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