Avita Therapeutics, Inc.

Re-domiciliation of Avita Group: Avita Therapeutics, Inc. (ASX: AVHDA, AVH) is a regenerative medicine company involved in providing innovative treatment solutions for unmet medical needs in burns, chronic wounds, and aesthetics indications. The company has recently received approval from its shareholders and the Federal Court of Australia for re-domiciliation of the company and its subsidiaries from Australia to the USA, under which AVITA Therapeutics, Inc. ARBN 641 288 155 (Avita US), a company incorporated in the State of Delaware in the US, will become the parent company of the Avita Group. After the implementation, the existing primary listing of the company on ASX and secondary listing on NASDAQ will be inverted and replaced with a new listing of Avita US on NASDAQ as primary listing and on ASX as secondary listing. As a consideration for transferring the shares to AVH US Shares under the scheme, eligible shareholders will receive one Avita US share for every 100 shares held by them on the record date.

Under the scheme of arrangement, shareholders will receive 5 CHESS depositary interests (CDI) securities in Avita US in exchange of 100 shares in the Company with the record date of 25 June 2020. The ADS Depositary will receive one Avita US Share for every 100 Shares held by it on the record date and will distribute to ADS holders one Avita US Share for every 5 ADSs held by them upon surrender. The company will transfer all Shares to Avita US and Avita US CDIs on 29 June 2020. The proposed transaction will align the Avita Group’s corporate structure with its business operations and will reduce the risk, burden, resourcing, and resultant costs and will increase the awareness of the Avita Group to a broader range of investors in the US capital market. It is important to note that the Proposed Transaction will not change an Eligible Shareholder’s underlying ownership interests in the Avita Group.
In relation to corporate actions regarding shares, such as bonus issues, rights issues and capital reconstructions, CDI holders will receive equal treatment to that of holders whose financial products are legally registered in their own name. This is because foreign issuers are generally required to treat CDI holders as though they were the legally registered holders of the corresponding foreign financial products. However, in the case of shares, the laws of some countries may not permit foreign issuers incorporated there to treat CDI holders, as they were the legally registered holders of the corresponding foreign financial products for all purposes. Hence, investing in CDI will depend on regulations as per both ASX and NASDAQ.


Indicative Dates for Implementation of the Scheme (Source: Company’s Report)

Q3 FY20 Update: For the third quarter of the fiscal year 2020, the company reported U.S. product sales of $5.8 million and international product sales of $148k. For the quarter, the company reported total revenue of $8.06 million, taking the total nine months revenue to $21.59 million. Cash receipts from customers for the quarter were $5,254k, up 7% on the prior quarter due to increased sales. The quarterly results were underpinned by the growing adoption trends within the company’s existing and new RECELL System customers. 


March Quarter Results (Source: Company Reports)

Key Risks: The company is exposed to several risks and uncertainties including, the timing of regulatory approvals of its products; physician acceptance, endorsement, and use of its products; failure to achieve the anticipated benefits from approval of products; the effect of regulatory actions; product liability claims; risks associated with international operations and expansion; and other business effects, including the effects of industry, economic or political conditions outside of the company’s control. 

Stock Details: Due to Coronavirus, the company has temporarily paused the enrollment in some of its clinical trials; however, it is advancing its pipeline and is currently developing the protocol and FDA Investigational Device Application for the RECELL vitiligo pivotal study. The re-domiciliation is expected to create a “local” share listing on the NASDAQ exchange in the United States, and it will substantially reduce the costs, burden, resourcing, and risks associated with dual financial reporting. The Company’s shares were suspended from trading on the ASX from close of 23 June 2020 and the trading of Avita US Chess Depositary Interests was commenced on the ASX on 24 June 2020 on a deferred settlement basis. 
 

Suda Pharmaceuticals Ltd

Market Update and Reinstatement to Official Quotation: Suda Pharmaceuticals Ltd (ASX: SUD) is a drug delivery company headquartered in Perth, Western Australia. On 25 June 2020, the company provided a market update, wherein, it informed that it was progressing towards the announcement of a proposed material licensing transaction in connection to a promising cancer therapy technology from a leading U.S. Cancer Research Institute. In addition, the company was also planning the arrangements for a proposed capital raising. The company even entered into a trading halt on 1 June 2020 to assess and pursue the transaction. However, ASX determined that the transaction is of the nature which requires the company to re-comply with Chapters 1 and 2 of the ASX Listing Rules for the purposes of Listing Rule 11.1.3. As a result of this, the company could not proceed with the proposed transaction. Following the release of this market update, the company’s securities were reinstated to official quotation. 

H1FY20 Highlights: For the first half of FY20, the company reported revenue of $369,819, down by 55% on pcp. Over the period, the company entered three new agreements. In H1FY20, the company incurred a loss before income tax of $7.699 million following an impairment of its ArTiMist project for $5.344 million.


H1FY20 Results (Source: Company Reports)

What to Expect: The company is currently continuing its short-term insomnia treatment, ZolpiMist and expects to receive an outcome from its TGA submission in Q4 CY20. Further, the company is also developing products in conjunction with its partners, Sanofi, Laboratorios Ordesa, Strides Pharma Global, Zelira Therapeutics and Cann Pharmaceutical Australia.

Key Risks: It is to be noted that the ongoing and future clinical trials of the company’s product candidates may not show sufficient safety or efficacy to obtain requisite regulatory approvals for commercial sale. Further, the company is also exposed to regulatory and licensing risk. 

Stock Recommendation: The stock of SUD has corrected by 45.16% in the last six months and is trading close to its 52 weeks low price of $0.029. The company currently has a current ratio of 2.22x, higher than the industry median of 1.78x. The company’s Assets/Equity ratio currently stands at 1.29x, lower than the industry median of 1.80x. The company’s stock is currently trading at an EV/Sales multiple of 4.7x, lower than the industry median (healthcare) of 10.5x, on a trailing twelve months (TTM) basis. Further, the company’s price to book multiple stands at 0.8x, lower than the industry median of 2.4x.  Considering the aforesaid facts, the expected outcome for TGA submission in Q4 CY20, and the company’s plans for developing its products, we have a watch stance on the stock at the current market price of $0.042, up by 23.529% on 26 June 2020, owing to its recent market update.

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