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Analyst Comment

Faron H2 on Friday: Cost structure expected to be lighter than in H1

By Antti SiltanenAnalyst
Faron Pharmaceuticals

Translation: Original comment published in Finnish on 2/23/2023 at 5:36 am.

Faron publishes its H2 report on Friday, March 3 at around 9 am EET. The company does not have any revenue yet, so our interest is on cost levels and the future outlook. This year, we expect decisions on the continuation of the MATINS study, the start of phase II of the BEXCOMBO study and the possible completion of phase I of the BEXMAB study. Faron has said that funding is sufficient until May, so financial arrangements are at the heart of the investment story also this year.

Eyes turn to costs in the absence of revenue

In the H2 report our attention is drawn to the cost level, as Faron, as a drug development company, has no commercialized products or revenue yet. The company reports administrative and R&D costs. R&D costs typically vary quite extensively depending especially on the stage of clinical trials carried out as purchased services and cost accruals. Administrative expenses develop more stably and predictably. Our operating loss estimate is EUR 8.7 million (previous 10.7 MEUR). Our expectation of lower losses than in the comparison period are explained by the drop in the costs of the MATINS study. The study was in the result analyzing phase during H2’22 that generates less costs, while in the comparison period it was in the patient treatment phase that has a heavier cost structure. We expect administrative expenses to have increased moderately as the company has recruited personnel for US operations.

Interest in 2023 directed on news about implementation and funding of the development program

Faron has announced that it will discuss the continuation of the MATINS study with the FDA in the coming weeks. If the Authority's position is favorable Faron could move to the final phase II/III of the study. At this stage, the efficacy and safety of the cancer drug bexmarilimab would be studied in patients with advanced treatment-resistant cancer. Faron is also launching a phase II BEXCOMBO study, where the company's drug candidate is studied combined with other/another immune response inhibitors (PD-1 inhibitors). The third study is the ongoing phase I BEXMAB, where the dosage and safety of bexmarilimab is studied in blood cancers. Funding of the studies requires substantial capital that Faron can finance through share issues, debt financing and possible licensing agreements. Faron has said that its current cash reserves will be sufficient until May, so we expect financial arrangements quite soon.

We have considered the recent share issue in our models

Faron recently organized a share issue where it raised around EUR 12 million with a EUR 3.25 subscription price. The issue increased the number of shares by 6.2%. We have considered the increased number of shares in the per share figures of our pre-comment. We will examine the valuation of the share and the recommendation more closely in our company update after the earnings release on Monday, March 6.

Faron Pharmaceuticals

3.76EUR28.02.2023, 18.00
3.00EURTarget price
Reduce
Recommendation updated:09.01.2023

Faron is a global, clinical-stage biopharmaceutical company, focused on tackling cancers via novel immunotherapies. Its mission is to bring the promise of immunotherapy to a broader population by uncovering novel ways to control and harness the power of the immune system. The Company's lead asset is bexmarilimab, a novel anti-Clever-1 humanized antibody, with the potential to remove immunosuppression of cancers through reprogramming myeloid cell function. Bexmarilimab is being investigated in Phase I/II clinical trials as a potential therapy for patients with hematological cancers in combination with other standard treatments.

Read more on company page

Key Estimate Figures09.01.2023

202122e23e
Revenue0.00.00.0
growth-%
EBIT (adj.)-21.1-22.1-0.8
EBIT-% (adj.)-527,700.0 %-551,975.0 %-20,292.5 %
EPS (adj.)-0.40-0.37-0.02
Dividend0.000.000.00
Dividend %
P/E (adj.)neg.neg.neg.
EV/EBITDAneg.neg.neg.
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