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Research: Healthcare
Pharnext held an R&D day on 13 October 2020. It presented an updated vision of the state of Charcot-Marie-Tooth disease (CMT) and the company’s pathway to the approval of PXT3003, its therapy candidate for CMT type 1A, which is entering Phase III studies in Q121. The presentation provided an updated analysis of the planned endpoints of the study, including the primary endpoint of improvement in Overall Neuropathy Limitations Scale (ONLS). Additionally, the company provided an updated clinical plan for the study, which will follow 350 patients for 15 months.
Written by
Pharnext |
R&D day highlights |
Research update |
Pharma & biotech |
20 October 2020 |
Share price performance
Business description
Next events
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Pharnext is a research client of Edison Investment Research Limited |
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Pharnext held an R&D day on 13 October 2020. It presented an updated vision of the state of Charcot-Marie-Tooth disease (CMT) and the company’s pathway to the approval of PXT3003, its therapy candidate for CMT type 1A, which is entering Phase III studies in Q121. The presentation provided an updated analysis of the planned endpoints of the study, including the primary endpoint of improvement in Overall Neuropathy Limitations Scale (ONLS). Additionally, the company provided an updated clinical plan for the study, which will follow 350 patients for 15 months.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
6.8 |
(21.7) |
(1.83) |
0.00 |
N/A |
N/A |
12/19 |
3.6 |
(23.4) |
(1.61) |
0.00 |
N/A |
N/A |
12/20e |
3.2 |
(17.8) |
(0.96) |
0.00 |
N/A |
N/A |
12/21e |
1.8 |
(26.6) |
(1.39) |
0.00 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
A meaningful improvement in CMT symptoms
There are uncertainties over the clinical development and approval of PXT3003 simply because no drug has even been approved for the indication of CMT1A before. One point of uncertainty has been what size treatment effect on the ONLS scale represents a meaningful result. The company previously demonstrated a mean 0.37-point change on the scale (out of 12) in its previous Phase III study. Feedback provided by the key opinion leader (KOL) invited to the presentation, Dr Mario Saporta from the University of Miami, suggests this value is meaningful if it can be replicated in the upcoming study. The disease is progressive and cumulative so even small effects seen over the duration of a clinical trial can become very meaningful if integrated over many years. The KOL also highlighted that small effect measures are not uncommon findings in neurodegenerative disease and drugs have been previously approved under similar circumstances.
Update on the path to the pivotal study
The company also provided an update on its progress in designing the upcoming Phase III pivotal study for PXT3003. The study will enrol 175 patients into each arm (drug and placebo), which will then be followed for 15 months. This is an increase from the previous Phase III (approximately 100 per arm), which will significantly increase the power of the study (to 90% at 20% dropout rate and 0.40-point treatment effect). We assume these details and many others were included in the application the company submitted to the FDA in September for a special protocol assessment (SPA).
Valuation: Increased to €255.6m or €13.31/share
Our valuation has increased to €255.6m or €13.31 per basic share, from €239.5m or €12.48 per basic share previously. This is because we have rolled forward our NPVs and updated net cash (€10.57m).
Evaluating the size of the treatment effect
The primary focus of the R&D day was on CMT1A and Pharnext’s PXT3003 candidate treatment for the disease. The company and the invited presenters provided useful background for understanding the disease and framed the potential impact of PXT3003.
The company invited KOL Dr Mario Saporta from the CMT Center of Excellence at the University of Miami to provide an overview of the current state of the disease and its treatment. He gave an insight from the clinic on how CMT is evaluated and scaled, which affects the design and interpretation of the company’s upcoming Phase III clinical study of PXT3003. He highlighted the differences between the two major rating scales for CMT, the CMTNS scale and the ONLS scale, which we previously outlined in our initiation report. Following feedback from the FDA, Pharnext has selected ONLS as the primary rating scale for its planned pivotal study (although CMTNS is planned to be included as a secondary endpoint), which Dr Saporta supported. He noted the ONLS scale is a more direct measure of functionality, whereas the CMTNS scales require some physiological assessments such as nerve conduction velocity. One factor he noted was that this and other factors make the ONLS scale more ‘COVID-19 compatible’ because they require only a series of functional assessments, which are primarily patient guided and can be performed with limited contact.
A major topic of discussion continued to be how to interpret treatment effects on the ONLS scale. Dr Saporta reiterated the idea that small changes on the ONLS scale correlate with meaningful impacts on the disease. In the company’s previous Phase III clinical study, it demonstrated a mean 0.37-point improvement (out of a 12-point total) over placebo for the high dose formulation of PXT3003 (using the modified statistical analysis plan) and the question is whether this represents a meaningful outcome for patients as well as an approvable result. Dr Saporta highlighted that a one-point change for a patient on this scale represents a major loss of function, such as a patient normally capable of unassisted walking needing a crutch. He highlighted, as the company has previously, that the scale of improvement seen in the previous Phase III study is on the same scale as the degeneration expected over a single year and although this may seem small, the disease effects are cumulative and represent a major loss of function when integrated over a patient’s lifetime (Exhibit 1). Moreover, given the progressive nature of the disease, simply stabilizing the disease may present a meaningful result. This is not a phenomenon specific to CMT1A, but rather a common feature of a number of neurodegenerative diseases that are marked by slowly progressing disability. The presenters highlighted other cases in which drugs for neurodegenerative disease have been approved on the basis of relatively small absolute changes in functional scales, which include Gilenya for relapsing multiple sclerosis, Aricept for Alzheimer’s disease and Rilutek for amyotrophic lateral sclerosis (Exhibit 2).
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Exhibit 1: Clinical progression of CMT1A patients as evaluated by ONLS |
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Source: Pharnext. Note: Extrapolated from Pharnext Phase III results. |
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Exhibit 2: Drugs for neurodegenerative diseases approved on the basis of relatively small but clinically meaningful functional changes |
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Source: Drug prescribing information, via Pharnext |
These factors increase our confidence that the numerical changes in ONLS seen in PXT3003 clinical studies represent a meaningful improvement in patient wellbeing if they can be maintained, and the highlighted drugs approved under similar criteria suggests this interpretation is amenable to the FDA.
Details on upcoming Phase III
The company also gave some details on the upcoming planned Phase III study for PXT3003. The study is planned to initiate in Q121. The company stated in the presentation that it intends to enrol 175 patients per arm (in drug and placebo arms for 350 patients total). This is a significant increase over the previous study, which enrolled approximately 100 patients per arm (across three arms). The company states this is sufficient to provide 90% statistical powering of the study even with a 20% dropout rate (to detect a 0.4-point ONLS change). The power of a study is the predicted true positive rate (or one minus the type II error rate) based on the assumed response. FDA guidance stipulates that powering should be above 80% for pivotal studies (although powering at 90% is common). Patients will be evaluated over 15 months and will have a one-month safety follow-up after the study ends. These parameters are consistent with our expectations and forecasts. Additionally, the company has submitted its application for an SPA to the FDA. The SPA, if accepted, would provide a detailed roadmap to approval and give the criteria by which the drug will be assessed. This would significantly reduce any uncertainty over the regulatory process for the drug, which would be significant given the lack of precedent of such a treatment for CMT. However, even the FDA does not accept the plan in the SPA, the agency typically provides significant feedback. Because of this, the precise parameters of the upcoming clinical study are still subject to potential modification, but the proposed path at this time seem well reasoned. We expect a response from the FDA by November 2020.
Valuation
Our valuation has increased to €255.6m or €13.31 per basic share from €239.5m or €12.48 per basic share because we have rolled forward our NPVs and from updated net cash (€10.57m as reported from a prior estimate of €8.42m). We may update the valuation in the future when the company receives feedback from the FDA on the SPA, which could reduce our uncertainty over the regulatory process.
Exhibit 3: Valuation of Pharnext
Development Program |
Indication |
Clinical stage |
Prob. of success |
Launch year |
Patent/exclusivity protection |
Launch pricing ($/year) |
Peak sales (US$m) |
rNPV (€m) |
PXT3003 |
CMT1A |
Phase III |
60% |
2024 |
2031–34 |
55,000 |
626 |
245.1 |
Total |
245.1 |
|||||||
Net cash (H120) (€m) |
10.57 |
|||||||
Total firm value (€m) |
255.6 |
|||||||
Total basic shares (m) |
19.2 |
|||||||
Value per basic share (€) |
13.31 |
|||||||
Dilutive options and warrants (m) |
5.25 |
|||||||
Total diluted shares (m) |
24.46 |
|||||||
Value per diluted share (€) |
11.81 |
|||||||
Source: Pharnext reports, Edison Investment Research
Financials
The company reported its financial results for H120 on 14 October 14 2020. It had an operational loss of €7.84m for the period, which was consistent with our estimates, and our forecasts for 2020 remain largely unchanged (€14.95m operating loss). The company raised €15.8m through equity issuances during the period: €7.7m through the March private placement (1.8m new shares) and the remaining €8.1m through the exercise of warrants (2.2m new shares). Additionally, the company reported that it has received all of its 2019 research tax credit (€3.17m), which we have included in revenue for the year. It ended the period with €23.7m in cash (€10.6m net cash after removing €13.1m in debt, which excludes €8.6m of repayable advances as discussed in the initiation report). We forecast that the company will need €95m in additional capital, recorded as illustrative debt, which remains unchanged, but we have adjusted the expected schedule to a later period and hence we no longer record a raise in 2020 (€45m in 2021 and €50m in 2022 recorded as illustrative debt).
Exhibit 4: Financial summary
€'k |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
6,829.0 |
3,597.4 |
3,204.9 |
1,759.9 |
Cost of Sales |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Profit |
6,829.0 |
3,597.4 |
3,204.9 |
1,759.9 |
||
R&D |
(17,664.7) |
(15,178.1) |
(9,294.8) |
(16,587.3) |
||
Admin & Marketing |
(7,072.1) |
(8,444.6) |
(8,529.1) |
(8,614.4) |
||
EBITDA |
|
|
(17,754.9) |
(19,501.6) |
(14,499.1) |
(23,334.0) |
Normalised operating profit |
|
|
(18,310.9) |
(20,093.0) |
(14,454.1) |
(23,276.8) |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
403.1 |
67.7 |
(165.0) |
(165.0) |
||
Reported operating profit |
(17,907.8) |
(20,025.3) |
(14,619.1) |
(23,441.8) |
||
Net Interest |
(3,408.8) |
(3,283.9) |
(3,316.7) |
(3,369.1) |
||
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) |
|
|
(21,719.8) |
(23,376.9) |
(17,770.8) |
(26,645.9) |
Profit Before Tax (reported) |
|
|
(21,316.7) |
(23,309.2) |
(17,935.8) |
(26,810.9) |
Reported tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit After Tax (norm) |
(21,719.8) |
(23,376.9) |
(17,770.8) |
(26,645.9) |
||
Profit After Tax (reported) |
(21,316.7) |
(23,309.2) |
(17,935.8) |
(26,810.9) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(21,719.8) |
(23,376.9) |
(17,770.8) |
(26,645.9) |
||
Net income (reported) |
(21,316.7) |
(23,309.2) |
(17,935.8) |
(26,810.9) |
||
Basic average number of shares outstanding (m) |
11.8 |
14.5 |
18.5 |
19.2 |
||
EPS - basic normalised (€) |
|
|
(1.83) |
(1.61) |
(0.96) |
(1.39) |
EPS - diluted normalised (€) |
|
|
(1.83) |
(1.61) |
(0.96) |
(1.39) |
EPS - basic reported (€) |
|
|
(1.80) |
(1.61) |
(0.97) |
(1.40) |
Dividend (€) |
0.00 |
0.00 |
0.00 |
0.00 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
1,333.7 |
1,526.5 |
1,247.0 |
1,139.3 |
Intangible Assets |
32.3 |
12.1 |
0.0 |
0.0 |
||
Tangible Assets |
401.0 |
293.2 |
185.4 |
77.6 |
||
Investments & other |
900.5 |
1,221.2 |
1,061.6 |
1,061.6 |
||
Current Assets |
|
|
29,663.9 |
21,645.1 |
16,979.4 |
37,263.5 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
0.0 |
0.0 |
526.8 |
289.3 |
||
Cash & cash equivalents |
22,761.4 |
16,246.6 |
11,054.1 |
31,575.7 |
||
Other |
6,902.5 |
5,398.5 |
5,398.5 |
5,398.5 |
||
Current Liabilities |
|
|
(9,361.8) |
(9,959.6) |
(8,144.2) |
(9,966.4) |
Creditors |
(9,173.7) |
(5,792.7) |
(4,324.7) |
(6,146.8) |
||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
0.0 |
(3,806.3) |
(3,480.6) |
(3,480.6) |
||
Other |
(188.1) |
(360.5) |
(338.9) |
(338.9) |
||
Long Term Liabilities |
|
|
(47,981.3) |
(20,457.9) |
(19,334.3) |
(64,334.3) |
Long term borrowings |
(38,772.8) |
(11,181.4) |
(9,532.1) |
(54,532.1) |
||
Other long term liabilities |
(9,208.5) |
(9,276.6) |
(9,802.2) |
(9,802.2) |
||
Net Assets |
|
|
(26,345.4) |
(7,245.9) |
(9,252.0) |
(35,897.9) |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
(26,345.4) |
(7,245.9) |
(9,252.0) |
(35,897.9) |
CASH FLOW |
0 |
|||||
Op Cash Flow before WC and tax |
(18,158.0) |
(19,569.3) |
(14,334.1) |
(23,169.0) |
||
Working capital |
2,532.2 |
(1,523.1) |
(1,331.3) |
2,059.7 |
||
Exceptional & other |
(285.2) |
(476.0) |
0.0 |
0.0 |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
(15,911.1) |
(21,568.4) |
(15,665.4) |
(21,109.3) |
Capex |
0.0 |
0.0 |
0.0 |
0.0 |
||
Acquisitions/disposals |
(401.5) |
193.5 |
0.0 |
0.0 |
||
Net interest |
(1,827.2) |
(1,412.9) |
(3,316.7) |
(3,369.1) |
||
Equity financing |
6,110.1 |
16,494.9 |
15,764.7 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(1,267.5) |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
(13,297.3) |
(6,292.9) |
(3,217.5) |
(24,478.4) |
||
Opening net debt/(cash) |
|
|
2,714.1 |
16,011.4 |
(1,258.8) |
1,958.7 |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
23,563.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
16,011.4 |
(1,258.8) |
1,958.7 |
26,437.1 |
Source: Pharnext reports, Edison Investment Research
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Research: Financials
SGT German Private Equity (SGT, formerly German Startups Group, GSG) reported a minor €0.2m net loss in H120, following the deconsolidation of Exozet in FY19. The company is currently in a merger process with a private equity asset manager SGT Capital. Meanwhile, as at end-June 2020, SGT’s main operations covered a portfolio of 22 minority stakes in non-listed entities, which is expected to gradually wind down. Recently SGT announced the disposal of its Fiagon stake at a 2.0x exit multiple.