Hepion Pharmaceuticals — Phase I clinical trial nearing completion

Hepion Pharmaceuticals (US: HEPA)

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Research: Healthcare

Hepion Pharmaceuticals — Phase I clinical trial nearing completion

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.

Healthcare

Hepion Pharmaceuticals

Phase I clinical trial nearing completion

Earnings update

Pharma & biotech

8 July 2020

Price

$4.12

Market cap

$37m

Net cash ($m) at 31 March 2020 + ATM

20.55

Shares in issue

9.03m

Free float

99.46%

Code

HEPA

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

93.4

155.9

6.5

Rel (local)

96.4

116.4

1.2

52-week high/low

$6.99

$1.15

Business description

Hepion Pharmaceuticals is a clinical stage biopharmaceutical company focused on developing therapeutics for chronic liver disease. The company’s lead asset is CRV431, a cyclophilin inhibitor being developed for the treatment of non-alcoholic steatohepatitis.

Next events

Data from Phase I dosing study

Q320

Initiate Phase IIa NASH pilot study

H220

Analysts

Nathaniel Calloway

+1 646 653 7036

Wiktoria O’Hare

+1 646 653 7028

Hepion Pharmaceuticals is a research client of Edison Investment Research Limited

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*
($m)

EPS*
($)

DPS
($)

P/E
(x)

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

General disclaimer and copyright

This report has been commissioned by Hepion Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Hepion Pharmaceuticals. 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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General disclaimer and copyright

This report has been commissioned by Hepion Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Hepion Pharmaceuticals. 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).

Australia

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.

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HgCapital Trust — Resilience from tech and services focus

HgCapital Trust’s (HGT) 12-month NAV TR to end-March 2020 was a solid 13.8% despite the COVID-19 market downturn in March 2020 (ytd NAV performance since end-December 2019 was a 6.2% decline). The coverage ratio reached a historically low level (13% vs three-year average of 53%) after HGT notably increased its investment activity and commitments in Q120. However, a significant part of these new commitments will not be drawn in the near term. The board continues to review its future funding arrangements and may also opt out of a new investment without penalty across all funds. HGT’s portfolio focus is on the resilient software and technology sector and the manager expects a limited direct earnings impact on its portfolio from the COVID-19 pandemic.

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