Pharma Equity Group (“PEG” or “the Company”) published its Q3 report for 2024 on the 15th 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 3rd. 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.
