Pharma Equity Group (“PEG” or “the Company”) published its Q3 report for 2024 on the 15^th of November 2024. The following are key events that we have chosen to highlight in the report:

• Patent Protection in Japan (RNX-051)
• Solid Cost Control
• Receivable from Portinho S.A. – Valued at DKK 58m
• Directed Share Issue Strengthens the Balance Sheet

Obtained Patent Protection in Japan for RNX-051

Following the end of the third quarter, the Company’s subsidiary Reponex obtained patent protection in Japan for the treatment of colorectal cancer with RNX-051, valid until 2039. The granting of a patent covering the Japanese market is a significant milestone for Reponex, which has now obtained patent protection for the RNX-051 treatment method in both Europe and Japan – two of the Company’s primary focus markets. Analyst Group assess that the patent protection is an important milestone, given that the patent not only offers legal protection for the Company’s drug candidate but also strengthens PEG’s position as a valuable asset in negotiations with prospective licensing partners.

Robust Cost Control

During Q3-24, the Company’s operating costs totaled approx. DKK 5.2m (5.7), a decrease of -8% Y-Y and an increase of 5% Q-Q. Breaking down the OPEX more in detail, it’s evident that the R&D costs have decreased by -29% Y-Y and -3% Q-Q, while the administrative costs have witnessed a Y-Y increase of 8%,  and a sequential increase of 10% Q-Q. Hence, PEG demonstrates a solid cost control Y-Y, and the increased cost base Q-Q is in line with the Company’s maintained guidance for the full year 2024, with EBT expected to be in the range of DKK -24 to -29m (excl. potential gains/losses related to the Portinho receivable).

Receivable from Portinho S.A.

At the end of Q3-24, the receivable from Portinho S.A. was valued at DKK 58m on the balance sheet, similar to the end of the previous quarter. As commented in previous reports, PEG filed a summons with the Maritime and Commercial High Court against Portinho S.A. for the recovery of the receivable of EUR 9.55m plus interest in Q2-24. Analyst Group has excluded the receivable from PEG’s valuation, considering it as an option. If successfully redeemed, this could play a crucial role in supporting the Company’s financial stability and adding further upside to the Company’s valuation, serving as a trigger ahead.

Directed Share Issue Strengthens the Financial Position

After the end of the third quarter, PEG issued 204,592,776 new shares in a directed issue, with gross cash proceeds of approx. DKK 51.1m, including the conversion of convertible debt of approx. DKK 12.6m. Given that the conversion of convertible debt does not involve an actual cash inflow, DKK 38.5m was received in cash. PEG used DKK 25.8m to reduce financial debt and strengthen the balance sheet, thereby resulting in a net cash proceed of DKK 12.7m following the rights issue.  The subscription price was DKK 0.25 per share, which corresponded to a premium of approx. 19% in relation to the closing price of the previous trading day, DKK 0.21 on October 3^rd. Through the capital increase, the Company achieves a strengthened and more robust capital structure, including an enhanced capital base.

PEG has shown an operational burn rate of approx. DKK -4.5m (-2.7) during Q3-24, equivalent to DKK -1.5m/month, marking an increase from the previous quarter’s monthly burn rate of DKK -1.3m. The increased burn rate stems from a somewhat higher cost base, a natural step as PEG progresses in development, taking further steps towards lucrative licensing agreements. Although PEG reports a slightly increased burn rate, Analyst Group believes PEG manages the operational cost on a good level. With the reported cash balance at the end of Q3-24 (DKK 3.8m), net cash proceeds of DKK 12.7m and a reduced debt burden following the capital raise in October, PEG’s enhanced balance sheet creates more financial flexibility, a key pillar to pursue potential licensing agreements and continue with clinical development.

In summary, the directed share issue was a crucial milestone for PEG, ensuring the continuation of the promising development of the Company’s drug candidates. It also allows PEG to expedite the transition from early discussions with potential licensing partners to formal commercial agreements, which could significantly drive value in the future. Furthermore, we regard the terms of the share issue as highly favorable, particularly the 19% premium on the subscription price, which demonstrates strong confidence from the investors involved in the capital raise. With a strengthened financial position, solid cost control and patent obtained in a key market, PEG has a robust foundation for further clinical progress for the Company’s strong pipeline of candidates.

We will return with an updated equity research report of PEG.

Pharma Equity Group (“PEG” or “the Company”) announced on Wednesday, October the 23^rd, that the Company’s subsidiary Reponex Pharmaceuticals A/S (“Reponex”) has obtained patent protection in Japan for the treatment of colorectal cancer with RNX-051, valid until 2039.

The granting of a patent covering the Japanese market is a significant milestone for Reponex, which has now obtained patent protection for the RNX-051 treatment method in both Europe and Japan – two of the Company’s primary focus markets. Patent protection is seen as a key value driver and a crucial parameter in the future negotiations on the conditions for a potential license agreement.

Colorectal cancer is a significant public health problem in Japan, with both incidence and prevalence increasing in recent decades. It’s the most common cancer type in Japan, driven by an aging population, lifestyle changes, including changes in dietary habits, such as increased consumption of red meat and processed foods, as well as limited physical activity.

”We are very pleased that the Japan Patent Office has granted a patent for our innovative treatment method covering the Japanese market, which will thus be included as a significant positive parameter in our investment rationale of continued clinical development and our dialogue with future license partners,” says Thomas Kaas Selsø, CEO of PEG.

Internationally, there is increasing scientific recognition of the link between the presence of biofilms and the development of colorectal cancer. The biofilm has a major negative impact on the immune system’s ability to detect and fight cancer cells. To give a deeper context, PEG announced positive final results from the Phase II clinical proof-of-concept trial of the drug candidate RNX-051 in Q2-24. In connection to receiving the positive results, Reponex’s management concluded that its patented medicinal product RNX-051 appears to be highly effective for its intended purpose, and just a single local application drastically reduces tumor-associated biofilm. Additionally, a single local application can even totally eliminate the cancer-promoting Fusobacterium nucleatum in the tumor one week after the treatment.

Analyst Group’s view of the obtained patent

“Analyst Group views the approval of the patent application as a significant milestone in PEG’s IP and out-licensing strategy. The patent not only offers legal protection for the Company’s drug candidate but also strengthens PEG’s position as a valuable asset in negotiations with prospective licensing partners.

The colorectal cancer market was valued at USD 19bn in 2022 and is estimated to witness a 4.0% CAGR from 2022 to 2030, reaching USD 26bn by 2030.¹ In the year 2020, approximately 12.7% of new cancer diagnoses and 12.4% of cancer-related deaths were attributed to colorectal cancer in EU-27 countries – this positioning marks it as the second most prevalent cancer, following breast cancer, and the second leading cause of cancer-related mortality, after lung cancer.² Hence, the need of new innovative treatment methods in regards to colorectal cancer can be included in effective cancer treatment is more urgent than ever.

In summary, the indication area targeted by RNX-051 presents immense potential, offering PEG a substantial market share opportunity. A granted patent not only strengthens PEG’s IP portfolio but also opens doors to strategic partnerships, potential royalty streams, and consequently, profitability.”

Analyst Group’s View of Pharma Equity Group

Pharma Equity Group (“PEG” or “the Company”), through the Company’s subsidiary, Reponex, employs a drug repositioning strategy, which involves finding new uses for active substances used in previous recognized treatments, thus allowing the Company to circumvent phase I trials. PEG has a pipeline of six candidates in Phase II, targeting therapeutic areas such as Peritonitis, Chronic Wounds, IBD, and Colorectal Cancer, where there is currently no adequate treatment. The business strategy involves out-licensing the programs after Phase II to a pharma company capable of bringing the drugs to the market. PEG’s strategy enables a capital-light and highly scalable business model, offering a shorter route to market with equivalent upside potential, yet mitigating the typical risks associated with the pharmaceutical industry.

¹https://www.databridgemarketresearch.com/reports/global-colorectal-cancer-treatment-market

²https://ecis.jrc.ec.europa.eu/sites/default/files/2023-12/Colorectal_cancer_en-Mar_2021.pdf

Pharma Equity Group (“PEG” or “the Company”) announced on Friday, October 4^th, that the Company’s board of directors has resolved to issue 204,592,776 new shares in a directed issue, with expected gross cash proceeds of approx. DKK 51.1m, including the conversion of convertible debt of approx. DKK 12.6m. As a result, the expected net cash proceeds are approx. DKK 38.5m before issue costs, given that the conversion of convertible debt does not involve an actual cash inflow. The subscription price is DKK 0.25 per share, which corresponds to a premium of approx. 19% in relation to the closing price of DKK 0.21 on October 3^rd, and the new shares are subscribed by a limited group of new investors and existing shareholders. The dilutive effect following the issuance of new shares amounts to approx. 17% for existing shareholders. Through the capital increase, the Company achieves a strengthened and more robust capital structure, including an enhanced capital base.

Analyst Group’s View of the Capital Increase

“We view the directed issue as a highly positive sign, as it strengthens PEG’s balance sheet substantially, thereby creating financial flexibility and more room for pursuing the development of the Company’s drug candidates. What stands out in particular is that the issue is being conducted at a 19% premium compared to the closing price on October 3^rd, which is uncommon in the current market climate and sends a strong signal, as it indicates robust confidence in PEG’s future by the investors participating in the directed issue.

With gross cash proceeds of approx. DKK 51.1m, of which approx. DKK 12.6m stems from the conversion of convertible debt, PEG not only reduces the debt substantially but also has net cash proceeds of approximately DKK 38.5 million before issue costs, resulting in an enhanced financial position and a stronger balance sheet. Considering PEG’s total debt at the end of Q2-24, which amounted to approx. DKK 43.5m, the Company could potentially, with the gross proceeds of approx. DKK 51.1m, diminish the debt and still have net proceeds of approx. DKK 7.6m, all else being equal. Analyst Group views it as likely that PEG will use part of the proceeds to further strengthen the balance sheet by paying the outstanding debt. However, we also deem it likely that a portion of the net proceeds will be used to support further clinical advancements of the Company’s drug candidates in Phase II, as well as to provide the financial capacity to explore potential licensing agreements.

To summarize, Analyst Group views the capital increase as a vital step in enabling PEG to continue the development of the promising studies of the Company’s drug candidates. Additionally, it enables PEG to accelerate the conversion of initial discussions with potential licensing partners into commercial licensing agreements, which could serve as a substantial value driver going forward. Moreover, we view the terms of the directed share issue as favorable, particularly the 19% premium of the subscription price, which sends strong signals from investors participating in the capital raise. This is especially notable in light of the fact that many other small-cap companies are being forced to offer issues at substantial discounts, often coupled with lower subscription commitments, which results in costly underwriting guarantees.”

Analyst Group’s View of Pharma Equity Group

Pharma Equity Group (“PEG” or “the Company”), through the Company’s subsidiary, Reponex, employs a drug repositioning strategy, which involves finding new uses for active substances used in previous recognized treatments, thus allowing the Company to circumvent phase I trials. PEG has a pipeline of six candidates in Phase II, targeting therapeutic areas such as Peritonitis, Chronic Wounds, IBD, and Colorectal Cancer, where there is currently no adequate treatment. The business strategy involves out-licensing the programs after Phase II to a pharma company capable of bringing the drugs to the market. PEG’s strategy enables a capital-light and highly scalable business model, offering a shorter route to market with equivalent upside potential, yet mitigating the typical risks associated with the pharmaceutical industry.

You can access our latest analysis of Pharma Equity Group here, and also watch a recent interview with the CEO, Thomas Kaas Selsø here.

Pharma Equity Group (“PEG” or “the Company”) published its Q2 report for 2024 on the 16^th of August 2024. The following are key events that we have chosen to highlight in the report:

• Positive Final Results from Phase II Clinical PoC Trial (RNX-051)
• Robust Cost Control
• Update Regarding the Receivable from Portinho S.A.
• Evaluating Options for a Capital Increase

Continued Advancement of the Clinical Development

During the quarter, PEG announced that the Company’s subsidiary, Reponex Pharmaceuticals A/S (“Reponex”) has received positive final results from the Phase II clinical proof-of-concept trial of the drug candidate RNX-051, also referred to as the MEFO study. Reponex’s management concludes that its patented medicinal product RNX-051 is highly effective for its intended purpose. Just a single local application drastically reduces tumor-associated biofilm and can even totally eliminate the cancer-promoting Fusobacterium nucleatum in the tumor one week after the treatment. Analyst Group believes that the positive results obtained from the Phase II study are a further demonstration from Reponex that the clinical development is progressing according to plan.

Improved Cost Control Compared to Previous Quarter

During Q2-24, the Company’s operating costs totaled approx. DKK 5m (4.9), an increase of 1% Y-Y and a reduction of -27% Q-Q. Breaking down the OPEX more in detail, it’s evident that the R&D costs have decreased by -27% Y-Y and -28% Q-Q, while the administrative costs have witnessed a Y-Y increase of 30%,  but a sequential decrease of -26% Q-Q. Hence, PEG maintains a costbase on par with the same period last year and a substantial improvement compared to the previous quarter (Q1-24). As mentioned in the report, PEG maintains the Company’s guidance for the full year 2024, with EBT expected to be in the range of DKK -24 to -29m (excl. potential gains/losses related to the Portinho receivable).

Legal Actions to Redeem the Receivable from Portinho S.A.

At the end of Q2-24, the receivable from Portinho S.A. was valued at DKK 58m on the balance sheet, similar to the end of the previous quarter. As of April 15th, PEG filed a summons with the Maritime and Commercial High Court against Portinho S.A. for the recovery of the receivable of EUR 9.55m plus interest, equivalent to EUR 10.8m or DKK 80.5m. The receivable amount, as per the end of Q2-24, including agreed interest, is EUR 11.0m corresponding to DKK 82.1m. Interest rate is agreed to 2% per quarter and amounts to DKK 3.2m for H1-24, which has not recognized as income in the report as it is considered appropriate to defer income recognition of interest until interest has been paid. Analyst Group has not factored in the receivable in the valuation of PEG and views this as an option which, if redeemed successfully, could be of significant importance to sustaining the Company financially and providing additional upside to the valuation.

Exploring Options Regarding Capital Increase

The Company’s cash balance at the end of June 2024 amounted to approx. DKK 0.9m, a decrease of DKK -1.3m compared to approx. DKK 2.2m at the end of Q1-24. PEG has shown an operational burn rate of approx. DKK -3.9m during Q2-24, equivalent to DKK -1.3m/month, marking a substantial decrease from the previous quarter’s monthly burn rate of DKK -2.6m. However, it’s worth mentioning that the working capital cycle has a fluctuating pattern, and the effect often smooths out over the year. Regardless of that, Analyst Group see it as important to keep the burn rate as low as possible until the Company has secured additional financing, which PEG managed to do during Q2-24.

PEG announced during Q2-24 that the Company is exploring the possibilities regarding a directed capital increase at market price. Since then, no directed capital increase has taken place, but the Company has issued additional convertible loans which allow PEG to borrow DKK 2m. The net debt position amounted to DKK 42.7m at the end of June, compared to a net debt of DKK 36.6m at the end of Q1-24, marking an increase of DKK 6.1m in absolute terms. PEG has an unused credit facility amounting to approx. DKK 5m, which could further strengthen the Company’s liquidity position.

With the latest reported cash position (DKK 0.9) and unused credit facility (DKK 5m), Analyst Group deem it likely that PEG will pursue some form of capital increase in the coming quarters to further strengthen the liquidity position, which is in line with the communication from the Company.

In summary, it is of importance to see further positive progress in clinical development, with the positive final results from the Phase II proof-of-concept trial for the drug candidate RNX-051 serving as a testament to this. Examining the operational cost base, it’s evident that the Company has taken important measures in terms of cost control, which is critical until additional financing is secured. Analyst Group believes that the legal actions taken to redeem the receivable from Portinho S.A. are crucial to increasing the likelihood of recovering the cash, although in an ideal scenario, these measures would have been avoided. If the receivable is successfully recovered, it could not only be of significant importance in sustaining PEG financially, but also serve as a trigger for the share price going forward. Going forward, Analyst Group believes it will be crucial to secure additional capital to maintain the financial flexibility needed, particularly for further clinical development and exploring potential licensing agreements. Additionally, further clinical progress for the pipeline candidates is an important aspect to monitor, as positive data will be a key asset in discussions with potential licensing partners.

We will return with an updated equity research report of PEG.

Pharma Equity Group (“PEG” or “the Company”) published its Q1 report for 2024 on the 16^th of May, 2024. The following are key events that we have chosen to highlight in the report:

• Continued Progress in the Clinical Development
• Strengthened IP-Portfolio
• Cost Base in Line with Q4-23
• Legal Actions Have Been Taken to Redeem the Receivable from Portinho S.A.
• The Financial Position is Currently Strained

Further Progress of the Clinical Development

Following the end of the quarter, PEG announced that the Company’s subsidiary, Reponex Pharmaceuticals A/S (“Reponex”) has received positive final results from the Phase II clinical proof-of-concept trial of the drug candidate RNX-051, also referred to as the MEFO study. Reponex’s management concludes that its patented medicinal product RNX-051 is highly effective for its intended purpose. Just a single local application drastically reduces tumor-associated biofilm and can even totally eliminate the cancer-promoting Fusobacterium nucleatum in the tumor one week after the treatment. Analyst Group assess that the positive results obtained from the Phase II study are a further demonstration from Reponex that the clinical development is progressing according to plan.

Granted Patents RNX-051 and RNX-022

In Q1-24, Reponex received notification from the EPO regarding the decision to grant the patents for the indication colorectal cancer (RNX-051) as well as drug compositions for promoting the healing of wounds (RNX-022), with validity extending until 2035 and 2039, respectively. These milestones are critical in PEG’s IP and out-licensing strategy, as they provide legal protection for the Company’s drug candidates and serve as valuable assets in discussions with potential licensing partners.

Cost Base in Line with Previous Quarter

Comparing the first quarter of 2024 with the corresponding period in 2023 would be misleading, since Q2-23 marked the first full quarter in which both Reponex and PEG’s numbers were consolidated. Therefore, Analyst Group will emphasize the sequential development. During Q1-24, the Company’s operating costs totaled approx. DKK 6.8m, which is in line with the previous quarter (Q4-23). Breaking down the OPEX more in detail, it’s evident that the R&D costs have decreased by 18% Q-Q, while the administrative costs have witnessed a sequential increase of 15%. Hence, PEG maintains a solid cost base Q-Q, and the increase in administrative costs was anticipated, given the reinforced management, administration, and investor relations communications activities. PEG maintains the Company’s guidance for the full year 2024, with EBT expected to be in the range of DKK -24 to -29m (excl. potential gains/losses related to the Portinho receivable).

Receivable from Portinho S.A.

At the end of Q1-24, the receivable from Portinho S.A. was valued at DKK 58m on the balance sheet, similar to the end of the previous quarter. Following the end of Q1-24, PEG filed a summons with the Maritime and Commercial High Court against Portinho S.A. for the recovery of the receivable of EUR 9.55m plus interest, equivalent to EUR 10.8m or DKK 80.5m. Analyst Group has not factored in the receivable in the valuation of PEG and views this as an option which, if redeemed successfully, could be of significant importance to sustaining the Company financially and providing additional upside to the valuation.

Financial Position

The Company’s cash balance at the end of March 2024 amounted to approx. DKK 2.2m, a decrease compared to approx. DKK 4.2m at the end of Q4-23. PEG has shown an operational burn rate of approx. DKK -7.8m during Q1-24, equivalent to DKK -2.6m/month, marking a substantial increase from the previous quarter’s monthly burn rate of DKK -1.3m. While the drastic increase in burn rate seems alarming at first glance, it’s worth mentioning that the changes in NWC amounted to DKK -0.3m during Q1-24, compared to a positive DKK 2m in Q4-23. Additionally, the Company received approx. DKK 1.9 in corporate tax refund during the previous quarter, which typically occurs in the final quarter each year. Hence, as the working capital cycle has a fluctuating pattern, the effect often smooths out over the year. The average monthly burn rate LTM amounts to DKK -1.7m, which, according to Analyst Group, gives a more representative picture of the underlying burn rate.

The Company has strengthened the balance sheet further with DKK 8.4m in convertible loans subscribed for and paid to the Company during Q1-24. This has resulted in an increased net debt position, amounting to DKK 36.6m at the end of March, compared to a net debt of DKK 25.5m at the end of Q4-23, marking an increase of DKK 11.1m in absolute terms. PEG has an unused credit facility amounting to DKK 10m, which could further strengthen the Company’s liquidity position. While revenues are expected at the earliest in 2025, and hence a negative cash flow until break-even is reached, it’s crucial to have a sufficient liquidity position to be able to act opportunistic, when necessary, for example, regarding clinical development and examining options for licensing agreements. Thus, following the end of the quarter, the Company announced that PEG is exploring the possibilities of strengthening the Company’s working capital through a capital increase to market price, which could occur following the extraordinary general meeting scheduled for June 3^rd, 2024.

With the latest reported cash position (DKK 2.2m), unused credit facilities (DKK 10m), and an estimated monthly burn rate of DKK -2m, Analyst Group estimates that PEG’s financial position is sufficient to finance the Company until the end of Q3-24, all else being equal. The elevated burn rate, compared to the average burn rate LTM of DKK -1.7m, takes into account PEG’s estimated rise in costs during the forthcoming year due to further clinical progression and higher personnel costs following the recruitment of key personnel. Given the aforementioned, Analyst Group deems it likely that PEG will pursue some form of capital increase in the coming quarters to further strengthen the liquidity position.

In conclusion, PEG shows continued progression in its clinical development, with positive final results from the clinical Phase II proof-of-concept trial of the drug candidate RNX-051 marking an important milestone. Additionally, the quarter is characterized by a further strengthened IP portfolio, with crucial patents obtained in key markets. The operational cost base was in line with the previous quarter, and Analyst Group expects to see a slight increase in OPEX going forward, as the company takes further steps in clinical development and recruits critical personnel to accelerate the journey towards lucrative licensing agreements. The convertible loans obtained during the last few quarters have been crucial in sustaining the Company financially, but the loans have also increased the net debt position quite substantially, thereby contributing to increased financial risk. Hence, the financial position is currently strained, and the possibility that the company must pursue some form of external capital raise to strengthen the financial position further cannot be ruled out. Looking ahead, we will monitor the progress of further results in regards to the Company’s drug candidates, as well as the upcoming decision from the European Medicines Agency (EMA) on approving PEG’s pouchitis treatment (RNX-041) for orphan drug designation. Additionally, hiring key personnel with valuable experience could accelerate the path toward licensing agreements, which serves as a near term trigger.

We will return with an updated equity research report of PEG.

Pharma Equity Group (“PEG” or “the Company”) announced on Friday, April 5^th, that the Company’s subsidiary Reponex Pharmaceuticals A/S (“Reponex”) has received positive final results from the Phase II clinical proof-of-concept trial of the drug candidate RNX-051.

The Phase II trial, also referred to as the MEFO trial, concerns the treatment of patients with right-sided colon cancer and right-sided colon polyps/adenomas (precursors of cancer) with the Company’s drug candidate RNX-051. The trial consisted of two arms: the first in patients with adenomas (the “adenoma arm”) and second in patients with cancers in the right side of the bowel (the “cancer arm”). In the adenoma arm, the main goal of the study, to demonstrate an impact on the bacterial biomass, was reached, with a massive reduction in the biofilm of the bowel lining (more than 30-fold reduction). In the cancer arm, for patients with a high content of bacterial biofilm, there was a statistically significant reduction of biofilm in the tumor periphery.

Reponex’s management concludes that its patented medicinal product RNX-051 appears to be highly effective for its intended purpose. Just a single local application drastically reduces tumor-associated biofilm and can even totally eliminate the cancer-promoting Fusobacterium nucleatum in the tumor one week after the treatment.

Analyst Group’s view

“The positive results obtained from the Phase II study are a further demonstration from Reponex that the clinical development is progressing according to plan. The recently strengthened cash position following the convertible loans provides the Company with additional room to maneuver. Coupled with clinical progression, it de-risks the investment case and reinforces PEG’s negotiation power in discussions with potential licensing partners.

During 2020, approximately 12.7% of new cancer diagnoses and 12.4% of cancer-related deaths were attributed to colorectal cancer in EU-27 countries, making it the second most prevalent cancer, following breast cancer, and the second leading cause of cancer-related mortality after lung cancer.¹ Hence, the demand for an effective and localized treatment solution is critical.

Analyst Group estimates that the potential royalties from RNX-051 will constitute a significant portion of the total pre-risk-adjusted royalties, making it a key candidate for future potential cash flow streams. The figure below illustrates Analyst Group’s estimates for colorectal cancer (RNX-051).”

Analyst Group’s View of Pharma Equity Group:

Pharma Equity Group (“PEG” or “the Company”), through the Company’s subsidiary, Reponex, employs a drug repositioning strategy, which involves finding new uses for active substances used in previous recognized treatments, thus allowing the Company to circumvent phase I trials. PEG has a pipeline of six candidates in Phase II, targeting therapeutic areas such as Peritonitis, Chronic Wounds, IBD, and Colorectal Cancer, where there is currently no adequate treatment. The business strategy involves out-licensing the programs after Phase II to a pharma company capable of bringing the drugs to the market. PEG’s strategy enables a capital-light and highly scalable business model, offering a shorter route to market with equivalent upside potential, yet mitigating the typical risks associated with the pharmaceutical industry. Based on an rNPV-model, a potential present value per share of DKK 1.4 is derived in a Base scenario.

You can access our initial analysis of Pharma Equity Group here, and also watch a recent interview with the CEO, Thomas Kaas Selsø here.

¹https://ecis.jrc.ec.europa.eu/pdf/factsheets/Colorectal_cancer_en-Mar_2021.pdf

Pharma Equity Group (“PEG” or “the Company”) published its Year-End report for 2023 on the 20^th of March, 2024. The following are key events that we have chosen to highlight in the report:

• Further Progress in the Clinical Development
• Strengthened Patent Portfolio
• New Experienced Board Members
• Increased Cost Base Compared to Previous Quarter
• Financial Position Bolstered by Convertible Loans and New Credit Facility Obtained in the Beginning of 2024

The Clinical Development Remains on Track

The advancement of clinical development continues, and during Q4-23, the Company announced positive preliminary results from the phase II clinical trial regarding the drug candidate RNX-051, thereby meeting the trial’s primary endpoints. PEG states that the study has shown a mechanism that gives reason to assume that the treatment can be incorporated into future treatments that can prevent the development of cancer from precursors and try combination treatments with other treatments such as immunotherapy or similar cancer therapies. The complete analysis of the study’s results is expected to be presented in early 2024, which serves as a near-term trigger.

Reinforced IP-Portfolio Covering RNX-051 and RNX-022

PEG has continued to make progress in strengthening the Company’s IP portfolio, both during Q4-24 as well as after the end of the period. In October 2023, PEG’s subsidiary, Reponex Pharmaceuticals A/S (“Reponex”), received a US patent grant for a method of treatment using its topical wound-healing composition.

Additionally, during the end of October, the Company received “Intention to Grant” from the European Patent Office (EPO) for both the wound healing candidate, RNX-022, and the candidate addressing colorectal cancer (RNX-051). In Q1-24, Reponex received notification from the EPO regarding the decision to grant the above-mentioned patents (RNX-051 and RNX-022), with validity extending until 2035 and 2039, respectively.

These milestones are critical in PEG’s IP and out-licensing strategy, as they provide legal protection for the Company’s drug candidates and serve as valuable assets in discussions with potential licensing partners. For a more in-depth comment on the granted patent regarding the drug compositions for promoting wound healing (RNX-022), please read our comment here.

Board Strengthened by Two Experienced Members

During the fourth quarter of 2023, the Company’s Board of Directors was supplemented by Omar S. Qandeel and Martin Engell-Rossen, two highly qualified members with extensive experience in, among other things, finance, international relations, and investor communication. Omar S. Qandeel’s focus will be on securing financing from investors and supporting the Company’s commercial expansion into new markets, including the Middle East and Asia, while Martin Engell-Rossen’s primary focus area will be to ensure positioning and investor communication. Both Omar and Martin are expected to contribute positively to the overall strategy and communication efforts, leveraging their experience and broad networks to open doors for potential licensing partners.

Sequential Increase in the Cost Base

In the past, PEG’s reports showed the Company’s standalone operations. However, since Reponex is recognized as the accounting acquirer, PEG’s past financial results won’t appear in consolidated figures before March 24, 2023. Hence, comparing the fourth quarter of 2023 with the corresponding period in 2022, or the full year numbers, would be misleading, primarily because Q2-23 marked the first full quarter in which both Reponex and PEG’s numbers were consolidated. Therefore, Analyst Group will emphasize the sequential development.

During Q4-23, the Company’s operating costs totaled approx. DKK 6.8m, representing an increase of 20% compared to the previous quarter (Q3-23) and approx. DKK 1.1m in absolute terms. The increase in OPEX is attributed to higher R&D and administrative costs, which increased by 26% and 15% Q-Q, respectively. As PEG’s clinical work progresses, the development costs increase, attributed to a strengthened development organization and intensified partnerships with hospitals and other external partners. The sequential increase in administrative costs during Q4-23 stems from reinforced management, administration, and investor relations communications.

A write-down of DKK 4.4m attributed to the Portinho S.A. receivable had a negative impact on the fourth-quarter results; however, it did not affect the cash flow. The earnings before tax (EBT) in Q4-23, adjusted for the Portinho write-down, amounted to approx. DKK -9.4m, and DKK -22.4m for the full year of 2023, slightly higher than the Company’s guidance range for 2023 of DKK –18-22m. PEG is guiding for an EBT within the range of DKK between -24 and -29m during the full year 2024 (excl. potential gains/losses related to the Portinho receivable).

Financial Position

The Company’s cash balance at the end of 2023 amounted to approx. DKK 4.2m, an increase compared to approx. DKK 1.5m at the end of Q3-23. After the end of Q4-23, PEG announced the decision to issue convertible loans, which were fully subscribed, thereby bolstering the Company’s balance sheet by a total of DKK 16m. Analyst Group views this positively as it enhances PEG’s financial position, which is critical for 1) sustaining day-to-day operations, 2) financing additional R&D investments, and 3) maintaining a stronger position in negotiations with potential licensing partners, which are often capital- and time-consuming.

PEG has shown an operational burn rate of approx. DKK -1.3m/month during Q4-23, marking an increase from the previous quarter’s monthly burn rate of DKK -0.9m. The increase in negative OCF during Q4-23 was mainly due to an increased loss, as well as a lower positive change in net working capital (NWC) compared to the previous quarter.

With the latest reported cash position (DKK 4.2m) and unused credit facilities (DKK 12.6m), coupled with the convertible loans of DKK 8m obtained in Q1-24, and an estimated monthly burn rate of DKK -2.0m, Analyst Group estimates that PEG’s financial position is sufficient to finance the Company until the end of Q4-24, all else being equal. The elevated burn rate considers PEG’s estimated rise in cost base during the forthcoming year, as a result of further clinical progression and higher personnel costs following the recruitment of key personnel.

According to the report, PEG anticipates continuously securing additional convertible loans throughout 2024, where the Company is currently engaged in ongoing discussions with several existing/new investors regarding additional funding in the short-term. Additionally, PEG’s management is strategically developing plans for a more extensive augmentation in the capital and share capital structure moving forward.

At the end of November, PEG provided an update regarding the receivable from Portinho S.A., in which the Company estimated that the receivable will be repaid no later than December 2023, which has not been the case. There is still a lot of uncertainty surrounding the potential redemption of the receivable and the work is still ongoing, with both Danish and Portuguese legal advice involved in the process.

In the Q4-report, PEG states that the Company cannot provide specific commentary on when the receivable could be repaid, but still regards it as realistic that the receivable will be redeemed at some point in the future. At the end of Q4-23, the receivable was valued at DKK 58m on the balance sheet, compared to approx. DKK 64.3m at the end of the previous quarter.

Analyst Group has not factored in the receivable when valuing PEG, and views this as an option which, if redeemed successfully, could be of significant importance to sustain the Company financially and provide additional upside to the valuation.

In conclusion, PEG continues to progress well in terms of clinical development and strengthened IP-portfolio. The cost base is gradually increasing as the Company progresses further into the development phase and recruits’ critical personnel with valuable experience, such as employing a CCO and CMO during 2023. Analyst Group anticipates that the trend of increased OPEX will continue during 2024, which is also evident in the Company’s guidance for the year ahead. However, the financial position requires monitoring going forward, as the current liquidity position is estimated to sustain the Company until the end of 2024. With a more robust balance sheet compared to Q3-24 due to the convertible loans, and enhanced organizational strength from the addition of two highly qualified board members, PEG is well-positioned to advance further along the path towards securing potential licensing agreements.

We will return with an updated equity research report of PEG.

Pharma Equity Group (“PEG” or “the Company”) announced on Tuesday, March 5^th, that the Company’s subsidiary Reponex Pharmaceuticals A/S (“Reponex”) has received notification from the European Patent Office (EPO) regarding the decision to grant their patent for drug compositions for promoting the healing of wounds (RNX-022).

The announcement signifies a milestone as the EPO has approved EP patent No. 3145533, encompassing Reponex’ innovative treatment method. This method consists of topically applying a hydrogel containing granulocyte-macrophage colony-stimulating factor (GM-CSF), sucralfate, and hyaluronan to accelerate wound healing. The combination helps stimulate the proliferation of cells related to the healing process and tissue regeneration.

Analyst Group’s view

“Analyst Group assesses that the granted patent application marks a milestone in PEG’s IP and out-licensing strategy, as it provides legal protection for the Company’s drug candidate and serves as an important asset during negotiations with potential licensing partners. The global chronic wound care market is estimated to witness steady growth in the coming years, as exemplified by a report from Fortune Business Insight, where they estimate that the global chronic wound market was valued at USD 12.5bn in 2022 and is expected to grow at a CAGR of 6.8%, reaching USD 21bn by 2030.¹ The increasing prevalence of diverse chronic wounds worldwide creates a significant need for treatment products, leading to increased adoption of wound dressings, devices, and other related products. Moreover, the growing elderly population is anticipated to drive market growth, given that the senior demographic often experiences slower healing capabilities.

Analyst Group estimates a prevalence of 8.5m patients suffering from chronic wounds in PEG’s target markets by 2024, with the Company potentially reaching a peak market share of approximately 2.8% (2030-2034E). The figure below illustrates Analyst Group’s estimated pre-risk-adjusted royalties during the forecast period, where candidates targeting the indication area of chronic wounds serve as a significant part of the total potential royalties. It’s worth mentioning that PEG currently has three candidates addressing the chronic wound market (RNX-021-023), all in Phase II. Consequently, the potential royalties from RNX-022 are included in the potential royalties from Chronic Wounds. Another important aspect to mention is that the patent is valid until 2035 but has the option to be granted a Supplementary Protection Certificate (SPC), which would extend the validity for an additional five (5) years, lasting until 2040. This is accounted for in our Bull scenario. In summary, the indication area targeted by RNX-022 presents immense potential, offering PEG a substantial market share opportunity. A granted patent not only strengthens PEG’s IP portfolio but also opens doors to strategic partnerships, potential royalty streams, and consequently, potential cash flows.”

Analyst Group’s View of Pharma Equity Group:

Pharma Equity Group (“PEG” or “the Company”), through the Company’s subsidiary, Reponex, employs a drug repositioning strategy, which involves finding new uses for active substances used in previous recognized treatments, thus allowing the Company to circumvent phase I trials. PEG has a pipeline of six candidates in Phase II, targeting therapeutic areas such as Peritonitis, Chronic Wounds, IBD, and Colorectal Cancer, where there is currently no adequate treatment. The business strategy involves out-licensing the programs after Phase II to a pharma company capable of bringing the drugs to the market. PEG’s strategy enables a capital-light and highly scalable business model, offering a shorter route to market with equivalent upside potential, yet mitigating the typical risks associated with the pharmaceutical industry. Based on an rNPV-model, a potential present value per share of DKK 1.4 is derived in a Base scenario.

You can access our initial analysis of Pharma Equity Group here, and also watch a recent interview with the CEO, Thomas Kaas Selsø here.

¹https://www.fortunebusinessinsights.com/industry-reports/chronic-wound-care-market-100222