Herantis Pharma — Progressing towards proof-of-concept data

Herantis Pharma — Progressing towards proof-of-concept data

Top-line data from Phase I/II asset CDNF in Parkinson’s disease (PD) is expected in H219; positive efficacy/safety data from this ongoing proof-of-concept clinical trial would serve as validation of the research efforts and additionally could crystallise value through partnering opportunities. Recently reported Phase II data from the MedGenesis-sponsored GDNF PD trial has read-across to Herantis’s CDNF trial. The company is planning a directed share issue to a limited number of investors in addition to Herantis’s directors. It is also preparing for a contemplated secondary listing on First North Stockholm. We value Herantis at €47.9m (€9.7/share).

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Written by

Herantis Pharma

Progressing towards proof-of-concept data

FY18 results

Pharma & biotech

6 March 2019

Price

€5.40

Market cap

€27m

Net debt (€m) as of 31 December 2018

3.6

Shares in issue

4.9m

Free float

68.4%

Code

HRTS

Primary exchange

NASDAQ OMX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(8.5)

4.9

(10.0)

Rel (local)

(11.1)

(3.0)

(11.5)

52-week high/low

€7.5

€4.8

Business description

Herantis Pharma is a Finnish innovative biopharmaceutical company focusing on regenerative medicines for unmet needs. Key assets include CDNF for Parkinson’s disease and Lymfactin for breast cancer associated lymphedema.

Next events

CDNF PD Phase I/II data

H219

Lymfactin Phase II data

End 2020

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Dr Sean Conroy

+44 (0)20 3681 2534

Herantis Pharma is a research client of Edison Investment Research Limited

Top-line data from Phase I/II asset CDNF in Parkinson’s disease (PD) is expected in H219; positive efficacy/safety data from this ongoing proof-of-concept clinical trial would serve as validation of the research efforts and additionally could crystallise value through partnering opportunities. Recently reported Phase II data from the MedGenesis-sponsored GDNF PD trial has read-across to Herantis’s CDNF trial. The company is planning a directed share issue to a limited number of investors in addition to Herantis’s directors. It is also preparing for a contemplated secondary listing on First North Stockholm. We value Herantis at €47.9m (€9.7/share).

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

0.0

(2.2)

(0.5)

0.0

N/A

N/A

12/18

0.0

(4.2)

(0.8)

0.0

N/A

N/A

12/19e

0.0

(4.5)

(0.9)

0.0

N/A

N/A

12/20e

0.0

(4.2)

(0.9)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

CDNF for Parkinson’s disease readout expected H219

Herantis is developing CDNF, a neuroprotective factor that is believed to promote neurone survival and could potentially have an effect on motor and non-motor symptoms, in addition to potentially slowing down disease progression in PD. Top-line Phase I/II data is expected in H219. Herantis has in-licensed a next-generation, non-invasive CDNF, which has started early pre-clinical development. The Phase I/II CDNF trial is funded through an EU grant.

Steady progress in Lymfactin development in FY18

Lymfactin is a gene therapy to stimulate lymph vessel growth as a therapy for breast cancer-related associated (BCAL) secondary lymphedema. Herantis initiated the Phase II AdeLE (adenovirus gene therapy for the treatment of lymphedema) for BCAL in H118 and 12-month proof of concept safety and efficacy data are expected by end 2020. If the Phase II trial completes successfully then a Phase III programme in BCAL could initiate in 2021 either by Herantis or a potential development and commercialisation partner.

Financials: Cash runway into H219

R&D expenses increased to €2.1m (FY17: €1.4m) in FY18, reflecting the start of the Lymfactin Phase II in BCAL and preclinical work associated with in-licensed asset non-invasive CDNF. The FY18 net loss was €4.2m (FY17: €2.2m). Herantis’s cash and cash equivalents of €2.2m suggest a cash runway into H119; we forecast additional illustrative financing of €2.5m in FY19. Herantis has announced a planned share issuance to cover its working capital requirements through to the end of 2020.

Valuation: rNPV suggests €47.9m or €9.7/share

Our valuation of €47.9m (or €9.7/share), vs €45.8m (€9.3/share) previously, includes net debt of €3.6m and is based on a risk-adjusted model for CDNF in PD (€4.3/share) and Lymfactin in BCAL (€6.2/share) with no contribution from CDNF for other neurodegenerative diseases.

CDNF: Competitors publish clinical data on GDNF

Herantis is developing its innovative recombinant factor CDNF for the treatment of a range of neurodegenerative conditions. Neuro-trophic/protective factors (such as CDNF, MANF and GDNF) are endogenous secretory proteins that have been shown to have neuroprotective and neurorestorative effects, presenting the opportunity for their use in the treatment of Parkinson’s disease (PD).

CDNF-based therapy is being evaluated by Herantis for its potential neuroprotective and neuro restorative properties in PD. CDNF is a recombinant factor, large molecule-based treatment that is unable to cross the blood brain barrier in its current formulation; it therefore needs to be administered into the exact region of the brain (the putamen) where it can target its effect. CDNF is dosed intracranially once a month (two- to three-hour infusion in the outpatient setting) using an implanted drug delivery device with portal access located behind the patient’s ear. The novel drug delivery system (DDS) being used in the study has been developed by Renishaw, a global metrology company headquartered in the UK.

Recently published data (an original study and open-label extension study) from the MedGenesis-sponsored Phase II trial evaluating intermittent glial cell line-derived neurotrophic factor (GDNF) in PD has important read-across for CDNF despite the trial not reaching its primary efficacy endpoint. The original GDNF study enrolled 41 patients and utilised the same Renishaw DDS that Herantis is using to deliver CDNF. Initially six pilot-stage patients (randomised 2:1 to placebo) were enrolled before 35 additional patients (randomised 1:1 to placebo) were enrolled. Patients received 120ug of GDNF into the putamen every four weeks for 40 weeks. The primary endpoint was the change from baseline to week 40 in the OFF state (defined as motor fluctuations that result in the return of PD symptoms). The key results were as follows:

Mean OFF state motor score decreased by 17.3% +17.6% in the active arm compared to 11.8% + 5.8% in the placebo group, demonstrating no statistically significant difference between treatments.

PET (positron-emission tomography) imaging demonstrated the active arm generated a statistically significant increase in F-DOPA compared with the placebo. Additionally, delivery of GDNF produced a putamen-wide tissue engagement effect, overcoming prior delivery limitations.

GDNF was well tolerated and no drug-related serious adverse events (AEs) were reported.

Three serious AEs were recorded and considered to be related to the device, including two episodes of hypertrophic skin reaction and one occurrence of a possible localised port site infection that was treated with antibiotics. Education in the study population on device maintenance improved as the trial progressed and no intracranial infections occurred during the treatment period.

Hypothesise for why the primary endpoint was not reached include failure of GDNF mechanism of action, low dosing, short study length, drug distribution in the putamen, recruiting patients too late in their disease progression, lag in effect, magnitude of placebo effect and sample size.

In the open-label follow-up, patients in both arms were treated with GDNF for a further 40 weeks. Patients who were treated for 80 weeks with GDNF demonstrated a reduction in mean OFF state motor score by 26.7% +20.7% while patients on placebo for 40 weeks followed by GDNF for 40 weeks demonstrated a reduction in mean OFF state motor score by 27.6% +23.6%.

While the failure of this trial to meet its primary endpoint is disappointing for the sector, Herantis’s ongoing clinical trial with CDNF has some advantages. In pre-clinical models to date including a PD monkey model, CDNF has demonstrated superiority to GDNF (study). As dosing is believed to be a key sensitivity for neuro-trophic/protective factors, we take comfort from the fact that CDNF is being dosed (in the clinical trial) at between approximately three- to 10-fold (300ug to 1200ug) the level GDNF was dosed at. However, we note as the compounds have different MoAs (mechanisms of action), bioavailability and distribution, any direct dosing comparisons should be taken lightly.

Next generation of CDNF in-licensed

Herantis’s cerebral dopamine neuroprotective factor (CDNF) is unable to cross the blood brain barrier (BBB) in its current formulation and needs to be dosed intracranially; in the ongoing clinical study, this is achieved with a novel drug delivery system (DDS). Using such means to deliver CDNF is invasive to patients and carries risks, as demonstrated by the GNDF trial data. Herantis is actively looking to develop a non-invasive way of delivering CDNF.

In July 2018, Herantis in-licensed the global rights from the University of Helsinki for a second generation of CDNF. Publication of the patent covering this next generation of neuroprotective factors highlights the potential for these to be developed into a non-invasive treatment. These smaller proteins are based on recombinant CDNF and MANF (50–80 amino acid C-terminal fragments) and retain the same core pharmacological function, but are capable of crossing the BBB following systemic administration. Importantly, preclinical data (in rats) shows these fragments can be dosed systemically (subcutaneous injection) and have a neurorestorative effect in a motor function model of PD. Furthermore, additional preclinical studies indicate that this next generation of neuroprotective factors might have utility in the treatment of Huntington’s disease and amyotrophic lateral sclerosis (ALS). These newly in-licensed molecules could become important for the longevity of the franchise.

Financials: Cash injection needed to fund beyond 2019

Herantis reported an FY18 net loss of €4.2m (€2.2m in FY17). R&D expenses increased to €2.1m (FY17: €1.4m), reflecting the advancement of the R&D pipeline including the start of the Lymfactin Phase II in BCAL and preclinical work associated with in-licensed asset non-invasive CDNF. We note the majority of funding for the Phase I/II CDNF trial is through an EU grant. Cash burn amounted to €3.7m in FY18 (FY17: €2.6m). In the near term, Herantis will continue to be cash consumptive and operate as a non-revenue generating biotech. Cash and cash equivalents at 31 December 2018 were reported at €2.2m and debt at €5.9m (Business Finland loans). We forecast an FY19 net loss of €4.5m and model a raise of €2.5m (as illustrative debt) in 2019 to fund Herantis. We note management is planning a directed share issue to a limited number of investors and the company's directors, additionally, it is preparing for a contemplated secondary listing on the First North Stockholm marketplace. Herantis has previously been granted R&D loans from Business Finland, of which €1.1m remains to be drawn down; in H118 the company drew down €0.3m. Additionally, the Phase I-II study (TreatER) of CDNF in PD is essentially funded by a grant (Horizon 2020) of €6.0m.

Valuation: €47.9m or €9.7/share

We value Herantis at €47.9m or €9.7/share based on a risk-adjusted NPV analysis, which includes €3.6m net debt at the end of December 2018 and risk-adjusted contributions for CDNF in PD and Lymfactin in BCAL. We have rolled forward our model and updated for net cash but left our operating assumptions unchanged. The breakdown of our NPV valuation, which uses a 12.5% discount rate, is shown in Exhibit 1. As detailed in our Herantis initiation note, we have applied a top-down analysis of the PD and BCAL markets, which form the basis of our sales projections.

Exhibit 1: Valuation breakdown

Product

Indication

Phase

Probability of success

rNPV
(€m)

Per share
(€)

CDNF

Parkinson's disease

I/II

5%

20.9

4.3

Lymfactin

BCAL

II

10%

30.6

6.2

Net debt at 31 December 2018

 

 

 

(3.6)

(0.7)

Valuation

 

 

 

 

47.9

9.7

Source: Edison Investment Research

Exhibit 2: Financial summary

Accounts: IFRS; year end: 31 December; €’000s

 

 

2016

2017

2018

2019e

2020e

INCOME STATEMENT

 

 

 

 

 

 

 

Total revenues

 

 

25

0

0

0

0

Cost of sales

 

 

0

0

0

0

0

Reported gross profit

 

 

25

0

0

0

0

SG&A (expenses)

 

 

(942)

(1,024)

(1,244)

(1,256)

(1,269)

R&D costs

 

 

(27)

0

0

(2,160)

(2,182)

Other (includes exceptionals)

 

 

(2,273)

(1,703)

(2,424)

232

235

Depreciation

 

 

(1,203)

(1,218)

(1,202)

(1,213)

(910)

Adjusted EBIT

 

 

(4,420)

(3,945)

(4,871)

(4,397)

(4,126)

Reported EBIT

 

 

(4,420)

(3,945)

(4,871)

(4,397)

(4,126)

Finance income/ (expense)

 

 

(4)

1,780

691

(60)

(101)

Other income (expense) (includes exceptionals)

 

 

0

0

0

0

0

Adjusted PBT

 

 

(4,425)

(2,165)

(4,180)

(4,457)

(4,227)

Reported PBT

 

 

(4,425)

(2,165)

(4,180)

(4,457)

(4,227)

Income tax expense

 

 

0

0

0

0

0

Adjusted net income

 

 

(4,425)

(2,165)

(4,180)

(4,457)

(4,227)

Reported net income

 

 

(4,425)

(2,165)

(4,180)

(4,457)

(4,227)

Earnings per share

 

 

 

 

 

 

 

Basic EPS (€)

 

 

(1.1)

(0.5)

(0.8)

(0.9)

(0.9)

Diluted EPS (€)

 

 

(1.1)

(0.5)

(0.8)

(0.9)

(0.9)

Adjusted basic EPS (€)

 

 

(1.1)

(0.5)

(0.8)

(0.9)

(0.9)

Adjusted diluted EPS (€)

 

 

(1.1)

(0.5)

(0.8)

(0.9)

(0.9)

Average number of shares - basic (m)

 

 

4.1

4.2

4.9

4.9

0.0

Average number of shares - diluted (m)

 

 

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

 

 

 

 

 

 

 

Property, plant and equipment

 

 

9

7

5

4

3

Goodwill

 

 

0

0

0

0

0

Intangible assets

 

 

6,590

5,663

4,735

3,524

2,616

Other non-current assets

 

 

712

392

118

117

116

Total non-current assets

 

 

7,311

6,061

4,857

3,644

2,734

Cash and equivalents

 

 

2,829

5,402

2,186

1,442

624

Inventories

 

 

0

0

0

0

0

Trade and other receivables

 

 

65

109

105

105

105

Other current assets

0

0

0

0

0

Assets classified for sale

 

 

0

0

0

0

0

Total current assets

 

 

2,895

5,511

2,290

1,546

729

Non-current loans and borrowings

 

 

8,018

6,022

5,878

8,378

10,878

Trade and other payables

 

 

0

0

0

0

0

Other non-current liabilities

 

 

0

0

0

0

0

Total non-current liabilities

 

 

8,018

6,022

5,878

8,378

10,878

Trade and other payables

 

 

186

278

200

200

200

Current loans and borrowings

 

 

103

547

507

507

507

Other current liabilities

 

 

324

634

651

651

651

Liabilities of assets held for sale

 

 

0

0

0

0

0

Total current liabilities

 

 

613

1,460

1,358

1,358

1,358

Equity attributable to company

 

 

1,575

4,090

(89)

(4,546)

(8,774)

Non-controlling interest

 

 

0

0

0

0

0

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Profit before tax

 

 

(4,425)

(2,165)

(4,180)

(4,457)

(4,227)

Depreciation of tangible assets

 

 

1,203

1,218

1,202

1,213

910

Amortisation of intangible assets

 

 

0

0

0

0

0

Share based payments

 

 

(0)

(2,021)

(3)

0

0

Other adjustments

 

 

5

240

(688)

60

101

Movements in working capital

 

 

166

372

(79)

0

0

Net cash from operating activities (pre-tax)

 

 

(3,052)

(2,355)

(3,747)

(3,184)

(3,216)

Interest paid / received

 

 

16

(244)

15

(60)

(101)

Income taxes paid

 

 

0

0

0

0

0

Cash from operations (CFO)

 

 

(3,036)

(2,599)

(3,732)

(3,244)

(3,317)

Capex (includes acquisitions)

 

 

(10)

0

0

0

0

Other investing activities

 

 

(61)

(0)

7

0

0

Cash used in investing activities (CFIA)

 

 

(71)

(0)

7

0

0

Net proceeds from issue of shares

 

 

0

4,680

0

0

0

Movements in debt

 

 

0

0

509

2,500

2,500

Other financing activities

 

 

396

492

0

0

0

Cash from financing activities (CFF)

 

 

396

5,172

509

2,500

2,500

Currency translation differences and other

 

 

0

0

0

0

0

Increase/(decrease) in cash and equivalents

 

 

(2,711)

2,573

(3,216)

(744)

(817)

Cash and equivalents at beginning of period

 

 

5,541

2,829

5,402

2,186

1,442

Cash and equivalents at end of period

 

 

2,829

5,402

2,186

1,442

624

Net (debt) cash

 

 

(5,291)

(1,168)

(4,200)

(7,444)

(10,761)

Movement in net (debt) cash over period

 

 

N/A

4,123

(3,033)

(3,244)

(3,317)

Source: Herantis Pharma accounts, Edison Investment Research

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Research: Healthcare

Laboratorios Farmacéuticos ROVI — Strength in heparins; next up DORIA

Laboratorios Farmacéuticos ROVI has reported strong revenue growth in FY18, with total revenues up 10% (€304.8m) beating guidance for the year. Its low molecular weight heparin (LMWH) franchise consisting of Becat (enoxaparin biosimilar) and flagship drug Hibor (bemiparin) reported sales of €121.5m (+42%). Hibor sales in Spain rose 14.7%, outperforming our 4% expectation. Becat (enoxaparin biosimilar) reported sales of €30.2m; its performance benefitted in 2018 from the ongoing roll-out in several European countries. Gross proceeds of the €88m capital raise will be used partly to fund the acquisition or in-licensing of additional products and sustain R&D efforts; of importance is Phase III DORIA (LA risperidone for schizophrenia) and data are anticipated in Q219. We value ROVI at €1.23bn.

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