Stocks’ Details

Mesoblast Limited

ODAC to Review RYONCIL™ Data on 13^th August: Mesoblast Limited (ASX: MSB) is a world leader in developing allogeneic (off-the-shelf) cellular medicines. The company recently released an announcement stating that the Oncologic Drugs Advisory Committee (ODAC) of the US FDA has agreed to review data supporting the Company’s Biologics License Application (BLA) for approval of RYONCIL™ (remestemcel-L) for the treatment of steroid-refractory acute graft versus host disease (SR-aGVHD) in children. The committee will conduct the review on 13^th August 2020 in two separate sessions and will make its recommendations to the FDA. The final decision of approval lies solely in the hands of the FDA. If approved, RYONCIL™ (remestemcel-L) will be the first treatment in the United States for children under 12 with SRaGVHD, a potentially life-threatening complication of an allogeneic bone marrow transplant for blood cancer.

Issue of Rights and Shares: The company recently issued 1,500,000 new incentive rights and 74,924 ordinary shares to Kentgrove Capital, with respect to the Kentgrove Capital equity facility agreement entered in 2016, and the extension of the term of the facility in 2019.

EAP Initiated for Remestemcel-L: In another recent update, the company notified regarding the expanded access protocol (EAP) initiated in the U.S for compassionate use of remestemcel-L in the treatment of COVID-19 infected children with cardiovascular and other complications of multisystem inflammatory syndrome (MIS-C). Expanded access is a potential pathway for a patient with an immediately life-threatening condition or serious disease or condition to access an investigational medical product for treatment outside of clinical trials, in the absence of alternate therapy.

March Quarter Highlights: During the quarter ended 31^st March 2020, the company reported significant operational progress, with its Biologics License Application (BLA) for remestemcel-L accepted for priority review by the U.S FDA. Revenue for the nine months ended 31^st March 2020, came in at US$31.5 million, up 113% on pcp, comprising a 127% increase in milestone revenues from strategic partnerships and 81% growth in royalty revenues from sale of TEMCELL HS Inj.®1. Loss after tax declined by 34% to US$45.3 million. At the end of the period, the company reported cash in hand amounting to US$60.1 million. The company expects to release its FY20 results on 27^th August 2020.

Income Statement (Source: Company Reports)

Key Risks: As the company moves towards commercialisation, it anticipates an increase in expenses on manufacturing, establishment of infrastructure, product launches, etc. Hence, to cover these expenses and attain profitability, the company should develop and sell its products after obtaining regulatory approval. Moreover, future revenue is dependent on the size of the market for a product candidate and the ability to maintain adequate pricing and market share. The above factors represent potential hurdles in attaining a profitable position. If the company continues to incur losses, it may lose market value and could impair its ability to raise capital, expand the business, or continue its operations. 

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

P/BV Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of the company gave positive returns of 65.02% in the past 3 months and is currently inclined towards its 52-week high of $4.450. Apart from the cash in hand, the company expects to have an additional US$67.5 million through existing financing facilities and strategic partnerships, which will be utilised for the commercial launch of RYONCIL, scale-up of manufacturing for the projected increase in capacity requirements, and clinical programs pertaining to Phase 3 assets. The company plans to launch RYONCIL in the US by Q4 2020, after FDA’s approval. We have valued the stock using the P/BV multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in percentage terms). For this purpose, we have taken peers such as Nanosonics Ltd (ASX: NAN), Polynovo Ltd (ASX: PNV) and Healius Ltd (ASX: HLS). Considering the backdrop of the above factors, we give a “Hold” recommendation on the stock at the current market price of $3.70, up 10.448% on 21^st July 2020, on account of the announcement of review date by the ODAC.

Australian Pharmaceuticals Industries Limited

API Receives Additional Government Funding: Australian Pharmaceuticals Industries Limited (ASX: API) is primarily engaged in the wholesale distribution of pharmaceutical goods to pharmacies, and retail of health and beauty products to consumers through a network of stores. The company recently announced that Australian Pharmaceuticals Industries Limited, non-executive director, resigned from the Board effective 9^th July 2020. In another recent update, the company notified regarding the increased Government funding of $92 million, for Australia’s network of medicine wholesalers. As a part of the National Pharmaceutical Services Association, API will benefit from this additional funding over the next five years, effective from 1 July 2020.

Half Year Performance: During the half-year ended 29^th February 2020, total revenue came in at $2 billion, up 2.8% on the prior corresponding period. Underlying EBIT for the half stood at $41.7 million, down 6.1% on pcp. Underlying NPAT stood at $26.3 million, down 1.9% on pcp. The results reflected challenging retail conditions and consumer sentiment and supplier delays. During the half, the company reduced its net debt, by paying off a part of debt via proceeds from sale of Sigma shareholding. Moreover, improved working capital and cash conversion further strengthened the financial position. Notably, adjusted net debt came down by 50.5% to $129.7 million and cash conversion reduced by 7.3 days on pcp.

Adjusted Net Debt (Source: Company Reports)

Outlook: Due to COVID-19 led volatility, the company could not provide guidance for the second half. However, it is confident about the long-term prospects of its assets and has improved its financial flexibility for making growth investments. In the short term, the company aims to preserve cash and save costs.

Key Risks: The Group is exposed to significant new or existing competitors in the pharmacy, retail, health and beauty markets. Structural reforms within the Australian Community Pharmacy sector can also impact the business. In addition, the execution of Retail Pharmacy strategy is dependent on the growth of Priceline Pharmacy stores, which may grow at a slower pace than expected.

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

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of the company corrected by 18.59% in the past 6 months and is currently inclined towards its 52-week low of $0.995. The company expects to release its FY20 earnings results on 19^th October 2020. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in percentage terms). For this purpose, we have taken peers such as Opthea Ltd (ASX: OPT), Integral Diagnostics Ltd (ASX: IDX) and Mayne Pharma Group Ltd (ASX: MYX). Considering the current trading levels, valuation, recent funding received, and key risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.105, up 0.913% on 21^st July 2020.

AnteoTech Limited

Update on Multiplex Test for COVID-19: AnteoTech Limited (ASX: ADO) is a surface chemistry company with Intellectual Property in its core technology product groups AnteoCoat™, AnteoBind™ and AnteoRelease™. The company recently updated that it has produced multiplexed proof of concept assays using an Axxin AX-2X-S Lateral Flow Reader, designed to provide high sensitivity concurrent detection of COVID19 and Flu A&B in a rapid test format. The company expects to conduct the next phases of development over the coming six to nine months, aimed at optimizing tests, conducting clinical studies for targeted markets, obtaining regulatory approvals and preparing for outsourced scaled manufacturing.

In another update during May, the company announced that it successfully produced a point of care lateral flow multiplexed proof of concept assay working with an Axxin AX-2X-S Lateral Flow Reader providing high sensitivity detection of the condition Sepsis, in the serum. AnteoTech and Axxin are now moving to clinical trials, to be followed by the commercialisation phase. Notably, Sepsis affects 30 million people per year, with ~6 million people dying from the condition per year.

Quarterly Highlights: During the quarter ended 31^st March 2020, the company raised $2.15 million through a rights issue, despite unprecedented market conditions. Cash on hand at the end of the quarter stood at $3.183 million. Cash reserves were further strengthened from an R&D Tax claim of $966,562 received in April. R&D expenditure for the quarter came in at $135,000.

Operating Cash Flow (Source: Company Reports)

Key Risks: The Group is primarily exposed to interest rate risk, arising from fluctuations in cash flows or fair value of financial instruments; foreign currency risk, arising from the purchase of goods and services in foreign currencies; credit risk, arising from cash and cash equivalents and deposits with banks and financial institutions.

Stock Recommendation: The stock of the company gave positive returns of 61.90% in the past 1 month and is trading above the average of its 52-week low and high of $0.010 and $0.054, respectively. As on 31^st December 2019, the company had cash and short-term investments amounting to $2.11 million and total debt amounting to $0.26 million. Considering the ongoing developments with respect to multiplex tests, price movements in the past 1 month, and current trading levels, we have a wait and watch stance on the stock at the current market price of $0.035, up 2.941% as on 21^st July 2020.

Immuron Limited

Key Update on IMM-124E: Immuron Limited (ASX: IMC) is an Australian biopharmaceutical company focused on developing and commercialising oral immunotherapeutics for the prevention and treatment of gut mediated pathogens. The company recently updated that IMM-124E, which is used to manufacture its gastrointestinal and digestive health immune supplements, Travelan® and Protectyn®, demonstrated neutralizing activity against SARS-CoV-2, the virus that causes COVID-19. The study depicted significantly enhanced cell viability in the presence of IMM-124E, when compared to placebo. Notably, cell viability improved by 180 to 260% relative to controls.

In another recent development, the Naval Medical Research Center (NMRC) received U.S FDA’s written guidance for the clinical development pathway of a new investigational drug being developed by IMC to treat moderate to severe campylobacteriosis and Enterotoxigenic Escherichia coli (ETEC) infections. This represents a key milestone in the development of any new drug and provides a clear roadmap for conducting two planned clinical studies in 2021.

Significant Growth in Global Sales: In Q3FY20 ended 31^st March 2020, the company achieved 60% YoY growth in worldwide product sales, which stood at $983k as compared to $616k in Q3FY19. Gross sales in Australia and the USA grew by 35% and 50%, respectively. Growth in Australia was supported by co-operative marketing initiatives with Pharmacies. Moreover, growth in the USA came on the back of increasing sales in both Passport Health Travel Clinics and on the Amazon e-commerce channel. Amid the current uncertainties, the company has implemented significant cost reductions to preserve its cash position and has also applied to various funding schemes offered by Australian and U.S governments. International travel restrictions due to COVID-19 are expected to impact sales in Q4FY20. During 1HFY20, the company incurred a loss of $1.49 million.

1HFY20 Income Statement (Source: Company Reports)

Key Risks: As discussed above, the company expects sales in Q4 to be impacted by COVID-19 restrictions. In such a scenario, the company may face difficulties in recovering its losses in the short term. In addition, the company is also exposed to changes in USD/AUD exchange rates on account of USD denominated financial instruments. Moreover, potential non-performance of contractual obligations by counterparties increased the exposure to credit risk.

Stock Recommendation: The stock of the company gave positive returns of 145% in the past 3 months and is currently inclined towards its 52-week high of $0.950. As on 31^st December 2019, the company had cash and short-term investments amounting to $4.84 million and total debt amounting to $0.18 million. Considering the recent update on IMM-124E, written guidance received from US FDA, sales performance in Q3FY20, price movements in the past few months, and current trading levels, we suggest investors to keep an eye on further developments, and hence, have a watch stance on the stock at the current market price of $0.855, up 248.98% on 21^st July 2020, on account of the recent update regarding neutralizing activity against SARS-CoV-2.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.