PureTech Health PLC (LON: PRTC) – Strong clinical momentum, regulatory approvals, and substantial cash resources are supporting future growth.

PureTech Health PLC is a FTSE 250 index listed Company, which develops and commercialise medicines related to gastrointestinal diseases, intractable cancers, central nervous system disorders, lymphatic, and immunological diseases. Its pipeline consists of 24 product candidates, while 2 products have already received approval from US FDA (Food and Drug Administration) and European marketing authorities. The Group has a proven track record of clinical success, boundless innovation and producing valuable therapeutic products.

 (Source: Company Website)

Growth Prospects and Risk Assessment

In H1 FY20, PRTC generated cash of over US$245 million, which reflects a robust liquidity position. It also sold equities of nearly US$101 million in founded entities. The Group has 24 product candidates, among which 12 are in the clinical stage. Moreover, PureTech is exploring the potential of LYT-100 for curing serious respiratory complications. It also has advanced trials for breast cancer problem, and results are expected to come in FY21. With strong trading momentum, the Group has also narrowed the operating losses in H1 FY20. Meanwhile, its founded entity Vedanta Biosciences has received $25 million investment from Pfizer Inc, which will support the further growth in the Company.

Regarding the risk factors, the Company’s performance is subject to various kinds of risk - failure or delay of pipeline and new medicines can impact the growth trajectory, failure to meet ethical or regulatory requirements can cause heavy penalties and reputational damage. Moreover, there is a commercialisation risk pertinent to affordability and pricing of drugs due to competitive pressure. Also, during the Covid-19 and Brexit uncertainties, there is a risk to supply chain and operational costs. Furthermore, the recessionary economic conditions can put pressure over the strategic targets. 

Industry Outlook Dynamics

Amid sluggish global economic outlook and rising global trade tensions, the market size for the worldwide healthcare market is projected to top US$2 trillion mark in 2020 (according to the report from Research and Markets). Adjacently, as per the report from the IQVIA Institute for Human Data Science, global pharmaceutical spending is projected to hit USD 1.5 trillion in 2023, projecting a CAGR of 3% to 6% between 2019 to 2023. At the same time, pricing, patient exclusivity, and regulations are presenting challenges as well as opportunities.

The rapid growth in the overall and ageing population will increase the need for drug requirement. The World Economic Forum projected that non-communicable diseases (NCDs) could incur the cost of USD 47 trillion to the global economy by 2030 as the number of NCDs death had risen from 31 million in 2000 to 41 million people in 2016. Moreover, increasing urbanisation will also lead to greater wealth and better healthcare requirement. Further, as per Strategy Analytics, it is estimated to have 38 billion internet-connected devices to be installed by 2025 globally. In 2019, Global pharmaceutical sales were also increased by 6% to USD 1,033 billion (as compared to USD 975 billion in 2018).

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of PureTech Health Plc.

Recent Developments

On 12 January 2021: The Company stated that Vedanta Biosciences (its Founded Entity) announced a USD 25 million investment from Pfizer Inc.

On 5 January 2021: PureTech has appointed George Farmer, as a Chief Financial Officer.

On 11 December 2020: The Company announced the initiation of the Phase 1 clinical trial of LYT-200, which is for the treatment of metastatic solid tumors.

In November 2020: Nasdaq has approved the ADSs for listing, and the ADSs has begun trading on the Nasdaq Global Market (NASDAQ) on 16 November 2020, under the symbol "PRTC".

Financial and Operational Highlights (for the six months ended 30 June 2020 (H1 FY20), as on 27 August 2020)

(Source: Company Website)

• For H1 FY20, the revenues increased by 56% year-on-year, with Alivio’s USAMRAA agreement drove the increase in revenue in the first half of 2020.
• For the six months ended 30 June 2020, the loss from operations was down by 24.9% year-on-year, due to a decline in operating expenses.
• During the first half of 2020, the Company has demonstrated a robust commitment to value realisation through the monetisation of Founded Entity equity.
• PureTech Level Cash Reserves increased by US$189.9 million against the previous period (31 December 2019: US$120.6 million).
• Further, it has also generated an additional ~US$101 million of cash in August 2020, which is from a subsequent sale of Founded Entity equity.
• Founded Entities have raised more than US$890 million, of which US$823.4 was from third parties.
• In H1 FY20, it generated more than US$245 million from the sales of minority shares in certain Founded Entities, which will help the future growth of PureTech.
• The Company saw a strong balance sheet, with a US$136.5 million of equity investments and non-dilutive funding.
• Overall, the first half of 2020 has been an exceptional period, with the achievement of multiple notable regulatory milestones. While maintaining good momentum on the strategic priorities, and the fundamentals of PRTC’s business stayed strong. 

Financial Ratios

Share Price Performance Analysis

On 14 January 2021, at the time of writing (before the market close, at 9:50 AM GMT), PureTech Health shares were trading at GBX 396.06, up by 0.91% against the previous day closing price. Stock 52-week High was GBX 447.66 and Low of GBX 198.50, respectively.

From the technical standpoint, 20-day SMA (379.20) and 20-day EMA (376.20) are supporting the upside potential.

In the past six months, PureTech Health PLC’s stock price has delivered a positive return of ~42.73% return as compared to negative ~5.07% return of FTSE 250 index and a negative ~9.96% return of FTSE Pharmaceuticals & Biotechnology index, which shows that the stock has outperformed the benchmark index and the sector.

In the last three months, PureTech Health share price has delivered around 57% return as compared to the approximately 15.23% return of FTSE 250 index, which shows that the stock has outperformed the index during the last three months.

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Peers used in the valuation methodology (EV/NTM Sales)

Business Outlook Scenario

PRTC produced a robust performance in H1 FY20, driven by significant regulatory milestones, solid liquidity position, and notable clinical progress. Moreover, the Company has substantial cash resources to fund the pipeline of founded entities. As of 30 September 2020, the Company had US$387.20 million of cash equivalents and short-term investments, which underpins the potential to develop new medicines for serious diseases. In H1 FY20, the Group increased its revenue by 56% year-on-year, which reduced operating losses. With this pace of growth, the Company shall be able to create an attractive value for its shareholders.

(Source: Presentation, Company Website)

Considering the solid momentum on strategic priorities, resilient performance, strong regulatory, clinical and financial momentum across the Founded Entities and Wholly Owned Pipeline, sound business model, decent operating and financial performance, robust cash generation, improved profitability margins, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on PureTech Health at the current price of GBX 396.06 (as on 14 January 2021, before the market close at 9:55 AM GMT), with lower-double digit upside potential based on 99.68x EV/NTM Sales (approx.) on FY20E sales (approx.). 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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