PhaseBio Pharmaceuticals, Inc.

PhaseBio Pharmaceuticals, Inc. (NASDAQ: PHAS) is a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies for cardiopulmonary diseases.

Key Updates:

• The company reported that the Bentracimab clinical development program had been enrolled before the schedule. Bentracimab is supported by the REVERSE-IT trial, and the company is planning to Commercialize the above product and would indulge in scale manufacturing in the coming days.
• The company’s is conducting Pemziviptadil Clinical Development Activities, which is a medicine for Primary Pulmonary Arterial Hypertension. As per the management, the above medicine addresses progressive vascular remodelling and prevents heart failure. Currently, the company is conducting Phase 2B PAH Efficacy 16-Wk Randomized, Controlled Study.

Source: Company Presentation

FY20 Financial Highlights:

• PHAS announced its full-year result, wherein the company posted total revenue of USD 0.320 million v/s USD 2.361 million in FY19.
• Loss from operations stood higher at USD 84.856 million v/s a loss of USD 39.736 million in FY19. Higher loss was primarily attributable to an increase in research and development costs (USD 72.088 million v/s USD 30.911 million in the previous year), higher general and administrative costs (USD 13.088 million v/s USD 11.186 million in FY19).
• The company reported a net loss of USD 13.709 million, as compared to a net income of USD 0.489 million in FY19.

FY20 Income Statement Highlights (Source: Company Reports)

Risks: The clinical trials are subjected to several regulatory approvals and hence requires capital investments and delay in the expected timelines. Any negative outcome from the trials or delay in regulatory approval would affect the business prospect.

Stock Recommendations:

The company is conducting THEMIS PCI, and as per the data, there is a significantly favorable effect on primary efficacy endpoint and greater net clinical benefit. Apart from this, the company is conducting several clinical studies, but the group is yet to report a stable income. Further, net cash used in operating activities stood at USD 59.957 million, significantly higher than USD 39.594 million in FY19. On the valuation front. the stock of PHAS is trading at a forward EV to Sales multiple of 57.7x, as compared to the industry (Healthcare) median of 6.8x. Hence considering the aforesaid facts, we prefer to remain on the sidelines and suggest an ‘Avoid’ recommendation on the stock at the closing price of USD 3.46 on April 05, 2021.

One-Year Price Chart (as on April 05, 2021). Source: Refinitiv (Thomson Reuters)

Allied Esports Entertainment, Inc.

Allied Esports Entertainment (NASDAQ: AESE) is a global esports entertainment venture that provides transformative live experiences, multiplatform content and interactive services to audiences across the Globe through its strategic fusion of two powerful entertainment brands.

Key Highlights:

• Increase in Accumulated Deficit: The company reported constant losses due to lower revenue and an increase in operating costs, which impacted the company’s cash flows and profitability. Accumulated deficit at the end of FY20, increased to USD 162.277 million, from USD 117.218 million in FY19.
• Exit from Poker Business: On March 19, 2021, the group entered into a definitive agreement to sell its subsidiary, World Poker Tour, which operates in poker business, to Element Partners, LLC at a price consideration of ~USD 90.5 million.

FY20 Financial Highlights:

• Total Revenues stood at USD 3.210 million, comparatively lower than USD 7.548 million in FY19.
• Total costs and expenses stood at USD 35.66 million, significantly higher than USD 21.91 million in the previous year. The increase in expense was due to an increase in general and administrative expenses (USD 11.864 million v/s USD 10.438 million in FY19), the inclusion of impairment of property and equipment expense amounting to USD 5.60 million, coupled with higher Stock-based compensation costs (USD 5.141 million v/s USD 0.247 million in FY19).
• Loss from Operations extended to USD 32.448 million v/s USD 14.359 million in FY19.
• The company reported a net loss of USD 45.058 million, as compared to a net loss of USD 16.738 million in FY19. The increase in loss was primarily attributable to higher interest expense (USD 5.548 million v/s USD 1.081 million in pcp), the inclusion of conversion inducement expense amounting to USD 5.247 million, and an expense related to extinguishment loss on the acceleration of debt redemption amounting USD 3.438 million.
• At the end of FY20, the group reported a cash balance of USD 0.424 million, while total assets were recorded at USD 61.90 million.

FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company’s FY20 performance remained under pressure and saw a drastic fall within the In-person revenue segment, which impacted the overall profitability of the company. Moreover, an increase in the accumulated deficit would lead to equity erosion and liquidity issues in the coming quarters.

Stock Recommendation:

The company reported an Adjusted EBITDA loss of USD 37.181 million, significantly higher than USD 10.823 million in FY19. The company exited from its non-performing business segment World Poker Tour in order to improve its operations. However, improvement in operations would take time, and we do not expect any immediate result. Moreover, the stock of AESE already appreciated ~93% and ~131% in the last three months and six months, respectively. Moreover, on the valuation front, the stock is available at an EV to Sales multiple of 11.6x on TTM basis, which is significantly higher compared to the industry median of 5.1x. Hence, considering the aforesaid facts, we prefer to remain on the sidelines and suggest an ‘Avoid’ recommendation on the stock at the closing price of USD 2.82 on April 05, 2021.

One-Year Price Chart (as on April 05, 2021). Source: Refinitiv (Thomson Reuters)

SunLink Health Systems Inc

SunLink Health Systems Inc (AMEX: SSY) is engaged in providing retail pharmacy services. The company operates its business through segments namely the Healthcare Services segment and Pharmacy segment. The Pharmacy segment is the key revenue generator.

Key highlights 

• Upgrading Trace Regional Hospital: Recently, the company announced that its wholly owned subsidiary, Trace Regional Hospital, has implemented a capital plan totaling approximately USD 2 million to expand, upgrade and improve its physical plant, patient care, ancillary services and support areas. The expansion and upgrade program would allow them to meet the growing demand for quality senior behavioral services as well as acute care hospital services in its northeast Mississippi service area.

• Lower performance from both operating segments: In Q2 2021, the revenues from healthcare services decreased by 22% compared to previous corresponding period.  The decrease resulted primarily from the reduced patient demand as a result of the COVID-19 pandemic. Hospital patient days decreased 25%, nursing home patient days decreased 33% and clinic visits decreased 38% in the reported period. Pharmacy segment net revenues also decreased by 20%. 

• Rise in operating expenses: The company’s reported operating expenses such as salaries, wages, and benefits, purchased services, other operating expenses and depreciation and amortization expense increased as a percent of net revenues in Q2 2021, against the previous corresponding period, primarily due to the lower net revenues resulting from the COVID-19 pandemic.

Source: Company 

Financial overview of Q2 2021 (In thousands of USD)

Source: Company 

• The company reported a decrease of 20.7% in revenue at USD 10.1 million in Q2 2021, against USD 12.8 million in the previous corresponding period. The fall in revenue was primarily due to decreased hospital and nursing home net revenues and decreased Pharmacy segment revenues primarily due to the COVID-19 pandemic.
• The operating loss for Q2 2021 stood at USD 254,000 (before recognition of PRF distributions which are reported in other income) compared to operating profit of USD 281,000 in pcp. The operating loss was primarily a result of the decreases in net revenues and higher costs as a percentage of net revenues resulting from the COVID-19 pandemic.
• The company managed to report net income of USD 3.0 million in the reported quarter, primarily due to grants of USD 3.41 they received under the Coronavirus Aid Relief and Economic Security. 

Risks associated with investment

The company is susceptible to various risks, including the uncertainty from the general business, market and economic conditions primarily due to the impact of the covid-19 pandemic. The financial constraints, its ability to implement business strategies and pursue opportunities, etc. are some other risks which could impact its further operations. 

Stock recommendation

Since the beginning of the pandemic, the group’s healthcare and pharmacy segments’ business have experienced reduced admissions and negative sales trends in certain areas as well as increased costs and operational inefficiencies due to measures taken to protect its employees and patients. Although, the company is expanding, upgrading, and improving its physical plant, patient care, ancillary services and support areas with a capex of USD 2.0 million at its Trace Regional Hospital. This would help them to meet the growing demand for quality senior behavioral services as well as acute care hospital services in its northeast Mississippi service area. Further, on the valuation front, the stock is trading at an EV to EBITDA multiple of 28.9x on TTM basis, which is significantly higher than the industry (Food and Drug Retailing) median of 7.6x. Hence, considering the stretched valuation, we suggest an “Expensive” recommendation on the stock at the closing market price of USD 2.88 on April 05, 2021.

1-Year Price Chart (as on April 05, 2021). Source: Refinitiv (Thomson Reuters)

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