OncoSil Medical (ASX:OSL) has received a Speculative Buy recommendation from WilsonHTM.
The broker has maintained its $0.50 target price, and said that was pre-emptively diluted for anticipated capital raising event(s) in FY16-17.
OncoSil last traded at $0.20. The following is an extract from the report.
"OncoSil takes the money ahead of key milestones"
We maintain a SPECULATIVE BUY rating. No change to target price of 50 cps which was pre-emptively diluted for anticipated capital raising event(s) in FY16-17.
OncoSil takes the money ahead of key milestones
OncoSil Medical has announced an opportunistic funding top-up of $10m while waiting for two key milestones.
It expects to start selling its brachytherapy device for the treatment of pancreatic cancer this year, once approved by the European regulator.
A well-designed, large clinical trial is also anticipated in the USA in 2016, should the FDA grant approval.
Additional capital is required to support the company through to profitability, although non-dilutive alternatives could present themselves over the next few years, if its asset attracts interest from commercial partners.
Key points
1) A surprise $10m private placement priced at 22cps. Attractively priced, small offering to institutional market, ahead of two short-term price catalysts for the stock: pending European marketing approval (CE Mark) for OncoSil™ and FDA’s potential approval of OncoSil’s plans to commence a registration-directed clinical trial.
2) Additional capital required to fully prosecute the global trial and initial commercialisation. OncoSil reported $5.8m cash at end of Dec-15. Although a first product launch should follow immediately after CE Marking, we expect sales will be modest initially.
OncoSil’s clinical trial is the company’s major set piece over the next three years – likely to recruit around 250 patients with top-line data potentially available in 2018. The trial has been designed to form the basis for a Premarket Authorisation (PMA) submission to the FDA.
3) Trial execution a catalyst for attracting commercial interest, possibly funding.
OncoSil™ is most likely to be commercialised in the USA via collaboration with a larger partner. We understand several high profile clinical sites are being targeted, which may help attract partner interest.
An early partnering transaction could obviate the need for additional equity capital – providing upside to our forecast and valuation (development risk reduction, non-dilutive R&D capital).
Valuation
The most important valuation milestones in the near term are IDE trial approval and a positive CE Marking decision, which support valuations of up to $1.00 per share, on a 12-month view.
If we completely de-risk the OncoSil valuation model (all clinical and development success probabilities set to 100%, discount rate set closer to 8-9% reflecting a more established medical device business), we can see potential valuations of $2.75 per share emerging over the next 3-5 years.
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