Pharnext — R&D day highlights

Pharnext (PAR: ALPHA)

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Research: Healthcare

Pharnext — R&D day highlights

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.

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Written by

Healthcare

Pharnext

R&D day highlights

Research update

Pharma & biotech

20 October 2020

Price

€3.06

Market cap

€59m

€0.85/US$

Net cash (€m) at 30 June 2020

10.57

Shares in issue

19.2m

Free float

41%

Code

ALPHA

Primary exchange

Euronext Paris

Secondary exchange

OTC Pink

Share price performance

%

1m

3m

12m

Abs

(8.3)

(14.4)

(30.7)

Rel (local)

(7.5)

(12.6)

(21.1)

52-week high/low

€6.46

€2.75

Business description

Pharnext is developing new therapies for neurological disorders using its proprietary Pleotherapy platform that unearths new therapeutic effects from drug combinations. Its lead program is PXT3003 for Charcot-Marie-Tooth disease, which is entering Phase III. It also has PXT864 for Alzheimer’s disease, which has completed Phase IIa.

Next events

FDA SPA response

Q420

Phase III initiation

Q121

Analyst

Nathaniel Calloway

+1 646 653 7036

Pharnext is a research client of Edison Investment Research Limited

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*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

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).

Exhibit 1: Clinical progression of CMT1A patients as evaluated by ONLS

Source: Pharnext. Note: Extrapolated from Pharnext Phase III results.

Exhibit 2: Drugs for neurodegenerative diseases approved on the basis of relatively small but clinically meaningful functional changes

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


General disclaimer and copyright

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 £49,500 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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Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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London, WC1V 7EE

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3rd Floor, New York, NY 10036

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General disclaimer and copyright

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 £49,500 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.

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 2020 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

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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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SGT German Private Equity — New name, new business, new shareholder

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.

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