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Biotron A Potential Re-Rating Story

Australia | Mar 29 2011

This story features BIOTRON LIMITED. For more info SHARE ANALYSIS: BIT

– Biotron is an anti-viral drug developer
– BTR225 compound showing promise for HIV and Hepatitis C
– Southern Cross rates Biotron a Buy
– Clinical trial success a likely catalyst for re-rating, suggests the stockbroker

By Chris Shaw

Biotron ((BIT)), is an early-stage biotech company with a focus on developing anti-viral drugs. This focus offers Biotron an advantage according to Southern Cross Equities, as anti-viral drugs have typically enjoyed higher levels of success in clinical trials.

This potential for good trials results underpins a Buy rating on Biotron for Southern Cross, with pre-clinical and early clinical data for the proprietary BIT225 compound supportive of a positive view.

As Southern Cross notes, BIT225 has a good toxicity profile, can be taken orally, is stable and has a reasonable in-patient half life. Currently BIT225 is being tested for suitability in treating HIV and Hepatitis C. The early data have been positive in both cases, with the compound attacking the HIV and HCV viruses and showing a reduction in viral loads in Hepatitis C tests.

Both markets are potentially significant, Southern Cross estimating the Hepatitis C market is potentially worth more than US$3 billion. Anti-HIV drugs are a US$5 billion market, with BIT225 well placed given signs the compound attacks HIV in the viral reservoirs, which have proven an issue for other HIV-drug strategies.

Currently Biotron is conducting a Phase II trial for Hepatitis C, its BIT225 compound being combined with the standard care of interferon and ribavirin. Data from the trial are anticipated by mid-year and Southern Cross expects favourable results.

Success should leave the company well placed in the market, as Southern Cross notes there are currently only two new drugs near the market for Hepatitis C and both have side effects and require significantly more tablets taken per day than BIT225.

What could create value in Biotron, according to Southern Cross, is the potential for a partnership with another company in the drug market. This is especially the case as BIT225 is designed to be synergistic with anti-HIV and anti-HCV drugs.

Using conservative assumptions with respect to sales assumptions, royalty streams and tax and exchange rates, Southern Cross has calculated a base case valuation for Biotron of $0.39. More optimistic assumptions suggest a bullish case valuation of $0.88. Southern Cross has set a price target on the stock of $0.35.

There is potential for a re-rating once further clinical data emerge from current trials. Southern Cross also notes a Share Purchase Plan announced in February and the conversion of existing options should raise enough capital to fund Biotron through to a first partnership agreement.

Given a current share price of around 10c, the upside to Southern Cross's base case valuation is enough to justify a Buy rating. A well regarded management team at Biotron increases Southern Cross's confidence in a positive rating.

There is little basis for comparison as the FNArena database shows no coverage of Biotron. This would partly reflect the small market capitalisation of around $11.5m at current levels.

Over the past year Biotron shares have traded in a range of $0.051 to $0.15. 

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