Redx Pharma PLC

Redx Pharma PLC (LON: REDX) is a FTSE AIM listed clinical-stage biotechnology entity, focusing on developing novel therapeutics for the treatment of cancer and fibrotic disease.

Investment Rationale – SPECULATIVE BUY at GBX 72.50

• Phase 2 Clinical Trial: On 15 November 2021, Redx Pharma announced the Phase 2 clinical trial of its investigational drug RXC004 in patients with Advanced Colorectal Cancer. The tangible progress of RXC004 with completed of Phase 2 trial study holds substantial potential for growth.
• Strong Track Record: REDX has demonstrated solid progress with its pipeline. It has a strong track record of discovering new drug candidates.
• Topline Growth: It delivered around 79% year-on-year growth in revenue in H1 FY21, while it has signed another oncology research collaboration to support revenue growth.
• Technical Indicator: From a technical standpoint, the MACD line has given a bullish crossover against the signal line, reflecting a positive price momentum.

Key Risks

• Liquidity Risk: REDX is a penny stock with small market capitalization. Its loss widened to £12.7 million for H1 FY21. Therefore, it can face financial crunch to pursue its growth trajectory.
• Principal Risks: Delay in clinical trials with operational difficulties spurred by the Covid-19 pandemic can procrastinate the Company’s ability to commercialize its products.

Recent News:

Partnership: On 6 December 2021, Redx announced a strategic partnership with Caris Life Sciences to accelerate Phase 2 Study (for RXC004) Recruitment in the U.S.

Financial Highlights (for the six months ended 31 March 2021, as on 7 June 2021)

(Source: Company Website)

• Clinical Trial: REDX completed the Phase 1 clinical trial of lead oncology asset, RXC004 (porcupine inhibitor) and initiated second clinical programme for its fibrosis portfolio.
• Revenue Generation: It progressed well with its partner Jazz Pharmaceuticals, and generated £0.8 million of revenue in H1 FY21, from the ongoing research collaboration.
• Liquidity: At the end of H1 FY21, REDX held £39.9 million of cash balance, (H1 FY20: £1.9 million), which shall provide cash runway through 2022.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative) 

Conclusion 

REDX has significantly progressed the clinical development of its lead oncology asset, RXC004, while the preclinical development for RXC007 holds significant upside potential. Moreover, it has invested actively in R&D activities to strengthen its pipeline. The increased cash position shall continue to support pre-clinical trials till FY22. The stock made a 52-week High and Low of GBX 129.90 and GBX 48.40, respectively.

Based on the pipeline development, strengthened balance sheet, increased revenue potential, and support from the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Redx Pharma PLC at the closing price of GBX 72.50 (as on 20 December 2021), with lower double-digit upside potential based 15.74x EV/NTM Sales (approx.) on FY21E Sales (approx.).

Oncimmune Holdings PLC

Oncimmune Holdings PLC (LON: ONC) is a FTSE AIM All-Share listed Company that develops immunodiagnostics, focusing on immuno-oncology, infectious diseases, and autoimmune disease.

Investment Rationale – SPECULATIVE BUY at GBX 156.00

• Positive Commercial Update: On 20 December 2021, ONC reported that
  • ImmunoINSIGHTS pharma services business witnessed a strong commercial activity in Q2 FY22.
  • It also signed significant number of new contracts and expanded business development team in the US and Europe.
• Growth Drivers: Longer term prospects remained compelling, as it conducted several broader strategic commercial partnerships, scaled up Dortmund facility, and expanded bioinformatics capability.
• Technical Indicator: From a technical standpoint, 14-day RSI (~42.64) suggests the oversold zone, while the price is hovering close to the lower Bollinger Bands.
• Undervalued Multiples: On a trailing 12-month basis – EV/Sales, and Price/Book valuation multiples are undervalued than the average of the Health Care sector.

Key Risks

• Losses: The Company has a history of operating losses, which can take some time to be profitable amid the rising level of supply chain disruption and market inflation.
• Interest Rate Hike: The Bank of England has raised interest rates for the first time since the pandemic started, which has tightened the monetary policy.

Financial Highlights (for the 12 months ended 31 May 2021, as on 2 November 2021)

(Source: Company Website)

• Strong Platform for Growth: During FY21, Oncimmune Holdings reported over six times increase in revenue on FY20 to £3.7 million.
• Outlook: The Group expects to continue the growth momentum with excellent progress on three-year strategy and expected potential of ImmunoINSIGHTS services business.
• Liquidity: It ended FY21 with cash balance of £8.6 million and net debt of £0.8 million including lease liabilities.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY22) (Illustrative)

 Conclusion 

ONC has demonstrated excellent top-line growth in FY21 despite the Covid-19 challenges. Over the past eight years, it has kept an average of 40% quarter on quarter revenue growth. The continued strength of ImmunoINSIGHTS services business shall deliver strong revenue growth in FY22. The stock made a 52-week High and Low of GBX 261.62 and GBX 150.00, respectively.

Based on the recent commercial partnerships, outstanding top-line growth, capital boost with equity placing, and support from the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Oncimmune Holdings PLC at the closing market price of GBX 156.00 (as on 20 December 2021), with lower double-digit upside potential based 10.46x Price/NTM Earnings (approx.) on FY22E Earnings Per Share (approx.). 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

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

*Dividend Yield may vary as per the stock price movement.

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