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”) 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