Redx Pharma PLC

Redx Pharma PLC (LON: REDX) is an FTSE listed biotech company focused on discovering and developing novel targeted medicines for the treatment of cancer and fibrotic disease.

Investment Rationale for Valuation – Speculative Buy at GBX 73.30

• REDX had shown encouraging data for the Porcupine Inhibitor RXC004 in Patients with Advanced Solid Tumours.
• The Company remained well equipped to fund R&D activities and pre-clinical trials till FY22 as it increased the cash balance from £1.9 million in H1 FY20 to £39.9 million in H1 FY21.
• The top-line revenue witnessed a stellar growth of around 79% during H1 FY21.
• From a technical standpoint, REDX is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price.
• Moreover, the 14-days RSI of ~39.27 is approaching oversold territory, indicating an upside momentum in the stock price.

Key Risks

• REDX may get failed in obtaining regulatory approval for developing new products.
• The hawkish remarks made by the Bank of England regarding an interest rate hike could make fundraising difficult to execute clinical trials in future.
• The Company had widened the net loss during H1 FY21 when compared with the prior-year levels.
  

Recent Developments

Milestone Payment: On 02 September 2021, REDX updated regarding the milestone payment of USD 3 million for initiating IND-enabling studies of JZP815 from Jazz Pharmaceuticals PLC.

H1 FY21 Financial and Operational Highlights (for six months ended 31 March 2021 as of 7 June 2021)

(Source: LSE Website)

• The top-line revenue grew by approximately 79% from £1.17 million in H1 FY20 to £2.10 million in H1 FY21.
• The Company raised the R&D expenditure by £6.2 million in H1 FY21, reflecting the Company's strong belief in its pipeline.
• The Company's growth is dependent on the success of RXC004 and RXC007, which is likely to drive growth in the coming year.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group) 

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

Conclusion

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. Furthermore, the Company has the potential to receive further USD 360 million in development and commercial milestone payments from AstraZeneca. Meanwhile, the results of the trials are likely to provide multiple inflexion points in FY22. The stock made a 52-week low and high of GBX 48.40 and GBX 129.90, respectively.

Based on the potential milestone payments from AstraZeneca and Jazz Pharmaceuticals, strong top-line revenue growth during H1 FY21, and valuation as done using the above method, we have given a “Speculative Buy” recommendation on Redx Pharma PLC at the current market price of GBX 73.30 (as of 07 October 2021 at 08:56 AM GMT+1), with lower-double digit upside potential based on 21.76x EV/NTM Sales (approx.) on FY22E sales (approx.).

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

*All forecasted figures and Peers/ Industry 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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