13,923.0 |
28,742.2 |
17,023.5 |
||
Other |
135.6 |
465.7 |
607.1 |
607.1 |
||
Current Liabilities |
|
|
(2,849.9) |
(1,251.9) |
(3,548.1) |
(1,947.7) |
Creditors |
(748.4) |
(491.6) |
(1,917.4) |
(1,673.1) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
(1,440.0) |
0.0 |
0.0 |
0.0 |
||
Other |
(661.4) |
(760.3) |
(1,630.8) |
(274.6) |
||
Long Term Liabilities |
|
|
(3,364.3) |
(2,995.1) |
(18,188.4) |
(18,188.4) |
Long term borrowings |
0.0 |
0.0 |
(15,176.6) |
(15,176.6) |
||
Other long term liabilities |
(3,364.3) |
(2,995.1) |
(3,011.8) |
(3,011.8) |
||
Net Assets |
|
|
1,975.1 |
16,185.6 |
13,535.9 |
3,253.7 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
1,975.1 |
16,185.6 |
13,535.9 |
3,253.7 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(14,340.9) |
(7,677.2) |
(15,961.9) |
(12,378.3) |
||
Working capital |
(970.5) |
(754.6) |
1,797.0 |
(1,600.5) |
||
Exceptional & other |
(870.7) |
(360.6) |
(108.8) |
164.0 |
||
Tax |
536.0 |
1,227.3 |
2,687.5 |
2,096.0 |
||
Net operating cash flow |
|
|
(15,646.0) |
(7,565.1) |
(11,586.1) |
(11,718.7) |
Capex |
0.0 |
(51.5) |
(34.3) |
0.0 |
||
Acquisitions/disposals |
0.9 |
0.0 |
2.2 |
0.0 |
||
Net interest |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
12,192.5 |
19,826.5 |
11,260.8 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(1,000.0) |
(1,119.4) |
0.0 |
0.0 |
||
Net Cash Flow |
(4,452.6) |
11,090.5 |
(357.4) |
(11,718.7) |
||
Opening net debt/(cash) |
|
|
(5,954.0) |
(1,392.4) |
(13,922.9) |
(13,565.6) |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
(109.0) |
1,440.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(1,392.4) |
(13,922.9) |
(13,565.6) |
(1,846.9) |
Source: Hepion reports, Edison Investment Research
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Research: Healthcare
BioPorto reported a major increase in Q220 sales for the NGAL research use only (RUO) test, to DKK5.0m, up from DKK3.8m in Q219. This is the single highest quarter for NGAL RUO sales, and uptake in the US has been especially strong, up 95% y-o-y. Sales for the company’s other products were down (DKK1.7m, from DKK4.0m in Q219) reflecting the company’s shift in focus to NGAL. Although RUO NGAL sales remain relatively small, they represent the beachhead for the eventual launch of the FDA-cleared NGAL Test, which we expect to have first commercial sales in 2021.