PharmAust Limited

PAA Details

Positive Results against COVID-19 Infections:  PharmAust Limited (ASX: PAA) is a clinical-stage company focused on developing its own drug discovery intellectual property for the treatment of different types of cancers in humans and animals. The company also provides medicinal and synthetic chemistry services on a contract basis to its clients. The company’s lead drug candidate, Monepantel (MPL), is currently being evaluated for its effectiveness on Covid-19 infections. During the June 2020 quarter, the company signed a Materials Transfer Agreement with the Walter and Eliza Hall Institute of Medical Research (WEHI) in Melbourne, Victoria, to test the effects of monepantel and monepantel sulfone on COVID-19 infections. So far, the results have been positive, and it has been found that Monepantel and monepantel sulfone treatment both reduce SARS-CoV-2 (COVID-19) cell-to-cell infectivity in cell culture. Both PAA and WEHI are working together for comparative analysis on human pulmonary epithelial cells with MPL and other mTOR inhibitors. After receiving the assay results for these, the company will prepare an Executive Summary and an Investigator's Brochure to permit discussions with clinicians about a Phase I trial in a small number of human patients to treat COVID-19.

Successful outcome in the Veterinary Phase II Clinical Trial: The company has achieved positive outcomes in the veterinary Phase II clinical trial, wherein, it is investigating the effects of monepantel on dogs with treatment naïve B Cell lymphoma. During the trial, there was a 100% survival rate and one pet dog achieved greater than 60% reduction in tumour burden, with one of its tumours completely disappearing within 14 days.

Progressing for Human Trails: The company is currently preparing for the evaluation of MPL in human trials. It has submitted the MPL human trial paper for publication in a peer review journal and has conducted further tablet formulation and pharmacokinetic studies aiming to increase uptake of monepantel into the blood and reduce tablet numbers for future human trials. The company is identifying a suitable Clinical Oncology Unit to evaluate the new MPL tablet in humans in a Phase II trial.

Key Risks: The company’s financial instruments expose it to cash flow interest rate risk, liquidity risk and foreign exchange risk. Further, the company’s performance and operations may be influenced by a number of factors, many of which are outside the control of the company.

Well-funded to Continue its Current Activities: During the June quarter, the company spent $334k on operating activities that include $136k spent on research and development, $118k spent on product manufacturing and operating costs and $687k spent on staff costs. Over the quarter, the company received $624k as receipts from customers. Cash outflows during the June quarter were in-line with management expectations. At the end of the June quarter, the company has a cash balance of $2.9 million. The company recently issued 2,495,000 fully paid ordinary shares of the company by exercising its unlisted options. From this, the company raised over $1.4 million.

Cash Outflow from Operating Activities (Source: Company Reports)

Stock Recommendation: Over the last three and six months, the stock of PAA has increased by 75% and 92.31%, respectively, and currently, it is trading above the average of its 52-week trading range. On Trailing Twelve Months (TTM) basis, the stock is trading at an EV/Sales multiple of 12.4x, higher than the industry median (Pharmaceuticals) of 9.9x. On a TTM basis, the stock is also trading at a price to book value multiple of 5.9x, higher than the industry median of 1.9x. Considering the above-mentioned facts, current trading levels and valuations on TTM basis, we are of the view that most of the positives are factored in at the current levels and the stock seems overvalued at the current juncture. Hence, we suggest investors to wait for better entry levels and give a watch stance on the stock at the current market price of 0.170, down by 2.857% on 31 July 2020.

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

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