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Research: Healthcare
Hepion continues to make progress with the addition of another dose cohort (375mg) to the ongoing CRV431 Phase I clinical trial since dose-limiting side effects were not yet observed at doses up to 300mg. The company also announced preclinical data stating that CRV431 demonstrated anti-fibrotic effects on kidney fibrosis.
Written by
Wiktoria O’Hare
Hepion Pharmaceuticals |
Phase I clinical trial nearing completion |
Earnings update |
Pharma & biotech |
8 July 2020 |
Share price performance
Business description
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Analysts
Hepion Pharmaceuticals is a research client of Edison Investment Research Limited |
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Hepion continues to make progress with the addition of another dose cohort (375mg) to the ongoing CRV431 Phase I clinical trial since dose-limiting side effects were not yet observed at doses up to 300mg. The company also announced preclinical data stating that CRV431 demonstrated anti-fibrotic effects on kidney fibrosis.
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 |
(15.0) |
(1.79) |
0.0 |
N/A |
N/A |
12/21e |
0.0 |
(11.4) |
(1.33) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalized, excluding intangible amortization, exceptional items and share-based payments.
Final dosing cohort commenced
Hepion announced it initiated the final dosing level for CRV431 in its Phase I multiple ascending dose (MAD) study. CRV431 will be administered once daily for 28 days at 375mg to 16 healthy volunteers. Hepion initially planned to complete the study following results from the 300mg level, however, dose-limiting side effects were yet to be observed, which prompted the company to add a final level of 375mg. To date, the dose levels evaluated were 75mg, 150mg, 225mg and 300mg.
Anti-fibrotic preclinical data in renal fibrosis
Hepion reported data from a preclinical study conducted in renal fibrosis stating that CRV431 exhibited anti-fibrotic activity as the treatment group presented with 42% less kidney fibrosis when compared to the control group of mice. It has conducted several preclinical studies assessing CRV431’s anti-fibrotic effects in several samples including human lung tissue as future potential applications are explored.
Preliminary data of CRV431 in COVID-19 setting
Hepion announced preclinical results of CRV431’s potential anti-inflammatory and anti-viral effects relating to COVID-19. It reported cytokine reduction similar to dexamethasone in an acute lung injury model, while CRV431 decreased total inflammatory cell count more effectively than dexamethasone. CRV431 also exhibited viral inhibition in select cell lines by up to 90%, but no further data was released. These early results show merit, but more extensive trials are needed.
Valuation: Lowered to $53.5m or $5.93/basic share
Hepion reported a $4.2m operating loss in Q120. It finished the quarter with $16m in cash and equivalents, and subsequently raised $4.5m through its ‘at-the-market’ equity offerings. We have lowered our valuation to $53.5m or $5.93/basic share ($5.91 diluted), from $56.9m or $6.30/basic share. This movement is driven by lower net cash and increased R&D costs, offset by rolling forward our NPVs. We have not included CRV431’s prospects for COVID-19 in our model given the relatively preliminary stage of the reported preclinical data in this indication.
Clinical and preclinical program progression
Hepion’s Phase I MAD study, which was initiated in August 2019, is nearing completion as the final dose level of 375mg is currently under evaluation. CRV431 has been administered to 16 healthy volunteers for 28 days at 75mg, 150mg, 225mg, and 300mg with no reported dose-limiting side effects and the Clinical Trial Management team deemed all doses were safe and tolerated. While the addition of the 375mg cohort will delay completion of the Phase I study and subsequently push initiation of the Phase II trial past the June 2020 timeline, the added dosing step will help establish CRV431’s safety profile. Hepion noted that the pharmacokinetics of CRV431 observed in this study have demonstrated potentially clinically relevant doses at the 75mg dose level. In the Phase II trial, the company plans to dose subjects at 75mg and Hepion stated that the ‘dosing range captured in this (MAD) study effectively explored clinically relevant exposures’.
Following NASH as the initial indication, Hepion aims to expand the potential applications of CRV431 in other areas which it is exploring via its preclinical program. The preclinical study in renal fibrosis utilized a Unilateral Ureteral Obstruction (UUO) mouse model that involves tying a ureter which backs-up urine flow causing damage to the kidneys resulting in fibrosis. Mice were dosed at 50mg/kg/day for two weeks and the company noted that the treatment group demonstrated 42% lower kidney fibrosis compared to the control group. Hepion believes CRV431 decreases fibrotic scarring in several organs, such as the lungs, heart, and dermis, citing that the inhibition of cyclophilin B reduced extracellular matrix (ECM) molecules, such as collagen and fibronectin, since the over-production of which have been implicated in the fibrosis of injured organs.
On 7 July 2020, Hepion announced preliminary results assessing CRV431’s potential anti-inflammatory and anti-viral effects relating to COVID-19. The first preclinical study evaluated CRV431’s anti-inflammatory effects in acute lung injury in mouse models and the company noted that CRV431 showed a reduction in both white blood cell and cytokine counts. It was reported that cytokine reduction was comparable to dexamethasone, a corticosteroid currently being tested as a treatment for COVID-19, while CRV431 decreased total inflammatory cell count more effectively than dexamethasone. The second preclinical study assessed CRV431’s anti-viral effect in cell lines and Hepion stated that up to 90% inhibition (a 1 log reduction) was observed in select cell lines, but no further data was provided. CRV431 was previously investigated for its anti-viral activity relating to the hepatitis B virus, but it was unclear is there was a mechanistic relationship between the two. While the results are interesting, it is too early to draw any definitive conclusions regarding the potential of CRV431 to be used in the setting of treating COVID-19 infection.
Changes in the competitive landscape
Intercept Pharmaceuticals was a recent casualty in the NASH race as the US Food and Drug Administration (FDA) issued a Complete Response Letter (CRL) declining the company’s NDA for its synthetically modified bile acid, Ocaliva (OCA) for the treatment of NASH. The FDA cited that the risk-benefit profile could not be justified based on the surrogate endpoints from the Phase III REGENERATE study. The use of surrogate endpoints is generally in line with the FDA’s own guidance relating to NASH clinical trials, but that does not seem to be the case in this instance. Intercept reported that the Phase III study met the first primary endpoint of improvement of fibrosis, while the second primary endpoint, resolution of NASH, was not met.1 Of note, 51% of patients taking OCA reported experiencing mild to moderate itching as a side effect with 9% of those individuals stopped take the drug as a result. It was also reported that treatment with OCA was associated with raised low-density lipoprotein (LDL) cholesterol, which in turn raised cardiovascular risk in a patient population that was already at an elevated risk for cardiovascular-associated events. The FDA recommended that Intercept submit additional post-interim analysis data from the ongoing REGENERATE study and for it to continue the long-term outcomes phase of the study.
Eslam M, et al. (2019). Obeticholic Acid for the Treatment of Non-Alcoholic Steatohepatitis: Interim Analysis from a Multicentre, Randomised, Placebo-Controlled Phase 3 Trial. The Lancet 394, 2184-2196.
The regulatory implications of this FDA decision could affect other NASH drugs currently in development as the FDA’s decision on OCA could be a signal that possible changes in NASH endpoints are on the horizon. Intercept had a considerable lead on other competitors and would have been the first NASH-specific drug to market had it been approved. NASH as an indication is difficult to manoeuvre and any additional changes to the regulatory pathway could add more hurdles for companies to overcome. A possible scenario could be that NASH drug candidates would face similar scrutiny as is seen with cardiovascular drugs where outcomes studies are required. While this would demand very large amounts of patients and considerable time to run the studies, an approved NASH-specific drug succeeding in an outcomes study could potentially provide a stronger clinical data set supporting its use to providers and insurers, boosting its marketability. In the case of Hepion, the unfolding scenario may have implications for the late stage development of CRV431, however, we believe the company is more likely to license or partner this drug with a substantial company to run trials of that scope.
Valuation
We have lowered our valuation to $53.5m or $5.93/basic share ($5.91 diluted), from $56.9m or $6.30/basic share. This movement is driven by lower net cash and offset by rolling forward our NPVs along with increased R&D costs. Also, due to the pandemic, we believe strained supply chains may have led to increased costs of CRV431 contributing to higher R&D costs. We have not included CRV431’s prospects for COVID-19 in our model given the relatively preliminary stage of the reported preclinical data in this indication.
Exhibit 1: Valuation
Program |
Market |
Prob. of success |
Launch year |
Peak revenue ($m) |
Valuation ($m) |
CRV431 |
US |
10% |
2026 |
370.8 |
23.71 |
Europe |
10% |
2027 |
373.0 |
19.42 |
|
R&D & milestones |
100% |
(10.18) |
|||
Total |
32.95 |
||||
Net cash and equivalents (Q120 + ATM) |
20.55 |
||||
Total firm value ($m) |
53.50 |
||||
Total basic shares (m) |
9.03 |
||||
Value per basic share ($) |
5.93 |
||||
Convertible preferred stock (m) |
0.02 |
||||
Dilutive options and warrants (m) |
0.0 |
||||
Total diluted shares (m) |
9.1 |
||||
Value per diluted share ($) |
5.91 |
Source: Edison Investment Research
Financials
Hepion reported a loss from operations of $4.2m in Q120, compared to $2.2m in Q419. The company had R&D expenses of $2.6m in Q120, compared to $1.1m in Q419, with the increase due to drug supply costs and clinical study related expenses. Drug supply costs may have increased as a result of the pandemic since pharmaceutical supply chains were strained; however, we do not expect drug supply costs to remain high once supply chains adapt to the current environment. General and administrative costs for the quarter were $1.5m, compared to $1.2m in Q419. Cash and cash equivalents were $16.0m at the quarter end, and subsequently Hepion raised $4.5m through its ‘at-the-market’ equity offerings. R&D costs are expected to remain steady in the coming quarters as the company continues to progress with clinical trials. We forecast R&D expenses to be $9m in 2020, compared to $3.2m in 2019, which includes the completion of the Phase I MAD study and initiation of the Phase II study in 2H 2020. We also expect general and administrative costs to be $6.1m in 2020, as compared to $4.6m in 2019 and forecast an operating cash flow loss of $11.7m in 2020. 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 $11.3m the company has already raised as of 30 April 2020 via an ongoing at-the-market equity facility.
Exhibit 2: Financial summary
$'000 |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
Cost of Sales |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Profit |
0.0 |
0.0 |
0.0 |
0.0 |
||
R&D |
(7,593.7) |
(3,184.1) |
(8,995.6) |
(5,147.3) |
||
SG&A |
(7,000.4) |
(4,586.0) |
(6,105.9) |
(6,289.1) |
||
EBITDA |
|
|
(14,340.9) |
(7,677.2) |
(15,009.2) |
(11,370.2) |
Normalised operating profit |
|
|
(14,359.6) |
(7,703.9) |
(15,035.3) |
(11,370.2) |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
(234.5) |
(66.2) |
(66.2) |
(66.2) |
||
Reported operating profit |
(14,594.2) |
(7,770.1) |
(15,101.5) |
(11,436.3) |
||
Net Interest and financial income |
4,608.9 |
(175.9) |
0.2 |
0.0 |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(9,750.8) |
(7,879.8) |
(15,035.1) |
(11,370.2) |
Profit Before Tax (reported) |
|
|
(9,985.3) |
(7,946.0) |
(15,101.3) |
(11,436.3) |
Reported tax |
536.0 |
1,227.3 |
2,332.5 |
1,766.4 |
||
Profit After Tax (norm) |
(10,274.2) |
(8,832.6) |
(16,940.6) |
(13,275.6) |
||
Profit After Tax (reported) |
(9,449.3) |
(6,718.7) |
(12,768.8) |
(9,669.9) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Deemed Dividend |
(8,451.9) |
(5,442.9) |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(10,274.2) |
(8,832.6) |
(16,940.6) |
(13,275.6) |
||
Net income (reported) |
(17,901.1) |
(12,161.6) |
(12,768.8) |
(9,669.9) |
||
Basic average number of shares outstanding (m) |
0.18 |
20.4 |
9.48 |
9.96 |
||
EPS - basic normalised ($) |
|
|
(55.87) |
(4.32) |
(1.79) |
(1.33) |
EPS - diluted normalised ($) |
|
|
(55.87) |
(4.32) |
(1.79) |
(1.33) |
EPS - basic reported ($) |
|
|
(97.35) |
(5.95) |
(1.35) |
(0.97) |
Dividend (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
5,221.2 |
6,043.9 |
5,943.0 |
5,779.0 |
Intangible Assets |
1,870.9 |
1,870.9 |
1,870.9 |
1,870.9 |
||
Tangible Assets |
32.4 |
57.2 |
28.9 |
28.9 |
||
Investments & other |
3,317.8 |
4,115.9 |
4,043.2 |
3,879.2 |
||
Current Assets |
|
|
2,968.0 |
14,388.7 |
29,771.3 |
19,386.1 |
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 |
28,511.4 |
18,126.2 |
||
Other |
135.6 |
465.7 |
1,259.9 |
1,259.9 |
||
Current Liabilities |
|
|
(2,849.9) |
(1,251.9) |
(3,041.4) |
(2,095.9) |
Creditors |
(748.4) |
(491.6) |
(1,861.8) |
(1,410.0) |
||
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) |
(1,179.6) |
(685.9) |
||
Long Term Liabilities |
|
|
(3,364.3) |
(2,995.1) |
(17,966.6) |
(17,966.6) |
Long term borrowings |
0.0 |
0.0 |
(15,000.2) |
(15,000.2) |
||
Other long term liabilities |
(3,364.3) |
(2,995.1) |
(2,966.4) |
(2,966.4) |
||
Net Assets |
|
|
1,975.1 |
16,185.6 |
14,706.3 |
5,102.6 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
1,975.1 |
16,185.6 |
14,706.3 |
5,102.6 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(14,340.9) |
(7,677.2) |
(15,009.2) |
(11,370.2) |
||
Working capital |
(970.5) |
(754.6) |
853.8 |
(945.5) |
||
Exceptional & other |
(870.7) |
(360.6) |
73.2 |
164.0 |
||
Tax |
536.0 |
1,227.3 |
2,332.5 |
1,766.4 |
||
Net operating cash flow |
|
|
(15,646.0) |
(7,565.1) |
(11,749.7) |
(10,385.2) |
Capex |
0.0 |
(51.5) |
0.0 |
0.0 |
||
Acquisitions/disposals |
900.0 |
0.0 |
0.0 |
0.0 |
||
Net interest |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
12,192.5 |
19,826.5 |
11,290.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(1,000.0) |
(1,119.4) |
48.0 |
0.0 |
||
Net Cash Flow |
(3,553.5) |
11,090.5 |
(411.7) |
(10,385.2) |
||
Opening net debt/(cash) |
|
|
(5,954.0) |
(1,392.5) |
(13,923.0) |
(13,511.3) |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
(1,008.0) |
1,440.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(1,392.5) |
(13,923.0) |
(13,511.3) |
(3,126.1) |
Source: Hepion reports, Edison Investment Research
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Research: Investment Companies
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