PureTech Health PLC (LON: PRTC) – Unique Collaborative R&D (Research & Development) model for advancing new medicines.

PureTech Health PLC is an FTSE 250 index listed Company engaged in developing and commercialising medicines related to gastrointestinal diseases, intractable cancers, central nervous system disorders, lymphatic, and immunological diseases. The wholly-owned and founded entity’s pipeline consists of 24 product candidates, while two products have already received approval from the US FDA (Food and Drug Administration) and European regulatory authorities. Moreover, the wholly-owned pipeline consisted of various candidates such as LYT-100, LYT-200, LYT-210, LYT-300, etc. The Group has a proven track record of clinical success, boundless innovation and producing valuable therapeutic products.

On 15 April 2021, PRTC will release the full-year FY20 results.

(Source: Company presentation)

Growth Prospects and Risk Assessment

The Group has 24 product candidates, of which 13 are in the clinical stage. Moreover, PureTech Health is exploring the potential of LYT-100 for curing serious respiratory complications. The Company has initiated the Phase 2a clinical trial of LYT-100 in Lymphedema to explore clinical efficacy endpoints in patients with breast cancer. PRTC has accelerated the pace of Phase 1 Trial of wholly owned candidate LYT-200 related to the treatment of Metastatic Solid Tumours. Furthermore, the trial will assess the safety and tolerability of LYT-200, and the result of the trials would be available by the end of 2021. Overall, the Company is well-positioned to unleash the potential of oral biotherapeutics.

(Source: Company presentation)

Meanwhile, its founded entity Vedanta Biosciences has received USD 25 million investment from Pfizer Inc, supporting the further growth in the Company. Moreover, the founded entity Karuna Therapeutics had raised gross proceeds of USD 250 million through a public offering.

However, certain potential risks can impact the business, such as price control by regulatory authorities, delay in the pipeline of new medicines due to Covid-19 disruption, failure to meet ethical requirements, intellectual property, and currency fluctuation risk. The Company is also exposed to commercialisation risks such as competitive pressures, affordability, pricing and delays or failure in quality execution of commercial strategies.

Industry Outlook Dynamics

According to Grand View Research’s latest report, the market size of the global clinical trials industry was USD 44.3 billion during 2020. Furthermore, the industry is expected to grow at a CAGR of 5.7% from 2021 to 2028. Moreover, the sector would be boosted by the rising prevalence of chronic disease and the growing demand for clinical trials in developing countries.

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

Recent Developments

On 18 March 2021: The Company announced that Stephen Muniz, Esq., will step down from the Board of Directors and retire from his role as Chief Operating Officer and Corporate Secretary, effective from 17 May 2021. Bharatt Chowrira, as PureTech's President and Chief of Business and Strategy, will assume the responsibilities earlier held by Steve.

On 10 February 2021: PureTech received around USD 118 million from the sale of portion of Founded Entity shares (Karuna Therapeutics).

On 5 February 2021: The Company stated that its Founded Entity (Vor Biopharma) had announced the initial public offering of 9.8 million shares of common stock at a public offering price of USD 18.00 per share. Therefore, PureTech holds 3.2 million shares of Vor common stock.

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)

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

Financial Ratios (H1 FY20)

Share Price Performance Analysis

On 18 March 2021, at the time of writing (before the market close, at 8:05 AM GMT), PureTech Health PLC shares were trading at GBX 407.45, down by 2.52% against the previous day closing price. Stock 52-week High was GBX 447.66, and Low was GBX 198.50, respectively.

From a technical standpoint, 50-day SMA (GBX 397.43) and 50-day EMA (GBX 392.88) support an upside potential.

In the last one year, PureTech Health PLC’s stock price has delivered a return of ~81.74% as compared to ~65.73% return of FTSE 250 index and a ~2.03% return of FTSE All-Share Pharmaceuticals & Biotechnology index, which shows that the stock has outperformed the benchmark sector and the benchmark index.

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. PRTC had further plans of advancing biomarker studies for LYT-210 in 2021. Also, it would initiate the first-in-human clinical study of LYT-300 by the end of 2021. The founded entities also have an attractive pipeline with various candidates undergoing clinical trials. The Company would continue to seek opportunities regarding strategic collaborations and potential financings for strengthening the pipeline of its founded entities.

The Company’s R&D engine has produced substantial results so far, with 13 product candidates are in the clinical stage, and two candidates are already approved by FDA and EU regulatory clearances. With this accelerated progress of potential medicines, the Company shall create an attractive value for its shareholders.

(Source: Company presentation)

Considering the solid momentum on strategic priorities, decent regulatory & clinical progress across the Founded Entities and Wholly Owned Pipeline, sound business model, decent operating and financial performance, robust cash generation capabilities, 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 407.45 (as on 18 March 2021, before the market close at 8:05 AM GMT), with lower-double digit upside potential based on 80.40x 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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