OncoSil Medical Limited

OSL Details

Received Approval for Hong Kong: OncoSil Medical Limited (ASX: OSL) is a clinical-stage medical device firm. OSL has developed the OncoSil ^TM device, its CE-marked main product to treat patients with bile duct cancer and locally advanced pancreatic cancer (LAPC). As of 4 May 2021, the market capitalisation of the company stood at ~$75.89 million. On 4 April 2021, OSL announced the grant of clearance to market its OncoSil^TM device in Hong Kong (HK) market. HK is a strategic market for OSL’s ASEAN commercialisation strategy, due to the concentration of LAPC hospital sites and its higher healthcare spending on per capita basis in Asia.

Decent Results in Q3FY21: During the period, the company appointed Nigel Lange as the CEO, followed by filling of CMO, Head of Medical Affairs, and changes in other leadership positions. OSL submitted an HDE (Humanitarian Device Exemption) application with the US FDA (US Food and Drug Administration) in July 2020. OSL progressed activities to roll-out the device in Europe and UK during the March quarter. It is working on final stage activities and approvals for nine hospitals in Greater London licensed to use its device. It is also developing an Osprey registry to collect and assess data for its device safe usage and seek approvals for different markets. OSL has achieved its first commercial sale of the device in New Zealand and witnessed further sales. OSL incurred a net cash outflow of $2.7 million from operations and held a cash reserve of $15.3 million as of 31 March 2021.

Cash Flow Q3FY21, Highlights (Source: Company Reports)

Key Risks: OSL faces the risk of disruptions caused by the pandemic, such as access and hospital restrictions and the delay in the commercial launch of its device in the UK and Europe. Further, regulatory approval, stiff competition from peers, and increasing R&D expenditure add to the woes.

Outlook: OSL is involved in increasing the sites for its device in New Zealand and fostering further approvals for the Osprey registry in New Zealand, Malaysia, and Singapore. In January 2021, OSL submitted additional data based on the TGA request for the application filed with the authority. For expanding in the UK, OSL is targeting hospitals in Greater London in the short term. It expects to launch the activities of its device in Europe and aims to establish the Osprey registry. 

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

Data Source: Refinitiv, Thomson Reuters, 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 OSL gave a positive return of 21.59% in the past three months and a positive return of 32.41% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $0.088-$0.18. The stock of OSL has a support level of ~$0.089 and a resistance level of ~$0.11. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount than its peer median, considering the risk of market volatility and pandemic led disruptions, and response of TGA (Therapeutic Goods Administration) awaited on the filed application. For this purpose, we have taken peers like AVITA Medical Inc (ASX: AVH), Hexima Limited (ASX: HXL), to name a few, which comes under Pharmaceuticals, Biotechnology & Life Sciences Sector. Considering the current trading levels, decent results of Q3FY21, revenue generation in 1HFY21, ongoing device launch activities in Europe and UK, valuation, and related risks of the pandemic disruptions, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.098, up by ~4.225% on 4 May 2021.

OSL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Cellmid Limited

CDY Details

Investor Briefing Invite: Cellmid Limited (ASX: CDY) is an aging solutions developer through its subsidiary Advangen Limited (AL). The subsidiary develops new treatments for skin, body, and hair. As of 4 May 2021, the market capitalisation of the company stood at ~$13.12 million. On 3 May 2021, CDY announced an online investor briefing on its growth strategy and the agreement signed to sell its biotech subsidiary Lyramid Limited.

Grant of Chinese Import Permits: CDY recently announced the import clearance from the Chinese National Medical Products Administration (NMPA). The permit has been granted for the sale of CDY’s Jo-Ju®, and Lexilis® branded shampoos in any channel in mainland China. The access is a milestone in enacting the distribution contract entered in December 2020 with Ourui Health Management (OHM).

Subsidiary Posted Revenue Growth in Q3FY21: CDY reported a growth of 12% YoY to $958K in the consolidated health revenue for its subsidiary, AL in 3QFY21. Its YTD2021 revenue was down by 14% YoY to $3.9 million, mainly owing to the timing of sales in QVC Japan and the change in the distribution in China. In Japan, the company’s sales (consumer health) increased to $674K, up by 19% in Q3FY21 on a pcp basis.

During the quarter, CDY reported $4.5 million of capital raise via an underwritten rights issue and to fund its ecommerce growth strategy and execute orders as per the Chinese distribution contracts. It registered a reduction in the underlying operating cash outflow to $1.7 million for the March quarter. CDY held a cash balance of $4.56 million as of 31 December 2020. It reported a cash reserve of $8.3 million as of 1 April, including the $3.8 million net proceeds of the rights issue.

Q3FY21 Cash Flow from Operating Activities (Source: Company Reports)

Key Risks: The company is exposed to stiff industry competition from its peers and delay or failure to introduce new products/brands in the market. It also faces the risk of supply chain logistics due to the COVID-19 disruptions.  

Outlook: CDY expects Q4 to be the best sales period for the consumer health business, given its experience. It also foresees changes in the quarterly and monthly revenues to persist in the near term. CDY has completed a new hair loss supplement formulation and is on track for its manufacturing and e-commerce launch in 1HFY2022. It also plans to manufacture new hair products under the evolis® brand for the Asian market and slated for launch in 1HFY2022. CDY is already engaging with other brands for the joint development of new products.

Stock Recommendation: The stock of CDY gave a negative return of 24.78% in the past three months and a negative return of 28.36% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $0.065-$0.172. The stock of CDY has a support level of ~$0.065 and a resistance level of ~$0.094. On a TTM basis, the stock of CDY is trading at a price to book value multiple of 1.8x lower than the industry (Biotechnology & Medical Research) median of 5.1x, thus seems undervalued. Considering the current trading levels, the quarterly revenue growth in the consumer healthcare business of AL, the new import permit from NMPA for distribution in China, the growth outlook provided by the manufacturing of new products underway, valuation on a TTM basis and associated risks of the COVID-19 uncertainties, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.070 on 4 May 2021.

CDY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: 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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