Redx Pharma PLC (LON: REDX)

Redx Pharma PLC (LON: REDX) is an FTSE listed biotech company. It is focused on discovering and developing novel targeted medicines for the treatment of cancer and fibrotic disease, aiming to progress them to clinical proof of concept (POC). The Company has a team of ~60 scientists, and its Alderley Park, Cheshire campus, is the UK's largest single-site life science campus. 

Pipeline

    (Source: Company website) 

Growth Prospects

• Proven History in Medical Chemistry: The Company has built an attractive portfolio of assets and has a solid proven track record of drug discovery and development. It has a solid track record, with the ability to generate clinically and commercially viable products. In the last three years, the Company has given four significant preclinical stage transactions, with further clinical and operational key milestones expected in the future.
• Expertise in Developing Innovative Small Molecule Pharmaceuticals: The Company has created the expertise to create the best compounds that address complex biological pathways and have a clear line of sight to clinical success.

            

(Source: Corporate Presentation)

• Multiple Inflexion Points in FY22: The continuing progress seen across both Redx Pharma’s and its partnered programmes and high chances of success of RXC004 and RXC007 are likely to drive growth in the coming year. The Company expects to continue its momentum and make significant strategic progress.
• Significant Market Opportunity: The development of RXC004 provides a vast market opportunity in Monotherapy and Combination as there are high unfulfilled lead indications with combined market size of around USD 10 billion. In the IPF (Idiopathic Pulmonary Fibrosis), the market for diagnostics is expected to reach USD 3.6 billion by FY29.

Key Risks

• Failure to Develop Products: The Company might fail to develop and get the approval of marketable products. It could not only impact future revenue projections and market share.
• Highly Competitive Market: The biotechnology and pharmaceutical industries are very competitive. The Group’s competitors include major multinational pharmaceutical companies, biotechnology companies and research institutions.
• Extension of Clearing of Clinical trials could impact Liquidity: The Company has the liquidity to finance its R&D till FY22; however, if there are any delays in clinical trials and R&D and the Company fails to procure finance, it could have a material impact on the R&D and liquidity of the Company.
  

Now we will analyze some key fundamental and shareholders statistics of REDX Pharma Plc. 

Financial and Operational Highlights (for six months ended 31 March 2021 as of 7 June 2021)

(Source: LSE Website) 

• The Company improved its cash balance from £1.9 million in H1FY20 to £39.9 million in H1FY21, which provided a much-needed cash cushion till FY22.
• On the revenue front, the Company reported an extraordinary growth of 79% in H1FY21.
• Revenue from the research collaboration was the revenue growth driver for the period, as the revenue increased by 156%.
• REDX converted £5.1 million of the £22.2 million outstanding loan note liability into equity shares and further raised £25.7 million in finance.
• The Company raised the R&D expenditure by £6.2 million in H1FY21, reflecting the Company's strong belief in its pipeline.

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 30 September 2021, at 12:20 PM GMT+1, REDX’s shares traded at GBX 83.30, down by around 5.34% against the previous day closing price. REDX’s 52-week High and Low were GBX 129.90 and GBX 48.40, respectively.

On a daily chart, the stock price is sustaining between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term.

REDX’s stock has delivered a decent positive return of ~51.56% in the last year. Also, it has outperformed the FTSE All-share Pharmaceuticals and Biotechnology Index with a return of about 11.76%. 

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

Business Outlook

REDX continues to focus on maintaining a solid R&D pipeline with a clear line of sight to clinical success. The Company's growth is dependent on the success of RXC004 and RXC007, which are likely to drive growth in the coming year. The market opportunity for success is enormous, and the Company remains focused on novel, small molecule, targeted medicines as treatments for cancer and fibrotic disease. Regarding the pipeline, the results of the trials are likely to provide multiple inflexion points in FY22. In addition, the Company maintains a robust cash balance and has a decent cushion till FY22 to drive its R&D.

Considering the Company’s product pipeline, history of success in trials, huge market opportunity, and support from the valuation using the above method, we have given a “Speculative Buy” recommendation on Redx Pharma PLC at the current price of GBX 83.30 (as on 30 September 2021, at 12:20 PM GMT+1), with a lower-double digit upside potential based on 26.52x EV to NTM sales (approx.) on FY22E sales (approx.)

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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