Healthcare companies across the world have been engaged in conducting clinical trials and developing vaccine candidates for the unmet needs of society. COVID-19, for instance, has posed a unique challenge for the governments and the healthcare players across the world, who have been working in collaboration to conduct research and introduce an effective treatment as soon as possible. So far, the Australian government has provided continuous support in the form of COVID-19 relief packages to various sectors, including healthcare. To prepare well in advance, the government has recently signed a production and supply agreement for COVID-19 vaccine and is aiming to ensure availability throughout 2021 while supplying the vaccine outside the country as well. In addition, the government fully supports the research being conducted on the novel coronavirus and has announced a funding benefit for the organisations/institutions undertaking such research. The below section provides a detailed view of the government's recent steps to aid vaccine production and COVID-19 related research.
COVID-19 Vaccine Production & Supply Agreement worth $1.7 Billion: On 7th September 2020, the Australian Government announced the signing of a supply and production agreement with two leading pharmaceutical companies. The agreement, which forms part of the Federal Government's COVID Vaccine and Treatment Strategy, is valued at $1.7 billion. Through this agreement, the government aims to provide free of cost COVID-19 vaccine to Australian citizens throughout 2021, which will act as a safeguard against unforeseen pandemic led circumstances. Counterparties to the agreement involve the University of Oxford/AstraZeneca and the University of Queensland/CSL, who will produce over 84.8 million doses, largely in Melbourne. 3.8 million doses will be produced by the University of Oxford for early access during January and February 2021. Results for clinical trials or testing on the vaccine being produced by both the parties have delivered positive results. The vaccine being produced by The University of Oxford/AstraZeneca has entered Phase Three trials and has generated strong immune responses so far. Similarly, a pre-clinical trial conducted by the University of Queensland has also demonstrated promising results.
In addition to supplying the vaccine domestically, the government is also committed to provide early access to its regional partners in Southeast Asia and to countries in the Pacific. As per the terms of the agreement, the government allows for additional orders/doses to be donated or on-sold internationally.
COVID-19 Vaccine and Treatment Strategy (Source: Department of Health, Australian Government)
Funding for COVID-19 Research: The government recently came up with a Biomedical Translation Bridge (BTB) program, a 4-year Medical Research Future Fund (MRFF) program valued at $22.3 million. The funding is aimed at supporting research projects for identifying breakthrough treatments, diagnostics, and introducing COVID-19 vaccine candidates. Under the program, the government recently allocated $10.4 million for 13 early-stage biomedical projects, including $4.1 million allocated for five COVID-19 research projects. The five research projects include, an innovative ventilated hood being developed for patients in isolation, a vaccine candidate being developed in South Australia, a preventive nasal spray, a rapid response test to predict how severely the disease will progress, and a new treatment for respiratory complications of COVID-19. Some of the recipients of this funding program, include Bard1 Life Sciences Limited, Cincera Therapeutics Pty Ltd, LBT Innovations Limited, Pharmaxis Ltd, Starpharma Pty Ltd, etc.
Key Risks: While the agreements to produce and supply COVID-19 vaccine mark a significant milestone in the battle against the pandemic, the government does not guarantee that the vaccine will be successful. Before supplying the vaccine to the public, it will be thoroughly tested for safety and effectiveness along with necessary regulatory requirements. The success of the Biomedical Translation Bridge program is also dependent on the results of the various research projects being conducted. Moreover, operational disruptions in the form of lack of medical equipment or shortage of talent to conduct the research may render the government’s efforts ineffective.
Nonetheless, Australia is currently at the forefront of developing a COVID-19 vaccine and will be among the first to receive a safe and effective vaccine if it meets all regulatory and safety requirements. The Government is committed to safeguard the health and well-being of Australians and the national economy and will take all vaccine-related decisions on the advice of the Australian Technical Advisory Group on Immunisation and other experts. Let us have a look at few stocks which form a part of the government’s new production and supply agreement and the Biomedical Translation Bridge (BTB) program.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
A-VIX vs CSL (Source: Refinitiv, Thomson Reuters)
Stock Recommendation: The company has continued to deliver value to shareholders because of its unwavering focus on delivering innovative products. In the last three months, the stock has demonstrated a decent performance on ASX, on the back of continued growth despite macroeconomic hurdles. On the technical analysis front, the stock has a resistance level of ~$332.65 and a support level of ~$268.14. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). Hence, we give a "Buy" recommendation on the stock at the current market price of $283.14, down 0.127% on 14th September 2020.
2. Pharmaxis Limited (Recommendation: Speculative Buy, Potential Upside: Low Double-Digit)
(M-cap: ~A$ 32.06 Million, Annual Dividend Yield: NA)
Green Light To Start Myelofibrosis Phase 2 Study: Pharmaxis Limited (ASX: PXS) is a pharmaceutical research company with approved products in various markets, and a drug discovery program dedicated to finding new treatments for patients in areas of high unmet clinical needs. During FY20, revenue of the company went up to $7.02 million and operating loss after tax came in at $13.9 million. In the same time span, net operating cash outflows stood at $13.2 million. The group reported a cash balance of $14.7 million at the end of FY20. The company also announced that the FDA has completed a safety review for the pan LOX inhibitor PXS-5505 and has given permission to proceed with a phase 1/2 clinical trial for the treatment of myelofibrosis in adults.
In a recent announcement, the company updated that Boehringer Ingelheim terminated the agreement with Pharmaxis to develop the anti-inflammatory AOC3 inhibitor BI 1467335 for treatment of non-proliferative diabetic retinopathy (NPDR). The agreement was cancelled due to the risk of dose dependent drug interactions at the dose level that was tested in the Phase IIa trial. Notably, BI 1467335 is a drug only in the trial phase and the company is evaluating potential opportunities in other indications for the drug. The company currently generates revenue from two drugs, including Bronchitol and Aridol, which delivered total sales growth of 78% in Q4FY20 and 24% in FY20.
Outlook: Despite the global pandemic, the activities of the company were not significantly impacted. PXS completed the phase 1b trial of its systemic pan-LOX inhibitor. However, the reduction in international flights has made it difficult to transport its products to overseas markets in suitable temperature-controlled aircraft. The company's product pipeline is focused on its expertise in the chemistry of amine oxidase inhibitors. The company is prioritizing to build value in its drug portfolio with deep conviction in the targets.
Key Risks: The Group's activities expose it to a variety of financial risks including, market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The performance of the company is also subject to the success of clinical trials.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)
EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
A-VIX vs PXS (Source: Refinitiv, Thomson Reuters)
Stock Recommendation: The company is focused on maximizing risk and reward ratio for its shareholders and is now close to completing a transformation to profitability. As depicted in the chart above, the stock has shown a remarkable trajectory owing to the increase in revenue and continued traction for its approved drugs. On the technical analysis front, the stock has a resistance level of ~$0.124 and a support level of ~$0.064. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). Hence, we give a "Speculative Buy" recommendation on the stock at the current market price of $0.083, up 2.469% on 14th September 2020.
3. BARD1 Life Sciences Limited (Recommendation: Speculative Buy)
(M-cap: ~A$ 67.05 Million, Annual Dividend Yield: NA)
Multiple New Patents Granted in FY20: BARD1 Life Sciences Limited (ASX: BD1) is a leading Australian-based medical diagnostics company with an innovative portfolio of diagnostic technologies and products. In FY20, the company reported revenue amounting to $169,385, up 187.5% on the previous year. Net loss for the period improved by 88.4% and stood at $3,260,440. In July 2020, the company completed the acquisition of Sienna Cancer Diagnostics, strengthening its leadership, business, pipeline and balance sheet. Cash balance at the end of the period stood at $7.3 million. In FY20, the company was granted multiple new patents across 3 patent families in Australia, Europe, Hong Kong, Israel, Japan and Singapore.
Outlook: During FY20, the company made significant progress on its R&D programs and further strengthened its patent portfolio. The acquisition of Sienna Cancer Diagnostics marks the culmination of BD1's growth strategy and will help it realise value from innovative technologies, commercialisation of the diagnostics pipeline and will boost revenues.
Funding from the BTB Program: The company recently secured $372,654 from the Biomedical Translation Bridge program for the development, evaluation, and commercialisation of liquid biopsy tests to detect and monitor breast cancer using its proprietary SubB2M cancer-specific probe. This will enable the company to advance development of a simple. non-invasive breast cancer test to detect and monitor the disease.
Key Risks: Risks associated with the company's operations may relate to disruptions in clinical development due to failure of medical device, uncertainty of patent protection and proprietary rights, securing regulatory authority approvals, and rapid advancements in technology.
A-VIX vs BD1 (Source: Refinitiv, Thomson Reuters)
BDI Daily Chart (Source: Refinitiv Eikon Thomson Reuters)
On following the daily chart, it could be seen that the stock is now gaining a slight momentum with prices rebounding from the -2 Standard Deviation of the 20-day simple Bollinger band to revise the mean.
Also, the pair of short-term moving averages, i.e., 3-day exponential moving average and 5-day exponential moving average is giving a positive cross with 3-day EMA crossing the 5-day from below.
However, the 8-day EMA is yet trading above the pair of short-term moving averages, which could post a short-term hurdle for the stock.
Moreover, the On-Balance Volume (or OBV) is moving in tandem with the price action, suggesting that the recovery in the stock price is well supported with volume.
Also, the 14-day Relative Strength Index (or RSI) that has been hovering in the oversold zone is now sloping upwards with the recovery in prices and OBV, suggesting that the price recovery is poised to gain momentum.
Stock Recommendation: The stock of the company is currently inclined towards its 52-week low of $0.019. On the technical analysis front, the stock has a resistance level of ~$0.04 and a support level of ~$0.02. Considering the aforesaid analysis based on the daily chart, we give a "Speculative Buy" recommendation on the stock at the current market price of $0.028 as on 14th September 2020.
4. Starpharma Holdings Limited (Recommendation: Hold, Potential Upside: High Single-Digit)
(M-cap: A$ 594.24 Million, Annual Dividend Yield: NA)
Significant Increase in Revenue and High-Value Product Pipeline: Starpharma Holdings Limited (ASX: SPL) is a biotechnology company which is engaged in the development of dendrimer technology for pharmaceutical, life science, and other applications. During FY20, the company reported a significant increase of 162% in total revenue to $7.1 million. In the same time span, it reported a net loss of $14.7 million, compared to $14.3 million last year. The net operating cash outflows for the year were $10.8 million versus $10.3 million last year. The company has an increasingly broad and high-value product pipeline, with over 150 patents and a growing list of partners. The company has recently announced that it has applied its novel DEP® drug delivery technology to create a water soluble version of remdesivir.
Outlook: Despite the significant disruption in the economy, the company achieved some of the major milestones. The company's healthy balance sheet and anticipated building revenues place it in a decent position for growth. SPL seems to be well placed to leverage its expertise, resources and, IP portfolio to drive success and increase shareholder value. It is focusing on progressing its clinical DEP® assets and to expand portfolio.
Starpharma Awarded $1 Million MRFF funding for COVID-19 Spray: The company has announced that it has been awarded the $1 million funding by the Australian Government's Medical Research Future Fund (MRFF) Biomedical Translation Bridge (BTB) Program to expedite development and commercialisation of its COVID-19 antiviral nasal spray based on SPL7013. SPL7013 nasal spray has the potential to prevent the acquisition and transmission of SARS-CoV-2 and may play a role for other respiratory preparedness. The company recently announced that it has completed additional antiviral testing for the spray, which demonstrated the ability to inactivate over 99.9% of SARS-CoV-
Key Risks: The company is exposed to a variety of risks including the risks related to advancing the product to value; scientific, technical and clinical risks; uncertainty regarding additional capital funding; disruptions in product supply; product acceptance and competitiveness, etc.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
A-VIX vs SPL (Source: Refinitiv, Thomson Reuters)
Stock Recommendation: SPL seems to be well-positioned to deliver a substantial contribution to patient and customer health while creating significant long-term value for its shareholders. The stock of the company is inclined towards its 52-week high level of $1.950 but retains further potential for growth. On the technical analysis front, the stock has a resistance level of ~$1.96 and a support level of ~$1.55. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). Hence, we give a "Hold" recommendation on the stock at the current market price of $1.725, up by 8.15% on 14th September 2020, on account of the recent update on the SPL7013 COVID-19 nasal spray.
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)
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