First Berlin – Formycon AG Research Update (07/01/2021)

First Berlin Equity Research has published a research update on Formycon AG (ISIN: DE000A1EWVY8). Analyst Simon Scholes reiterated his BUY rating and increased the price target from EUR 43.00 to EUR 78.00.

Abstract
According to the biotechnology trade association BIO, in mid-December there were over 590 drugs for the treatment of COVID-19 in preclinical and clinical development. These drugs are customarily divided into two categories - antivirals and treatments. Antivirals attempt to stop SARS-CoV-2 entering cells and/or disrupt its ability to replicate whereas treatments tackle the various symptoms of COVID-19 such as inflammation and cardiovascular and respiratory problems. The most common target for antiviral drugs is the spike protein on the surface of the SARS-CoV-2 virus. However, this mode of action is vulnerable to spike protein mutation. The ACE2 component of Formycon's recently announced ACE2 IgG-Fc fusion protein binds the spike before it can reach the patient's native ACE2 receptors which are the entry point for the virus. The problem of spike protein mutation is circumvented because any mutation of the virus which reduces its affinity to ACE2 will also reduce its pathogenicity. The body's native ACE2 also helps modulate the protein angiotensin II which increases blood pressure and inflammation. During the course of SARS-CoV-2 infection, binding of ACE2 allows angiotensin II to act unhindered. Preclinical in vitro trials indicated that FYB207 allows native ACE2 to continue to modulate angiotensin II. FYB207 thus combines the mode of action of an antiviral and a treatment. Novel drug development is riskier than biosimilar development which was Formycon's sole activity until the start of the pandemic. However, Apeiron's successful 2009 phase I trial of ACE2 and Formycon's proven expertise in antibody engineering suggest to us that the incremental risk is small. The elderly, the obese and allergy sufferers are disproportionately represented among the 2-10% of the population which are immuno-compromised. We expect SARS-CoV-2 to remain endemic in this group even when the pandemic is over. FYB207's strong performance profile suggests that robust pricing (average of €20,000) and a market share of 10% are achievable. We have raised our price target to €78.00 (previously: €43.00) and maintain our Buy recommendation.