Diffusion Pharmaceuticals Inc

Diffusion Pharmaceuticals Inc (NASDAQ: DFFN) is a US-based clinical-stage biotechnology Company. The Company is focused on developing novel therapies, including chemotherapy and radiation therapy.

Investment Highlights - Diffusion Pharmaceuticals Inc – Speculative Buy at USD 1.49

• Being in the development stage, the Company has a strong liquidity position and well-positioned balance sheet to meet working capital needs.
• In the last one year, the Company delivered a significant return of ~275.79% and delivered higher returns compared to the benchmark Index.
• As per valuation metrics, Price/Book value multiple of the Diffusion Pharmaceuticals Inc is currently lower as compared to the corresponding multiple of the Biotechnology & Medical Research industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (USD 1.27), which reflects an uptrend in the stock and can move up further.

Key Risks

• Any change in regulations and government policies could affect the overall business of the Company.
• The covid-19 outbreak has resulted in supply chain disruptions which will have a negative impact on the Company’s performance.

Recent News

On 16 February 2021, Diffusion Pharmaceuticals announced the completion of Phase 1b clinical trial of TSC (trans sodium crocetinate) in covid-19 Patients with confirmed hypoxemia.

Financial Highlights – Q3 and 9M FY2020 (30 September 2020) (released on 12 November 2020)

(Source: Quarterly Report, Company Website) 

• For nine months period of FY2020, the Company did not generate any revenue and witnessed an increase in expenses for the period.
• Due to higher expenses, the loss for the period increased to $4,439,211 and $10,123,249 in Q3 FY2020 and 9M FY2020, respectively.
• The cash balance as on 30 September 2020 improved to $21,910,183 (31 December 2019: $14,177,349).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in the third quarter and the first nine months period of the financial year 2020. The Company is in the development stage and hence rely on grants and cash balances to carry on all the business activities. The operations are financed by the sale of equity securities by private placements. The Bottom-line performance has declined, with profitability remained in the negative zone. Diffusion Pharmaceuticals’ operational performance was not materially impacted by the impact of the covid-19 pandemic, while it resulted in the delay in clinical trials, increased costs and disruption in the supply chain. The Company is focused on driving growth across the platform and executing business objectives. The stock made a 52-week low and high of USD 0.25 and USD 1.85, respectively.

Based on the above rationale, we have given a “Speculative Buy” recommendation on Diffusion Pharmaceuticals Inc at the closing price of USD 1.49 (as on 17 February 2021).

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