Australia | Oct 16 2020
This story features CSL LIMITED, and other companies. For more info SHARE ANALYSIS: CSL
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.
OncoSil is the company’s breakthrough brachytherapy (a procedure that involves placing radioactive materials inside your body) device. It has received device designation in the European Union, United Kingdom and the United States for the treatment of unresectable (can’t be removed with surgery) locally advanced pancreatic cancer in combination with chemotherapy.
Wilsons believe an FDA Humanitarian Device Exemption (HDE) later this year could re-rate the stock. This is for the treatment of bile duct cancer. Such an approval is considered to offer the company a uniformity and immediacy in market access terms that would take years to develop in either Europe or the Asia Pacific.
The broker understands first commercial (paid) treatments could be scheduled as early as this month (October) and likely conducted at sites that have had scientific and clinical engagement since inception (London, Singapore).
Similarly, Bell Potter is virtually certain commercial revenues will accrue this year. The broker lists several important upcoming catalysts, including an update on survival for patients from the Panco study (for patients undergoing standard chemotherapy treatment for pancreatic cancer). Another catalyst is the above mentioned outcome of the company’s HDE application to the FDA.
The company has marketing authorisations in the UK, EU, Singapore, Malaysia and New Zealand. In addition, approvals are pending in Australia and Hong Kong.
Both Bell Potter and Wilsons have a Buy rating for the stock and an average target price of 41 cents.
Consulting and financial advisory firm Deloitte recently released a 2020 Global Life Sciences Outlook entitled ‘Creating new value, building blocks for the future’.
The report outlines how biopharma and med-tech organisations can use Artificial Intelligence (AI) for the benefit of companies and shareholders. Additionally, technology companies are increasingly targeting medical research to ride the life sciences tailwind.
Reflecting this trend is Painchek ((PCK)), which utilises artificial intelligence (AI) and smartphone technology to give a voice to people who cannot verbalise their pain. Facial and other indicators are combined to make a pain assessment in less than two minutes.
The company recently reported a better-than-expected FY20 result. Canaccord Genuity noted revenue was ahead of the broker's estimate and the operating loss better than expected. However, momentum is considered to have slowed in the fourth quarter due to covid-19 related restrictions on the aged care sector.
The pivot to digital operations during the pandemic is succeeding and the broker anticipates the business could grow through this challenging period with over 20% quarter on quarter growth in contracted beds.
The analyst has a Buy rating and 12 month target price of 55 cents.
Immutep ((IMM)) is leading the development of immunotherapy for cancer and autoimmune diseases. Its core technology is based on the LAG-3 (lymphocyte activation gene-3) protein, a key mediator of the immune system.
The company has one pre-clinical and three clinical LAG-3 product candidates under development. This includes two antibodies for modulating immune responses in autoimmunity and cancer, through pharmaceutical partnerships, with Novartis and GlaxoSmithKline.
The lead product candidate is eftilagimod alpha (LAG-3Ig or IMP321), a first-in-class antigen presenting cell (APC) activator currently being investigated in clinical trials as a treatment (in combination with chemotherapy or immune therapy) for breast cancer and melanoma.
LAG-3 is a cell surface molecule which plays a vital role in regulating T cells. The objective is to harness and strengthen the power of the body’s own immune systems through therapeutic intervention.
Bell Potter recently initiated coverage of the stock with a Buy rating and a target price of 60 cents.
Further validation of Immutep's technology is provided by a host of high quality commercial and clinical trial collaborations with Big Pharma. BMS is by far the most active company in the space and dominates oncology with its anti-LAG-3 asset relatlimab.
Validation of LAG-3 in immuno-oncology (IO) is expected near term through first pivotal trial results from BMS' anti-LAG-3 asset relatlimab. The broker expects Immutep, as the leader and sole pure-play LAG-3 company, to benefit from this validation.
Bell Potter forecasts peak in-market sales of US$3bn across three cancer indications and a US$1bn licensing deal in FY22.
Atomo Diagnostics ((AT1)) is a global leader in the design of medical devices for blood-based rapid testing for professional use and self-testing. The company’s innovative rapid diagnostic test (RDT) platforms simplify procedures, mitigate common user errors, and enhance test performance.
The focus is on testing either in the field or at home. Test kits used in laboratories can be unreliable when used outside of that environment. Targets for testing are global illnesses like HIV, malaria and dengue fever.
The company’s first full-year result after its initial public offering (IPO) did not disappoint Canaccord Genuity, with revenue ahead of the broker's forecast and an operating loss less than half of what was expected.
The company earned revenue from four products. This was a feat which the broker takes as proof the business is broader than the pandemic.
There are many catalysts to monitor going forward, explains the analyst, including the pending launch of the US business via partner Access Bio. Additionally, there is the launch of the Australian business for both covid-19 and HIV post the respective TGA approvals and the ramp-up of the FebriDX business in Europe.
Finally, the development of a digital eHealth solution may facilitate regulatory approval for the covid-19 product as a self-test for consumers.
As a result, Cannacord Genuity expects FY21 to be even stronger and maintains a Buy recommendation with a target price of 78 cents.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
FNArena is proud about its track record and past achievements: Ten Years On
For more info SHARE ANALYSIS: ARX - AROA BIOSURGERY LIMITED
For more info SHARE ANALYSIS: AT1 - ATOMO DIAGNOSTICS LIMITED
For more info SHARE ANALYSIS: CSL - CSL LIMITED
For more info SHARE ANALYSIS: IMM - IMMUTEP LIMITED
For more info SHARE ANALYSIS: MSB - MESOBLAST LIMITED
For more info SHARE ANALYSIS: OSL - ONCOSIL MEDICAL LTD
For more info SHARE ANALYSIS: PCK - PAINCHEK LIMITED
For more info SHARE ANALYSIS: SPL - STARPHARMA HOLDINGS LIMITED