PureTech Health PLC (LON: PRTC) – Strong regulatory, clinical and financial momentum validate PureTech's model and support future growth.

PureTech Health PLC is a FTSE 250 index listed clinical-stage Biotherapeutics Company, which is dedicated to discovering, developing and commercializing highly differentiated medicines for devasting diseases, including gastrointestinal, intractable cancers, and lymphatic diseases, central nervous system disorders and inflammatory and immunological diseases, among others. Through the expertise of its experienced research and development team, it has developed a broad and deep pipeline. The Pipeline is comprised of 24 products and product candidates, including two that have received European marketing authorization and the U.S. Food and Drug Administration (FDA) clearance.

 (Source: Company Website)

Growth Prospects and Risk Assessment

The Company has an extensive pipeline through the expertise of its experienced research and development team, and its extensive network of scientists, clinicians, and industry leaders. During H1 FY20, PureTech Health generated cash of over US$245 million and approximately US$101 million in August 2020 from sales of equity in Founded Entities. The founded entities are well-capitalised, having raised over $890 million since July 2018. It has 24 products and product candidates, out of which 12 are in the clinical stage, and 2 were taken from inception to FDA & European Regulatory Clearances. PureTech Health anticipates result from a multiple ascending dose study of LYT-100 in healthy participants in the H2 FY20 period.

 It also anticipates initiating a global, randomised, placebo-controlled Phase 2 trial of LYT-100 for the treatment for serious respiratory complications. It is also exploring the potential application of LYT-100 in additional respiratory conditions, including idiopathic pulmonary fibrosis (IPF) and interstitial lung diseases (ILDs).

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 24 November 2020: The Company stated that Vedanta Biosciences (its Founded Entity) announced the appointment of Troy Ignelzi as an independent Director.

On 18 November 2020: PureTech Health announced the completion of a Phase 1 multiple ascending doses and food effect study for LYT-100.

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".

On 1 October 2020: The Company announced the appointment of biotech entrepreneur Kiran Mazumdar-Shaw to PureTech board of directors.

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 the achievement of 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 the monetisation of Founded Entity equity.
• 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 US$189.9 million against the previous period (31 December 2019: US$120.6 million).
• 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.
• 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.
• The Company witnessed a strong balance sheet, with a US$136.5 million of equity investments and non-dilutive funding.
• Founded Entities have raised more than US$890 million, of which US$823.4 was from third parties.
• 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.

Share Price Performance Analysis

On 3 December 2020, at the time of writing (before the market close, at 8:00 AM GMT), PureTech Health shares were trading at GBX 296.44, down by 0.19% against the previous day closing price. Stock 52-week High was GBX 339.36 and Low of GBX 198.50, respectively.

From the technical standpoint, the shares were trading above the short-term support level of 20-day (around GBX 276), 50-day (approximately GBX 262) and 100-day (around GBX 268) simple moving average price. Also, the MACD line is placed above the central line, indicating a bullish setup.

In the past six months, PureTech Health PLC’s stock price has delivered a positive return of ~15.12% return as compared to positive ~14.00%  return of FTSE 250 index and a negative ~9.47% return of FTSE Pharmaceuticals & Biotechnology index, which shows that the stock has outperformed the benchmark index and the sector.

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

Business Outlook Scenario

The Company has delivered an exceptional performance in H1 FY20 with the achievement of multiple notable regulatory milestones, substantial financings and monetisation events, and important clinical progress, across Wholly Owned Pipeline and Founded Entities. It progressed with Wholly Owned Pipeline with the initiation of a Phase 1 study for LYT-100, Phase 2 studies for the treatment of serious respiratory complications and demonstrated a strong commitment to value realisation through the monetisation of Founded Entity equity. Therefore, it aims to continue this momentum across Pipeline and Founded Entities as it collectively works to deliver highly differentiated medicines for patients and value for shareholders.

As of 30 June 2020, it had a strong cash position of US$310.5 million on a parent company level, which was projected to fund Wholly Owned Pipeline and operations into the first quarter of 2024, prior to receipt of approximately US$101 million in August 2020. 

 (Source: Presentation, Company Website) 

Considering the resilient performance, solid momentum on strategic priorities, 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 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 296.44 (as on 3 December 2020, before the market close at 8:00 AM GMT), with lower-double digit upside potential based on 95.97x 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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