PolyNovo Limited

PNV Details

Managerial Changes: PolyNovo Limited (ASX: PNV) is a medical device company that designs, develops, and manufactures dermal regeneration solutions (NovoSorb® BTM) using its patented technology. Recently, the company announced that its Chief Operating Officer, Dr. Anthony Kaye, has stepped down from his post and is returning to CSL in a more senior position.

A Sneak Glimpse at FY21 Key Results:

• Top and Bottom-Line Details: In FY21, PNV’s total revenues went up by 32% year over year, owing to higher sales from NovoSorb® and BARDA clinical trial program (up 18.1% on pcp). In FY21, the company’s net income after tax stood at $0.26 million, as compared to a loss of $1.20 million reported in FY20, owing to the growth in commercial sales of NovoSorb® BTM locally and internationally.
• A Turnaround in Operating Income: In FY21, the company’s operating income came in at $0.4 million, compared to a loss of $1.2 million reported in the year-ago period, owing to robust revenue growth, gross margin expansion, and cost management initiatives.
• Robust Sale of NovoSorb® US BTM: PNV remains on track to benefit from higher sales of NovoSorb® US BTM, which skyrocketed ~49% in FY21 from the previous corresponding period.
• Expansion in Global Distributors: In FY21, PNV’s Distributor revenue saw a rise of 53% year over year, with a substantial increase in the DACH region (Germany, Switzerland, and Austria).
• Decline in Cash Balance: The company exited the period with cash, including short-term investments of $7.69 million, down from $11.64 million reported at the end of FY20.

BARDA Revenue Highlight; Analysis by Kalkine Group

Risk Analysis:

• The company is exposed to risks related to the development of medical devices and commercialising them in the market.
• Any adverse movement in foreign exchange price may impact the financial performance of the company.
• The clinical trial process is designed to assess the safety and efficacy of a medical device before commercialisation and a failure to achieve the desired results may hamper the financial performance of the company.
  

Outlook: PNV is well equipped with Hernia repair device development and expects to bolster its foothold in the US market in years to come. The company also remains on track to invest cash flows in expanding its business strategies and research and development programs to commercialise its new products. The company expects to gain approval to sell hernia devices called Syntrel VP in the US by August 2023. The company is set to hold an annual general meeting on 26 October 2021.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has been corrected by ~26.25% in the past three months. Currently, the stock is trading near to its 52- week low level of $1.73. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium as compared to its peers’ median EV/Sales multiple, considering a reasonable rise in revenues, higher Sales of NovoSorb® BTM, and geographical expansion. For this purpose, few peers such as Telix Pharmaceuticals Ltd (ASX: TLX), and Paradigm Biopharmaceuticals Ltd (ASX: PAR), and others have been considered. Considering higher demand for NovoSorb® BTM, expanding geographical footprint, decent FY21 BTM performance, positive outlook, valuation, current trading level, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.745, as on 5 October 2021, 11:00 AM (GMT+10), Sydney, Eastern Australia.

PNV Daily Technical Chart, Data Source: REFINITIV  

Mesoblast Limited

MSB Details

A Quick Look at FY21 Key Highlights: Mesoblast Limited (ASX: MSB) is involved in the development of innovative cell-based medicines and seeks to offer treatments for cardiovascular illness, inflammatory ailments, and back pain.

• Total revenues for the period stood at US$7.5 million, as compared to US$32.2 million reported in the year-ago period, owing to the absence of rexlemestrocel-L upfront & milestone payments, which were included in the FY20 figure.
• Loss after tax for the period came in at US$98.8 million, as compared to a loss of US$77.9 million reported in the year-ago period.
• As of 30 June 2021, the company realised US$7.2 million in commercialisation revenue pertaining to royalty income earned on sales of TEMCELL® Hs. Inj. in Japan, up from US$6.6 million reported in the year-ago period.
• In FY21, the company inked a contractual amendment to extend the interest-only period of its current senior debt facility through to January 2022.
• Post the grant of FDA approval, the company anticipates recognising the current US$21.9 million of remestemcel-L pre-release inventory on the balance sheet.
• The company ended the period with a cash balance of US$136.9 million, up from US$129.3 million reported at the end of FY20.

Cash Highlight (Source: Analysis by Kalkine Group)

Risk Analysis:

• Delay in clinical trials may increase funding requirements and additional costs.
• Stiff competition from peers, and the global threat environment add to the woes.
• MSB’s net loss is increasing on a year-over-year basis. Hence, these mounting losses may throw tough challenges at the company’s overall functioning and may dampen margins in the future.
• Any adverse movement in foreign exchange price may impact the financial performance of the company.

Outlook:

• Going forward, the company stands to benefit from the collaboration with Novartis to develop, manufacture and commercialise its key product Remestemcel-L.
• The company is well-positioned to enhance its capabilities in the market and continues to experience robust levels of sales inquiries, leads, and contracted work.
• MSB expects to receive FDA feedback in the coming quarter owing to US regulatory approval for its rexlemestrocel-L technology platform.
• The demand for the company’s innovative cell-based medicines and product development capabilities continues to grow, thereby boosting orders.
  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has been corrected by ~29.77% in the past six months. Currently, the stock is trading near to its 52- week low level of A$1.57. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some premium compared to its peers’ median EV/Sales multiple, considering decent liquidity position, collaboration with Novartis, cost-cutting initiatives, etc. For the purpose of valuation, peers such as Telix Pharmaceuticals Ltd (ASX: TLX), Oncosil Medical Ltd (ASX: OSL), Clinuvel Pharmaceuticals Ltd (ASX: CUV), and others have been considered. Considering the aforesaid fact, robust demand for Remestemcel-L, strong cash reserve, strategic alliances, expected FDA approvals, decent long-term outlook, current trading levels, valuation, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of A$1.545, down by ~4.038% as on 5 October 2021.

MSB Daily Technical Chart, Data Source: REFINITIV 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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