Herantis H1'24: The next trial phase will begin in H2 as expected

Translation: Original published in Finnish on 08/23/2024 at 7:00 am EEST

In its H1 report, Herantis reported that a new trial will be launched during H2’24. In terms of figures, the loss was slightly higher than we expected. Costs were increased by preparation for a new clinical trial, including drug production. Secured funding should suffice until Q3’25 and allow the next clinical trial to be completed. We reiterate our Accumulate recommendation and the EUR 2.2 target price as the outlook essentially remains unchanged.

The Parkinson's disease drug candidate progresses to the next trial phase in H2 as expected

At the end of last year, Herantis completed a Phase Ia trial with HER-096, a drug candidate for Parkinson’s disease. Based on the results, HER-096 crosses the blood-brain barrier. There were also no tolerability concerns, which helped reduce the risk associated with development and paved the way for further development of the candidate. Earlier this year, Herantis announced that it had filed for a Phase Ib study authorization, the primary objective of which is to evaluate the safety and tolerability of subcutaneously administered HER-096 in both healthy volunteers and Parkinson's disease patients at repeated doses. Herantis now says it expects to administer the dosage to the first patient in H2'24, which is in line with our expectations. Up to 36 subjects will be recruited for the trial, of whom the first 12 are healthy volunteers and the next 24 are patients with Parkinson’s disease. The trial examines the behavior of the candidate in the body at repeated doses, its tolerability and explores biomarkers that could help monitor the effects of the drug.

Costs were higher than expected in H1 due to preparation for future trials

EBIT was -2.76 MEUR, below our forecast of -2.38 MEUR due to higher-than-expected operating expenses. Costs were raised especially due to preparation for future trials, including drug production. Cash flow for the period was -3.0 MEUR and cash and cash equivalents stood at 3.5 MEUR at the end of H1. The financial position was strengthened during H1 by a EUR 750,000 grant from the European Innovation Council (EIC) In the future, the cash position will be reinforced by the above-mentioned research funding of 3.6 MEUR to be paid in three installments upon achievement of research milestones. At the end of H1, these assets were not yet present in the balance sheet. According to management comments, the current financial resources and secured funding suffice up to Q3’25.

Risk-adjusted DCF modeling suggests that the stock is attractively priced considering the risks

The H1 report was mainly in line with our expectations, so the forecast changes are moderate. Short-term forecast changes do not have a significant impact on the valuation that is based on long-term cash flows. Our risk-adjusted forecasts consider the significant risk of failure in drug development, which we estimate is almost 90%. We expect royalty-based revenue to start in 2032 and peak in the late 2030s. Our DCF model suggests a value of EUR 2.2 per share indicating the attractive pricing of the stock. The value of the share may also materialize through a partnership agreement or a bid. The investment profile is characterized by a high return potential with a low probability and a high probability of loss of capital.