Small Caps | Jan 31 2012
By Greg Peel
Pharmaxis ((PXS)) didn't have what you'd call a great year in 2011. Seven or so months ago the stock price was sitting pretty at around $3 before then absolutely falling off a cliff and marking a nadir below $1 last September. We're back around the dollar mark now and the stock remains volatile. That is, however, often the way with biotechs.
PXS specialises in developing new drugs for respiratory diseases and has one – Aridol, which tests the presence and severity of asthma – in commercial production, with another – Bronchitol, for treating cystic fibrosis – now ready for first sales from April in Germany. The drug just needs final ratification of its European Commission marketing authorisation, which is expected without issue anytime soon.
The reason PXS shares dived last year is because the company failed at its first attempt to gain EU approval when great anticipation had been building. Approval has now been granted for use by adults with adolescent use still being up in the air. This is not a perfect result, but it is a result which in the BA-Merrill Lynch analysts' view should have had the PXS share price rallying back a lot further than it has from its initial rejection crash.
Merrills suggests market reluctance can be put down to uncertainty over pricing and uncertainty over initial sales in the current macro environment, particularly in the EU. Germany will kick things off and the UK will follow shortly after, but even PXS management is playing down expectations, suggesting the sales ramp-up will be relatively slow. The company raised fresh capital in November which also helped to stall the share price recovery, and Merrills suggests the market is probably now waiting for the next definitive milestone.
Credit Suisse analysts agree, looking further ahead to FY13 before PXS is registering “meaningful” Bronchitol sales, which will come when other European countries and Australia come on line with approvals. And the US beckons too.
Credit Suisse lists upcoming potential catalysts in order as formal ratification from the EU, pricing settled and sales commenced in Germany, a submission in the US for Bronchitol use for age six and over, and the outcome of the Australian pharmaceutical benefits review. Beyond that, PSX also has another asthma drug undergoing phase two clinical trials.
Bronchitol aside, the half-year result reported by PXS last week provided no surprises, with Credit Suisse noting 7% sequential growth in Aridol and a level of cash burn expected by the analysts. The raising means PXS is now in a strong financial position, CS suggests.
It is not unusual for biotechs to attract a wide variation of target prices from brokers, and PXS is no exception. Having adjusted for the stronger Aussie, Credit Suisse (Outperform) last week dropped its target to $1.50 from $1.75 (last trade $1.00). Merrills (Buy) also updated its view on PXS last week but has a target of $2.53. RBS is the only other FNArena database broker to cover the stock, and set a target of $2.46 when upgrading to Buy in October.
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