RESEARCH: Anatara Lifesciences’ Zoetis Deal A Company Maker

FYI | Mar 15 2019

By Pitt Street Research

Anatara Lifesciences Limited ((ANR)), a Melbourne-based drug developer focusing on GI therapies, partnered with Zoetis in an exclusive worldwide licensing agreement for its lead drug, bromelain-based Detach, in May 2018. We believe that the opportunity is remarkable, given the size and scale of Zoetis’ animal health portfolio.

Considering the wide manufacturing, marketing, and distribution network of Zoetis, the company is expected to be able to contribute more effectively to Detach’s development than ANR could have (it being a small company).

The deal is also extremely momentous for ANR, as the interest from one of the largest animal health companies worldwide reaffirms the credibility of the bromelain technology and reduces ANR’s cost burden, while providing a stream of cash flow to help the company move forward with its plans in human GI health.

Investment case: Upside from a human health application
ANR is now focusing on developing a bromelain-based  Gastrointestinal ReProgramming (GaRP) product, for human GI health, particularly in irritable bowel syndrome (IBS) and inflammatory bowel disease (IBD). The product is being positioned as a dietary supplement that could be used by itself or in conjunction with prescription medications.

Due to the regulatory and commercial advantages associated with natural products and the complexity of management of these diseases, we believe GaRP has a significant upside potential.

Additionally, considering the excellent safety and efficacy profile of Detach, the product is expected to witness a rapid adoption, especially on the back of Zoetis’ global presence.

ANR’s current cash is sufficient to fund GaRP in the human GI space through to the point of licensing out. Milestones and royalty payments will provide funding for future developments.

Valuation
We value ANR at $1.34 per share base case and $3.61 optimistic case using a probability-weighted DCF valuation approach. ANR is currently trading well below this valuation range.

We see the potential to be re-rated by the market as GaRP progresses and as Zoetis gains regulatory approvals and launches Detach in North America, Europe and Asia.

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