Opthea Limited

OPT Details

Ceasing to be a Substantial Holder: Opthea Limited (ASX: OPT) is a biopharmaceutical company involved in developing and commercialising therapies for retinal diseases with its lead product candidate OPT-302. On 21 January 2022, Bank of America Corporation and its related bodies corporate ceased to be a substantial holder in OPT.

R&D Tax Incentive:  

• Recently, the company announced that it had obtained a research and development (R&D) tax rebate of A$6.6 million (US$4.9 million) from the Australian Taxation Office.
• The credit received by the company depicts expenditure related to R&D costs incurred in the FY2020-2021, which OPT disclosed in its audited financial statements for the period ending 30 June 2021.
• Notably, the cash incentive of A$6.6 million bolsters the company’s balance sheet, and aids OPT to remain on track and continue as a worldwide patient enrolment in its key Phase 3 ShORe and COAST clinical trials of OPT-302 in wet AMD.

Spotlight on FY21 Results: The company reported an increase of ~307.7% in net losses after-tax, which came in at ~US$45.34 million in FY21. During the same period, the company reported revenues from ordinary activities of ~US$440k, down by ~18.3% on a year over year basis.

 Key Financial Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company faces IP development and protection risk, regulatory risk, failure of clinical trials, impacts of COVID-19 and the new variant Omicron.

Outlook: The company remains on track to report Phase 3 top-line data in the second half of CY2023. The company also remains focused on continuing its pivotal program for OPT-302 in wet AMD. Consequently, OPT ensures the availability of the resources and its capability to leverage opportunities from the program.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  The stock of the company has been corrected by ~13.2% in the past one month. Currently, the stock is trading below the average of its 52-week low and high levels of $1.075 and $2.02, respectively. The stock has been valued using the P/B multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company might trade at a slight discount than its peers, considering the mounting losses, uncertain clinical trial outcomes, and impact of new COVID-19 virus variants. For the purpose of its valuation, peers like Sigma Healthcare Ltd (ASX: SIG), AVITA Medical Inc (ASX: AVH), and Mesoblast Ltd (ASX: MSB), and others have been considered. Considering the factors mentioned above, a trend of nil debt levels, indicative upside in the valuation, regulatory pathway for OPT-302, progress towards Phase -3 trials and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $1.155, as on 27 January 2022, 12:00 PM (GMT+10), Sydney, Eastern Australia.

OPT Daily Technical Chart, Data Source: REFINITIV

Mesoblast Limited  

MSB Details

36-Month Results of Phase 3 Trial: Mesoblast Limited (ASX: MSB) is engaged in offering allogeneic cellular medicines for inflammatory diseases. The company was listed on ASX in December 2004. In a recent update, the company informed the market regarding 36-months follow-up outcomes from the 404-patient treated with rexlemestrocel-L (MPC-06-ID) suffering from chronic low back pain (CLBP) related to degenerative disc disease (DDD). The company plans to conduct an additional phase 3 trial to support submissions for potential approval in both the US and EU regions.

A quick Look at 2022 Showcase & Q1FY22 Results:

• In FY21, the company recorded US$7.2 million in revenue from TEMCELL® HS Inj royalties, which depicted an increase of 10% from the year-ago period. In 1QFY22, revenue from TEMCELL HS Inj royalties in Japan surged 22% on a pcp basis.
• The company also received royalty income from its patent licensee TiGenix, S.A.U., a wholly-owned subsidiary of Takeda, on the global sales of its product Alofisel® for treating adult patients suffering from complex perianal fistulas.
• The company exited the quarter with a cash balance of US$116 million.

TEMCELL® HS Inj Royalties Highlight (Source: Analysis by Kalkine Group)

Key Risks: MSB’s mounting losses in FY21 may throw tough challenges at the company’s overall functioning and may dampen margins in the future. Any adverse movement in foreign exchange prices may impact the company's financial performance. It is also exposed to a complex regulatory landscape in the healthcare space.

Outlook: MSB remains focused on developing product candidates for distinctive symptoms based on its remestemcel-L and rexlemestrocel-L stromal cell technology programs. Further, the company is well equipped to establish commercial partnerships in Europe and China for Phase 3 assets, resulting in improved survival outcomes. The company will continue to be in discussion with the FDA with an objective to attain the approval of remestemcel-L in the treatment of SR-aGVHD in children, moving forward.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has been corrected by ~41.51%. Currently, the stock is trading below the average of its 52-week low and high levels of $1.08 and $2.9, respectively. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers, considering the COVID-19 led uncertainties, the inefficiency of business to generate profits, etc. For this purpose of valuation, few peers like CSL Ltd. (ASX: CSL), Clinuvel Pharmaceuticals Ltd. (ASX: CUV), Paradigm Biopharmaceuticals Ltd (ASX: PAR), and others have been considered. Considering the upsurge in royalty income, a positive update on remestemcel-L, progress in Rexlemestrocel-L, geographical expansion, upside in valuation, current trading levels, and key associated business risks, we recommend ‘Speculative Buy’ rating on the stock at the current market price of $1.120, as on 27 January 2022, 3:00 PM (GMT+10), Sydney, Eastern Australia.

MSB Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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