Australia | Oct 16 2020
Investor focus is firmly on life sciences companies in 2020. FNArena highlights six ASX-listed entities that have been viewed positively by analysts recently
-This year's pandemic has put life sciences firmly on investors' radar
-Mesoblast's experience symbolic for the risks involved
-Six life sciences companies with positive broker views explained
By Mark Woodruff
The global pandemic of 2020 has put ASX-listed life sciences stocks across the drug, diagnostics and device sectors firmly on the radar for investors. Covid-19 fears have focused minds on the upside potential for any companies that provide solutions to fend-off ailments of any kind.
For the uninitiated, the terms pharmaceutical and biotechnology are subsets of the broader life sciences definition, which pertains to the study of living organisms.
Ignoring the share market's enthusiasm for a moment, investors should not underestimate the risks attached to small cap life sciences companies, as most are exactly that in Australia. Worth keeping in mind: life sciences companies have a 5% to 15% success rate on products they attempt to commercialise, according to the AusBiotech website.
The Australian share market is in a unique position in that the largest index heavyweight locally is CSL ((CSL)), a top five player in the industry globally. Since being floated in 1994, CSL shares have averaged an annual return of nearly 28% compared with circa 9% for the ASX200 index.
But CSL is hardly representative for the Australian share market, let alone for the local life sciences industry. A more accurate experience for investors this year, one that also reflects the risks that come with investing in the industry, might have been provided by Mesoblast ((MSB)).
This Melbourne-headquartered company is the leading allogeneic stem cell player with several late-stage clinical assets. The US healthcare regulator, the Food and Drug Administration (FDA), recently demanded the company complete a further study to provide more evidence of a certain treatment's effectiveness, to general disappointment from investors who had hoped FDA approval would surely arrive sooner than later.
In the run-up to the FDA announcement, Mesoblast's share price had multiplied five times off the March low above $1, then plunged by -41% on the day of the announcement, without recovering since.
Taking opportunity and risks on board, below are half a dozen ASX-listed life sciences companies that received positive feedback from stockbrokers in recent weeks.
Aroa Biosurgery’s ((ARX)) products are developed from the company’s proprietary endoform technology platform. This is a novel extracellular matrix biomaterial derived from ovine (sheep) forestomach. Don't be put off by all the medical and scientific lingo - I'll do my best to unveil and decipher!
Bell Potter considers the platform provides a “holy grail” solution to the trade-off between safety, efficacy and cost with current synthetic and biologic (manufactured in a living system) wound dressings and surgical meshes.
Endoform acts as a scaffold to grow new tissue, lost or damaged through disease or injury. Cells grow into the endoderm (one of three germ layers) matrix to build new tissue and re-establish a blood supply. When Endoform’s job is done, it is completely replaced by the patient’s new tissue. Endoform technology offers superior regenerative performance at a significantly lower cost than other biologics enabling more patients to have access to the benefits of regenerative healing.
One of the company’s products named OviTex is a biologic/synthetic hybrid, which is an alternative to biologic mesh. As it happens, a key competitor of Tela Bio (the company’s exclusive marketing partner) has recently not been re-contracted to supply biologic mesh across a broad range of hospitals. Stockbroker Wilsons suggests Tela Bio may step into the breach.
Separately, the latter broker has collected very favourable clinical feedback on Aroa’s MYRIAD product for dermal (relating to the skin) soft tissue reconstruction.
Both Wilsons and Bell Potter have a Buy rating for the stock with a target price of $2.00 and $2.10, respectively.
Starpharma Holdings ((SPL)) engages in the research, development and commercialisation of dendrimer (a synthetic nanoscale polymer) products for pharmaceutical, life-science and other applications.
The company offers VivaGel, a non-antibiotic therapy for the management and prevention of bacterial vaginosis and also develops the VivaGel antiviral condom. Additionally, the company has the dendrimer enhanced product (DEP) drug delivery platform.
A highlight for Bell Potter in the recent FY20 results was the strong growth in revenues, which was largely driven by a $4.3m milestone payment received from AstraZeneca on initiation of Phase 1 trials with partnered drug AZD0466. Additionally, there was $1.5m in product sales and royalties for VivaGel BV.
Morgans decreased the estimate for the FY22 net loss by -30%, driven by a double digit percentage reduction in cost of goods sold and the operating expense estimates. The broker’s Buy rating was unchanged and the target price increased to $2.20 from $1.84 in early September.
Starpharma has recently announced it has created a long-acting, water soluble version of Gilead’s covid-19 drug remdesivir (branded Veklury). Currently, remdesivir is administered as an IV infusion in covid-19 hospitalised patients.
The medical technology company OncoSil Medical ((OSL)) has a mission to transform the prognosis for people with cancer and improve the approach to their treatment. The company is focused on localised treatments for patients with pancreatic and liver cancer.