Stocks’ Details

Mayne Pharma Group Limited

Controlled Expenses: Mayne Pharma Group Limited (ASX: MYX) is a specialty pharmaceutical company. The company is focused on commercialising branded and generic pharmaceuticals. It operates through four segments: Generic Products (GPD), Specialty Brands (SBD), Metrics Contract Services (MCS) and Mayne Pharma International (MPI). The company was able to reduce its expenses during 1HFY21. MYX has incurred $10.3mn expenses on its R&D in 1HFY21 as compared with $12.7mn in 1HFY20. Similarly, Marketing & Distribution expenses have registered a decline of 27% YoY to $28.8mn in 1HFY21 and Administration and other expenses have registered a decline of 9% YoY to $56.4mn in 1HFY21.

Growth in Contract Services Across Regions: MYX has registered a growth in contract services revenue in the US and Australia. In US, MYX holds more than 100 customers which includes 11 of the top 20 global pharma companies. The company has 5 commercial products in the US and more than 50 molecules under development. The company has registered a 12% CAGR over FY16-FY20 in its US contract services revenue. In Australia, the company has more than 25 customers with more than 9 molecules under development and holds more than 20 commercial products. The company has registered a 10% CAGR over FY16-FY20 in its Australia contract services revenue.

US and AU Contract Services Revenue (Source: Company Reports)

Key Risks: MYX is present in multiple countries, which may let the company to the foreign exchange risk. The company seeks US FDA approval for most of its products, failing to which the company may face high operational cost leading to financial losses.  

Outlook: MYX has made significant progress in the launch of oral contraceptive Nextstellis (E4 DRSP) in the US. The company is expecting a launch cost of ~US$10mn in 2HFY21, after the approval of Nextstellis. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, MYX has decreased by 1.06% and by 6.99% in the last three months. The current market capitalisation of MYX stands at ~$520.51mn as of 11 March 2021. The stock is currently trading slightly below the average 52-week price level range of $0.195-$0.477. On the technical analysis front, the stock has a support level of ~$0.292 and a resistance of ~$0.341. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering an attractive growth in contract services revenues across Australia and the US and a decline in net debt as of 31 December 2020. For this purpose, we have taken peers Probiotec Ltd (ASX: PBP), Pharmaxis Ltd (ASX: PXS), to name a few. Considering the fact that MYX is making significant progress for the launch of oral contraceptive Nextstellis, lower expenses in 1HFY21, exhibiting growth in contract services revenue across US and Australia, valuation, and current trading levels along with key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.32, up by 3.225% as on 11 March 2021.

MGC Pharmaceuticals Ltd

Acquiring Operational Businesses: MGC Pharmaceuticals Ltd (ASX: MXC) is a biopharma company. The company is primarily focused on producing standardised, phyto-cannabinoid, and plant-derived medicines. As per the company reports, MXC has acquired Telehealth clinic, Medical Cannabis Clinics (MCC) on 23 November 2020 for a total consideration of $1.4mn. This acquisition would aid MXC with direct access to the patients enrolled with MCC. The acquisition would allow MXC to provide its GMP certified medications to patients in Australia and enhances profitability while keeping competitive prices for its products.

Key Highlights for 1HFY21: MXC has posted a revenue of $0.74mn in 1HFY21 as compared with $1.77mn in 1HFY20. The company has managed to lower its losses to $6.04mn in 1HFY21 from $11.77mn in 1HFY20. MXC has received a grant of ~$5mn from Malta enterprise to refurbish the existing Clinical Research Organisation (CRO) facility in Malta. The company will provide Covid-19 anti-inflammatory product, ArtemiC through its fully functional GMP-certified manufacturing facility. The construction is expected to complete by mid-2021.

Global Unit Sales and New Patients Growth (Source: Company Reports)

Outlook: The company has recently raised capital via listing on London Stock Exchange. The company will utilise the funds to enhance its production through the completion of GMP-certified production facility at Malta and Slovenia. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, MXC has increased by 88.88% and by 126.66% in the last three months. The current market capitalisation of MXC stands at ~$136.01mn as of 11 March 2021. The stock is currently trading below the average 52-week price level range of $0.015-$0.130. On the technical analysis front, the stock has a support level of ~$0.061 and a resistance of ~$0.07. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low double-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering the company has posted a decline in its revenues and has not registered profits from the past few years. For this purpose, we have taken peers Medical Developments International Ltd (ASX: MVP), Suda Pharmaceuticals Ltd (ASX: SUD), Starpharma Holdings Ltd (ASX: SPL). Considering an increase in spending towards acquisitions of businesses, steep price movement in the past months, valuation, and current trading levels, we are of the view that most of the positives are factored in at the current juncture. Hence, we suggest investors to wait for a better entry-level and give an “Expensive” rating on the stock at the closing price of $0.068, up by 13.333% as of 11 March 2021.

Pharmaxis Ltd

A Turnaround with Profits: Pharmaxis Ltd (ASX: PXS) is a pharmaceutical research company with a portfolio of products at various stages of development and approval mainly focused on inflammation and fibrosis. The company is engaged in research, development, and commercialisation of human healthcare products for the treatment and management of chronic diseases. PXS has posted profits of $46,000 in 1HFY21 against a significant loss of $10.31mn in 1HFY20, mainly on the back of receipts of ~$9.94mn from Chiesi group against US FDA approval milestone, lower costs and partly by foreign exchange gains.

Partnership with Chiesi Group: Pharmaxis Ltd is expected to gain through the partnership with Chiesi Group. After US FDA approval of Bronchitol to cure pulmonary function in cystic fibrosis patients, Chiesi has paid ~$10.0mn to Pharmaxis during December quarter 2020 as a milestone payment and further ~$4mn payable on the shipment of Bronchitol in US market by Pharmaxis in the first half of 2021. Chiesi will represent Pharmaxis in the EU market for the distribution of Pharmaxis products.

First Patient Enrolled for Cancer Treatment: As per the company report on 22 February 2021, PXS has enrolled the first patient for the clinical trial for cancer treatment. After the FDA approval for a phase 1c/2a trial, the company has established that the drug discovery pipeline is safe and effective.

Revenue Highlights (Source: Company Reports)

Key Risks: PXS is present in the US and Europe, which may expose the company to supply disruption risk. Any delay in the supply of products may lead to financial losses. The company is present in the pharmaceutical industry, which requires high R&D cost. Any delay in product release may lead to higher operational cost and financial losses.

Outlook: The company has recently got approval for its product Bronchitol which will contribute significantly towards the growth of global sales. Pharmaxis Mannitol business is expected to register positive cash flow from FY21 and will earn mid-to-high teen percentage of Chiesi net sales.   

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, PXS has decreased by 10.98% and by 9.99% in the last three months. The current market capitalisation of PXS stands at ~$32.97mn as of 11 March 2021. The stock is currently trading below the average 52-week price level range of $0.053-$0.170. On the technical analysis front, the stock has a support level of ~$0.075 and a resistance of ~$0.101. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering its turnaround strategies, profits via a partnership with Chisei group in 1HFY21 and expectations on positive cash flows from FY21. For this purpose, we have taken peers Probiotec Ltd (ASX: PBP), Mayne Pharma Group Ltd (ASX: MYX), to name a few. Considering turnaround in profits, decent liquidity position, expanding distribution network across the EU region, valuations, and current trading levels, along with key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.081, down by 2.410% as on 11 March 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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