Diffusion Pharmaceuticals, Inc.

DFFN Details

Bought Deal Offering: Diffusion Pharmaceuticals Inc. (NASDAQ: DFFN) is a US-based clinical-stage biopharmaceutical company. As of 08 March 2021, the company’s market capitalization stood at ~$87 million. On 18^th February 2021, DFFN closed the underwritten public offering of 33.7 million shares (including 4.4 million under option) of its common stock at $1.025, resulting in gross proceeds of $34.5 million.  The proceeds will be used to further fund research and development for trans sodium crocetinate (TSC) – the company’s flagship diffusion-enhancing therapeutic, and for general corporate purposes.

Successful Clinical Phase 1B Trials: On 16^th February 2021, DFFN announced the successful completion of Phase 1b clinical trial of TSC in hospitalized COVID-19 patients with confirmed hypoxemia. The trial was conducted on six COVID-19 patients in the dosage form of 0.25 mg/kg, 0.5 mg/kg, 1.0 mg/kg, 1.5 mg/kg depending on the individual characteristics under the supervision of an external safety monitoring committee. TSC was given to these patients every six hours for a minimum of five days and up to 15 days. The committee concluded the absence of dose-limiting toxicities or serious adverse events upon administration of TSC, reinforcing the safety profile of the drug and supporting its further development. The successful development of the drug has the potential to capture an untapped market of $30 million for the company. As per top-level estimates by DFFN, respiratory and skin/soft tissue constitute major sub-areas of this market with approximate sizes of $21 million and $9 million, respectively.

Potential Markets for TSC (Source: Company Presentation)

Key Results Highlights: In the nine months ended 30^th September 2020 (Q3FY20), the company did not generate any revenue and registered an increase in expenses. Consequently, loss during the period increased to $10.1 million from $8.0 million in the year-ago period.

Key Risks: The company is exposed to the risks associated with the development, commercialization, and marketing of TSC, its sole product in the pipeline as of now.

Outlook: DFFN intends to undertake two additional clinical studies to evaluate the efficacy of TSC on oxygen's complete journey through the body. The results of these studies are expected to be delivered in 2H21. The studies are key pre-requisites for the successful launch of TSC in an untapped market to treat hypoxia.

Stock Recommendation: DFFN has given positive returns of 8.327% on YTD basis and is down by 33.24% in last one month. The stock made a 52-week low and high of $0.25 and $1.85, respectively. The stock has a support level of ~$0.568 and a resistance level of ~$1.15. Considering the potential market for TSC, successful closure of bought deal offering, completion of phase 1B clinical trials, and associated key risks, we give a “Speculative Buy” recommendation on the stock at the closing price of $0.8612, down 3.78% as on 08 March 2021.

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

Fastly Inc.

FSLY Details

Convertible Senior Notes Offering: Fastly, Inc. (NYSE: FSLY) is an American cloud computing services provider with a market capitalization of ~US$7.11 billion as on 08 March 2021. The company announced the pricing of Convertible Senior Notes amounting to $825 million in early March 2021. The funds raised are expected to catalyze the continuation of the growth momentum of FSLY, including acquisitions of or strategic investments in matching businesses or technologies. One such recently completed acquisition is that of Signal Sciences, a provider of web application and API security solutions for $775 million completed in Q4FY20.

Robust FY20 Results: The company registered a strong top-line growth of 45% YoY in 2020, with revenues totaling $291 million. Revenue increased 40% YoY in 4QFY20 to $83 million. Enterprise customer count increased to 324 from 313 as at the end of the previous quarter. The company is witnessing robust demand in the gaming vertical with additions to the customer base as well as an expansion of existing customers. Other rapidly growing verticals include education (learning management), financial services technology, and telecommunication. Gross margins (non-GAAP) were well north of 60% for FSLY for the full year as well as the quarter. The annual revenue retention rate for the whole year was 99%. (Contribution from the acquisition of Signal Sciences in the last quarter was reported in revenue figures but not in other key metrics).

Quarterly Financial Highlights (Source: Company Reports)

Key Risks: FSLY earns a significant share of its revenues (~90%) from a limited number of enterprise customers. The loss of or a significant reduction in usage by such major customers could adversely impact the company’s financials. This is more so in an industry where technological changes can erode a competitive edge. However, the consistently high retention rates demonstrate the stickiness of the company’s platform, thus mitigating this risk considerably.

Outlook: The company expects revenue of $375-385 million in 2021, up from $291 million in 2020. Capital expenditure guidance of 13-14% of revenue indicates continued growth investments, particularly towards accelerating the expansion of its Edge Cloud Platform.

Stock Recommendation: FSLY stock is down ~45.16% and ~27.36% in last one month and three months, respectively. Currently, the stock is trading below the average of its 52 weeks’ trading range, with a high of $136.50 and a low of $10.63. The stock has a support level of ~$57.60 and a resistance level of ~$72.94. Considering the strong growth impetus, high gross margins, and key customer stickiness, we give a “Buy” rating on the stock at the closing price of $62.05, down 4.3% as on 08 March 2021.

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

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