Pharmaxis Ltd (ASX:PXS) has received a A$0.53 price target from MST Access in its just-released initiation of coverage report.
The Sydney-based financial firm valued the healthcare stock at an A$243 million market cap, based on its sum-of-the-parts analysis of the drug development company.
This means MST considered Pharmaxis’ value by determining what its aggregate divisions would be worth if they were spun off or acquired by another company.
In this case, the analyst looked at PXS’ two clinical programs: PXS-5505, the lead candidate being developed to treat a rare bone marrow cancer known as myelofibrosis; and PXS-6302, a topical treatment in development for skin scarring.
It also weighed up its mannitol portfolio, which includes two products — a cystic fibrosis treatment and asthma diagnostic — and is currently cash-flow positive.
Pharmaxis shares are currently trading for A$0.12 in a $52.25 million market cap.
“Potentially transformative period”
In a thesis on its price target, MST stated Pharmaxis boasted “a rare combination of skills and assets to facilitate bench-to-bedside research”.
It also highlighted the varied nature of its clinical pipeline, with lead candidate PXS-5505 about to enter phase 2 trials.
“Pharmaxis is entering a potentially transformational period as it advances a portfolio of novel small molecule inhibitors of amine oxidases – key enzymes in the regulation of collagen production and validated targets for anti-inflammatory/antifibrotic treatments.
“The broad involvement of fibrosis across many diseases underscores multiple clinical indications for Pharmaxis to pursue.
“The company has two lead drug candidates: PXS-5505 (targeting a rare bone marrow cancer, myelofibrosis), which is in phase 2a; and PXS-6302 (skin scarring), which just completed phase 1c trials.
“Clinical data readouts are expected for both by end-CY22.
“The approval and launch of Bronchitol® (cystic fibrosis treatment) and Aridol® (diagnostic test for asthma) bode well for management’s ability to advance clinical assets from discovery through to commercialisation and provide an important source of funding.
“Nonetheless, we expect these revenue streams to be dwarfed by future income arising from royalties and milestone payments should other clinical assets prove successful.”
Financials
MST Access’ coverage comes soon after PXS unveiled its latest batch of financials on October 28.
In the first quarter of FY22, Pharmaxis reported A$2.95 million in Bronchitol® sales and A$0.3 million from Aridol® transactions.
It brings the drug development company’s total global sales up to A$3.3 million — a near five-fold increase on the previous corresponding quarter in FY21.
Operating expenses increased to A$8.2 million during the quarter — up from the A$6.7m in the previous corresponding period due to higher manufacturing purchases and clinical trial expenses.
Pharmaxis continues to advance its trials in myelofibrosis and scarring, as well as some other pre-clinical work on other areas of its pipeline.
The healthcare stock tabled a A$3.2 million net loss for the September quarter, consolidated from the A$5 million in the red reported at the same time last year.
PXS has A$16.1 million in cash to support its future endeavours.
Forecasts
Looking ahead, MST’s near-term revenue forecasts for Pharmaxis’ pipeline revolve around the cash-accretive mannitol division.
It also expects the drug development company’s research and development spend to increase substantially in the new financial year as PXS-5505 enters phase two trials.
To a lesser extent, investigations linked to the topical PXS-6302 scarring treatment candidate will also attract a higher rate of spend.
The firm also believes the A$391.2 million in tax on the balance sheet will offset what Pharmaxis has to pay over the medium term.
Commenting on its overall analysis, MST explained: “Our valuation incorporates A$16.1 million in cash at end of 1QFY22, a 12.5% discount rate, and assumes licensing of both PXS-5505 and PXS-6302 subject to positive clinical data in 2024, with PXS-5505 and PXS-6302 launched in 2026 and 2025, respectively.
“Notwithstanding the company’s broad portfolio of clinical assets and potential clinical target indications, the main value drivers in the clinical development pipeline at this point are PXS-5505 in myelofibrosis only, despite the drug’s encouraging data in other cancers, and PXS-6302 in keloid and hypertrophic scarring.
“Our out-licensing assumptions incorporate upfront payments of A$39 million and royalty streams of 11% for each asset.”
