Destiny Pharma: Equity Development
Destiny’s full-year results for the year ending December 31 2023 included news of a strategic review of the options for its lead program XF-73 nasal. Cost-controls and reduced clinical trial spend at this point in the development of Destiny’s assets reduced the loss for the year. With the increased focus on the partnering of XF-73 nasal, we were left in no doubt after the analysts’ meeting that XF-73 nasal is both a valuable asset and that it will be partnered at some point in time.
Financial results
Tight expense control resulted in Destiny’s loss falling to £6.4m from £7.7m in FY 2022. This was partly due to the out-licensing of its Phase 3-ready product NTCD-M3 to Sebela Pharmaceuticals, and partly due to Destiny being in an interim period between clinical trials. Although partnering activity for XF-73 nasal intensified, R&D expense fell to £3.3m from £4.9m in FY 2022. Other operating costs increased to £3.8m (from £2.5m in FY 2022) as a result of inflationary pressures, partnering and market analysis efforts on XF-73 nasal and the Board and management changes. Buffering this was an £0.8m licensing payment from Sebela, an R&D tax credit of £1.2m, a reduction in working capital and higher interest on cash balances. The first-quarter 2023 fundraise, cost control and reduced clinical expenditure resulted in Destiny’s year-end cash balance increasing to £6.4m from £4.9m at the end of FY 2022. Destiny estimates that their cash runway will extend to Q1 2025.
XF-73 nasal strategic review
Following a period of business development activity focussed on its now lead product – XF-73 nasal for the prevention of post-operative staphylococcal infections, including MRSA – Destiny announced a review of the strategic options for its development funding. While investors will be disappointed that a transaction didn’t happen in 2023, we were left with the important conclusions from the analysts’ meeting that: XF-73 nasal is a valuable asset, it should eventually be partnered, and will not be marketed by Destiny. The more important question is when that will be and, adjusting for the changes to the timelines on clinical trial starts by Destiny’s partners, we reduce our valuation accordingly. While an external out-licensing transaction for XF-73 nasal similar to that for NTCD-M3 remains probable, the strategic update suggests a range of other options to achieve the same result for this asset.
Valuation changes
Our fair value for Destiny Pharma plc has changed to £212.0m (or 234p / share) from £254.7m (or 279p / share). This reflects the longer times until Phase 3 studies start and, in consequence, its products launch at Destiny’s partners. This value is materially above the share price and does assume successful financing for XF-73 nasal’s approval and commercialisation. It also reflects the vast global unmet need that XF-73 nasal can address.
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