GNFT - Genfit: Large PBC Market Liquidity To Await Approval

2023-11-27 07:30:00 ET

Summary

• Genfit is close to possible approval for its drug team-up with Ipsen, with positive Phase 3 readouts having been achieved.
• The company focuses on developing therapeutic products for liver diseases, currently with a primary focus on Primary Biliary Cholangitis (PBC).
• Genfit's cash situation is decent, with most of its debt being convertible and maturing in a distant enough future, giving the company time for key approvals.
• Markets are large for its drugs, and with a market cap of around $150 million, it's not unattractive.

Genfit (GNFT) is developing a drug in combination with Ipsen (IPSEY) which is close to possible approval, with positive Phase 3 readouts having been achieved with the intention to submit for approval. Approval may be 6-10 months out, as is typical after a good phase 3. Their cash situation is decent in gross terms, and the debt they have is mostly convertible and matures a decent while from now, giving Genfit time for the key approvals to hopefully come through. With other drugs also in the pipeline, although at very early stages (pre-Phase 3), the longer-term future could also look bright, and with large markets just in the US for their Primary Biliary Cholangitis drug, even after the convertible dilution and the slight risks from ongoing cash burn and reliance on the Elafibranor approval, Genfit doesn't look unattractive.

Product and Innovation

The liver is a super important organ in our body, and that's the thing that basically everybody knows. We can't imagine metabolism processes in our body without it. It is also like a "filter" for our organism and everything that we ingest orally goes through absorption processes in our bloodstream when passing through the liver. Therefore, it's easy to understand: if the liver is somehow damaged and doesn't function properly, it has a significant impact on many organ systems in our body.

Therefore, the main focus of the company's work is to make therapeutic products that could potentially treat some of the medically significant liver diseases such as Primary Biliary Cholangitis or PBC, Acute and Chronic Liver Failure or ACLF, Cholangiocarcinoma CCA, etc.

The company's main project is Elafibranor which they developed many years ago with another pharma company called Ipsen. It targets peroxisome-proliferator-activated receptors (PPAR) found in liver cells, which shows multiple beneficial effects in the treatment of PBC. PBC is a rare, chronic, and progressive liver disease with an incidence of around 40 per 100,000 people in the US . The dollar burden is around $3,000 per month per patient, so scaling it up to the US population gives us a market of over $4.3 billion, a proportion of which it is going to share with Ipsen. Cholestasis (stagnation of the bile flow) occurs due to the destruction of the bile ducts in the liver due to some autoimmune processes. Additionally, bile accumulates in the liver (can't pass further due to cholestasis) and also damages the liver.

When we talk about diagnostics, the important thing to mention is that in PBC there are always elevated values of enzymes alkaline phosphatase. On the other hand, ALP levels are also useful in clinical use. By monitoring ALP levels, we can monitor the progression of the disease. Using the same approach in their clinical trials, they managed to significantly reduce levels of ALP in patients with PBC by 48%, with an 80mg product dose. The readouts in 2023 were good, and the company reported statistically significant effects from the drug, and a sufficient safety profile. Some of the highlights are posted below from the earnings report .

Bottom Line

Additional development of the drug is going to be in the hands of Ipsen, so Genfit can focus on the other drugs it has in development for which it is responsible for R&D and no longer commit cash to the project.

Ipsen will assume responsibility for all additional clinical development, including completion of the long-term extension period of the ELATIVE® trial, and global commercialization (outside of Greater China, where elafibranor is licensed to Terns). Ipsen announced that it intends to submit regulatory applications for elafibranor following discussions with the FDA and the European Medicines Agency.

Key Events, H1 2023 Genfit

Positive readouts in Phase 3 for Elafibranor mean that commercialisation is probably not too far away, probably a little less than a year out. That's quite important considering that the company burns around 60 million EUR per year. Their net cash position is only around 40 million. However, the bonds that detract from their gross cash position do have some time before they mature. More than half of the debt are convertibles too, which are efficiently converted if the price of Genfit goes above 5.38 EUR per share. These mature in late 2025, so the current cash balance should in principle get far enough before commercialisation of Elafibranor starts offsetting cash burn. Also, their other trials are still in quite early stages and likely could be slowed down in order to shore up reserves. Still, there are moving parts. But there is no runway issue if the Genfit price grows enough, and at least the related dilution of 17.5% would be a known quantity. The approval would be the next step at this point , so we think most likely that there really isn't any major liquidity risk here that we would need to worry about, beyond what we have outlined.

With pretty large markets just for PBC, and a decent pipeline, albeit quite early stage still, with other liver-related treatments, as well as a solid cash situation provided that the Elafibranor approval goes through along a typical timeline, Genfit actually looks alright. Of course, something going wrong with Elafibranor, or things getting delayed, would be a major problem for the company considering the rate of its cash burn.

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