Pharma Equity Group (“PEG” or “the Company”) published its Q2 report for 2024 on the 16th 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.
