Brief - CBB - Cordlife Limited
The dramatic fall from $0.85 in July 07 to $0.27 recently has prompted this quick review / analysis. (Have not been too frequent in blogging due to Computer upgrade - hope to pick up soon). Within this period of sharp decline, there had been no bad news from the company.
CBB is a cord banking business. Its business is in storing umbilical cords blood for the purpose of using for future treatment or stem cell therapy. CBB has its main operations in Singapore and is active in the Asia Pacific region. Offices are found in Singapore, Australia, Hong Kong, Thailand and the Phillipines and just opened in Indonesia. This is a relative good foreign market exposure.
According to the Dec 07 report, CBB is virtually debt free, with $9.5mil cash. Its current ratio (receivables/payables) is a healthy 1.6, like that of a big cap industrial stock. This is not a bio-R&D company but a cash generating business. Its NTA/share is $0.162 and comparing with today's price; the price/NTA = 1.66, quite low indeed.
Unlike research biotechs, CBB does not have the promise of a blockbuster drug. Although its financial position seem to be good at the moment, it is still making a loss. Its last half year operations loss is $2.2m. Its cash burn rate is about 4.3 half years or slightly over 2 years. Investors should expect CBB to be profitable in less than 2 years if they decide to invest.
Recommendation: Speculative buy at $0.25
Monday, April 21, 2008
Friday, March 14, 2008
Brief - Atcor Medical - Initial Coverage
Brief - Atcor Medical - Initial Coverage
This is a quick note alerting readers about initial coverage on Atcor has commenced. The coverage is done by Taylor Collison Sharebrokers and the report can be seen at Atcor's website.
The report is very thorough with a full DCF analysis as well as a good survey of competitors, both local and international markets, in which Atcor operates. (A DCF analysis estimates future year profits and brings it back to today's current value, hence giving a price for the company). According to the DCF, ACG is valued at $0.20-$0.27 and is currently very undervalued. Current price is just $0.05.
Have a look at the report - it is quite impressive in terms of amount of detail.
PS I own shares in ACG. My analysis on ACG is in this blog in Feb 2007.
This is a quick note alerting readers about initial coverage on Atcor has commenced. The coverage is done by Taylor Collison Sharebrokers and the report can be seen at Atcor's website.
The report is very thorough with a full DCF analysis as well as a good survey of competitors, both local and international markets, in which Atcor operates. (A DCF analysis estimates future year profits and brings it back to today's current value, hence giving a price for the company). According to the DCF, ACG is valued at $0.20-$0.27 and is currently very undervalued. Current price is just $0.05.
Have a look at the report - it is quite impressive in terms of amount of detail.
PS I own shares in ACG. My analysis on ACG is in this blog in Feb 2007.
Friday, February 29, 2008
How To Set Target / Watch Price for Stock - using Google Finance
How To Set Target / Watch Price for Stock
The Need:
Have you been watching and is interested in too many stocks? And do you have an opinion on a stock price that if it falls near $xx.xx then you want to have a closer look again. The problem is you and I can easily forget to look up that stock after a few days since there are other stocks to look at. Or if we remember the stock, then we forget our target price.
Example: BHP is now over $39.xx. I have the opinion that if it falls to within 10% of $31.5 then I should have a renewed look. Problem is after one week, I have been scanning over 50 - 100 other stocks. I have forgotten that I should look at BHP when it is 10% of $31.5.
The FREE Solution:
Use Google Finance at finance.google.com
With this, I can set a target price, and everyday I can scan this webpage and straight away see if the Closing Price is near my target price of $31.5. The figure below shows the example I created for BHP. We just need to look at 2 numbers:
i) Cost Basis column - this number is the target price I set.
ii) Gain Percentage - this number tells how far the current price is to my target price. For this example, today's price of $39.58 is 25.65% above my target price, so I am not interested in BHP yet.
These are the 2 numbers I want. It has other data too for your interest.
How To Do It;
This section now describes in detail how you can achieve this.
1. Create a google account or gmail account (for more details, seek other help).
2. Go to finance.google.com
3. On the website, look for Portfolios or My Portfolio link.
4. Click on the "Create new portfolio" link.
5. Give your portfolio a name.
6. Here's the most important part: In the Add section there should be 3 blank fields:
Symbol(s) --------- Shares -------- Price -------[Add to Portfolio] button
Fill in the fields as below:
Symbol: ASX:BHP (for Aussie stocks, the ASX: prefix is needed)
Shares: 1 (or any number you like)
Price: Target Price (eg 31.5)
I find finance.google updates its stock prices for Aussie shares the same evening our ASX closes.
This technique allows you to have many many shares targeted and you don't need to remember what your opinion was 2 weeks ago about the target price. You can modify the target price anytime you change your opinion about it.
The Need:
Have you been watching and is interested in too many stocks? And do you have an opinion on a stock price that if it falls near $xx.xx then you want to have a closer look again. The problem is you and I can easily forget to look up that stock after a few days since there are other stocks to look at. Or if we remember the stock, then we forget our target price.
Example: BHP is now over $39.xx. I have the opinion that if it falls to within 10% of $31.5 then I should have a renewed look. Problem is after one week, I have been scanning over 50 - 100 other stocks. I have forgotten that I should look at BHP when it is 10% of $31.5.
The FREE Solution:
Use Google Finance at finance.google.com
With this, I can set a target price, and everyday I can scan this webpage and straight away see if the Closing Price is near my target price of $31.5. The figure below shows the example I created for BHP. We just need to look at 2 numbers:
i) Cost Basis column - this number is the target price I set.
ii) Gain Percentage - this number tells how far the current price is to my target price. For this example, today's price of $39.58 is 25.65% above my target price, so I am not interested in BHP yet.
These are the 2 numbers I want. It has other data too for your interest.
How To Do It;
This section now describes in detail how you can achieve this.
1. Create a google account or gmail account (for more details, seek other help).
2. Go to finance.google.com
3. On the website, look for Portfolios or My Portfolio link.
4. Click on the "Create new portfolio" link.
5. Give your portfolio a name.
6. Here's the most important part: In the Add section there should be 3 blank fields:
Symbol(s) --------- Shares -------- Price -------[Add to Portfolio] button
Fill in the fields as below:
Symbol: ASX:BHP (for Aussie stocks, the ASX: prefix is needed)
Shares: 1 (or any number you like)
Price: Target Price (eg 31.5)
I find finance.google updates its stock prices for Aussie shares the same evening our ASX closes.
This technique allows you to have many many shares targeted and you don't need to remember what your opinion was 2 weeks ago about the target price. You can modify the target price anytime you change your opinion about it.
Tuesday, February 26, 2008
Analysis - PGL - Progen Pharmaceuticals
PGL - Progen Pharmaceuticals
Price($) 1.62
NTA ($) 1.57
P/NTA 1.031
Team 6.5
BurnPeriod 13.89
ProductPipe 5.5
ForeignMarket 1
Cash:Debt 455.8
PGL product score is about 5.5 - this is above average in general but there are certain reservations to consider. The main drug is PI-88 targeting multiple cancer including lung cancer, liver cancer, multiple myeloma and melanoma. There are other products which are in very early clinical stage and would not be mentioned here. PI-88 for Liver Cancer is advancing into PhIII while PI-88 for melanoma is undergoing PhII, resuls due in H2 CY2008. It is these two product that contribute to the score of 5.5.
The 3 other applications of PI-88 has mixed results and this author takes a conservative approach to write them all to zero. PI-88 for multiple myeloma results in 2003 states: "PI-88 activity has been seen in this disease and these results indicates that stabilization of multiple myeloma with PI-88 with side effects is possible". Somehow this does not seem to be a very positive result in my opinion. PI-88 for Prostate cancer concluded but further investigation needed about side effects which PGL currently claims to be associated with its combination with another drug Taxotere. PI-88 for Lung Cancer PhII did not yield positive results. It appears that the PI-88, the main development product, is not the wonder compound it was thought to be several years ago. This also impacts on the confidence of the remaining products.
Financial inconsistencies in the financial report has been observed in the Interest Bearing Liabilities. Perhaps a reader may wish to clarify this but it appears that each of the half year report claims to have an interest bearing liability but the entry disappears in the annual report. This pattern is seen over the last 3 years.
Main financial indicators for PGL at the moment is very strong. Apart from the debt inconsistencies, even the stated half year debt appeared to be very low. It has got lots of cash, over $91m and given current outflow rate, it can last over 13 half years. But note, ph III trials are usually a lot more expensive than other trials, so assume that it can last half that time - i.e. 6 half years. Due to large cash available and small share, the price/NTA is about 1.5 - a very low number for a company with a ph III product.
Management and Board are made up of an impressive list of characters with strong scientific and technical knowledge. It has a score of 6.5 which is above average in this category. Curiosly enough, this author has seen perhaps a reflection of the highly qualified board and management team in the very professional way the recent annual reports are written. The professional nature, I believe has also been instrumental in the success of PGL in obtaining funding and building confidence in the company that saw price rose to over $9 in early 2007. This comment is made to emphasize that the long term success of a biotech ultimately lies with the quality of product, without which the company cannot continue to survive.
Recent Acquisition of Cellgate gives PGL a presence in the US, potentially an established network for clinical development. In addition it also gives some additional product pipelines, hence diversifying of product risks. Financially in monetary terms (i.e. not studying the value of Cellgate itself), the acquisition is not cheap, with US$2.5 upfront and up to US$19.5 in cash or shares at a later date.
In summary, PGL shares look very cheap due to strong cash position and small number of stocks. However, the main concern by this author is the efficacy of PI-88 compound. It has been shown not to have performed well for 3 applications. Therefore PGL is considered here to be more risky that other biotechs. Recent price pattern is that of a downward trend. It may be worthwhile to wait until price has stabilised.
Recommendation: Cautious Buy at 1.50 or below and when price steadies.
Price($) 1.62
NTA ($) 1.57
P/NTA 1.031
Team 6.5
BurnPeriod 13.89
ProductPipe 5.5
ForeignMarket 1
Cash:Debt 455.8
PGL product score is about 5.5 - this is above average in general but there are certain reservations to consider. The main drug is PI-88 targeting multiple cancer including lung cancer, liver cancer, multiple myeloma and melanoma. There are other products which are in very early clinical stage and would not be mentioned here. PI-88 for Liver Cancer is advancing into PhIII while PI-88 for melanoma is undergoing PhII, resuls due in H2 CY2008. It is these two product that contribute to the score of 5.5.
The 3 other applications of PI-88 has mixed results and this author takes a conservative approach to write them all to zero. PI-88 for multiple myeloma results in 2003 states: "PI-88 activity has been seen in this disease and these results indicates that stabilization of multiple myeloma with PI-88 with side effects is possible". Somehow this does not seem to be a very positive result in my opinion. PI-88 for Prostate cancer concluded but further investigation needed about side effects which PGL currently claims to be associated with its combination with another drug Taxotere. PI-88 for Lung Cancer PhII did not yield positive results. It appears that the PI-88, the main development product, is not the wonder compound it was thought to be several years ago. This also impacts on the confidence of the remaining products.
Financial inconsistencies in the financial report has been observed in the Interest Bearing Liabilities. Perhaps a reader may wish to clarify this but it appears that each of the half year report claims to have an interest bearing liability but the entry disappears in the annual report. This pattern is seen over the last 3 years.
Main financial indicators for PGL at the moment is very strong. Apart from the debt inconsistencies, even the stated half year debt appeared to be very low. It has got lots of cash, over $91m and given current outflow rate, it can last over 13 half years. But note, ph III trials are usually a lot more expensive than other trials, so assume that it can last half that time - i.e. 6 half years. Due to large cash available and small share, the price/NTA is about 1.5 - a very low number for a company with a ph III product.
Management and Board are made up of an impressive list of characters with strong scientific and technical knowledge. It has a score of 6.5 which is above average in this category. Curiosly enough, this author has seen perhaps a reflection of the highly qualified board and management team in the very professional way the recent annual reports are written. The professional nature, I believe has also been instrumental in the success of PGL in obtaining funding and building confidence in the company that saw price rose to over $9 in early 2007. This comment is made to emphasize that the long term success of a biotech ultimately lies with the quality of product, without which the company cannot continue to survive.
Recent Acquisition of Cellgate gives PGL a presence in the US, potentially an established network for clinical development. In addition it also gives some additional product pipelines, hence diversifying of product risks. Financially in monetary terms (i.e. not studying the value of Cellgate itself), the acquisition is not cheap, with US$2.5 upfront and up to US$19.5 in cash or shares at a later date.
In summary, PGL shares look very cheap due to strong cash position and small number of stocks. However, the main concern by this author is the efficacy of PI-88 compound. It has been shown not to have performed well for 3 applications. Therefore PGL is considered here to be more risky that other biotechs. Recent price pattern is that of a downward trend. It may be worthwhile to wait until price has stabilised.
Recommendation: Cautious Buy at 1.50 or below and when price steadies.
Sunday, January 6, 2008
Analysis - AVX - Avexa
Price($) 0.59
NTA ($) 0.19
P/NTA 3.07
Team 8.5
BurnPeriod 11.92
ProductPipe 3.6
ForeignMarket 2
Cash:Debt DebtFree
Avexa is developing drugs for HIV and antibacteria-resistant infections. It has one lead product that has recently obtained successful results in Ph IIb trials. More results for Ph IIb are expected to be released in the early months of 2008. Even so, it has received the green light for Ph III. Entering Ph III itself is an important stage of biotechs - it is the stage where global pharmaceuticals may become a main partner or even take over the junior biotech at a high premium. However, it is also a stage where R&D companies may crash if the Ph III clinical
results are disappointing.
AVX's drug are to target anti-bacteria resistance and its lead product ATC is an antiviral for HIV. Ph IIb results have shown that ATC is able to target current drug resistant HIV, i.e. it works where other drugs have failed. One of its mechanism is to stop the replication of the HIV virus.
AVX cited other products in the pipeline, however they are at the early preclinical stage - hence the low product index of 3.6. Although AVX beliefs that it's approx $70 cash-at-hand is a de-risking factor, the lack of other advance stage products in the pipeline mean that the share price is almost certain to fall below 50%, likely more, if the lead product receives a setback.
AVX has an incredible line up in the Board and management, if PhD's are the only indicator to go buy - which is the case in our analysis since we don't know them individually. The management index is a score of 8.5, almost double the points of what we consider as average. A positive note goes to CEO Dr. Chick who has served since 2004 or earlier and has through the various Phases of clinical trials of ATC.
The Foreign Market index of 2.0 for AVX is relatively low. Its main product is ATC was acquired from a North American company. It currently has collaboration with Shanghai to develop inhibitors that prevent HIV binding to cells. We may suppose AVX's drug is known in the specialist anti-HIV community for its effectiveness, but its lack of commercial association with big pharmas present a risk especially when AVX has openly stated its strategy include looking for partners for Ph III and beyond.
Financially, AVX is debt free which is good. Quarterly cash burn has doubled in the last quarter to almost $6m. This is expected given it is entering Ph III. Cash burn rate calculation of over 11 quarters is based on linear trend. But as Ph III spending will definitely increase, the real cash burn should be greater than that. But given the amount of cash left, it is very likely to last over 1.5 years without further injection - this would bring it to the middle of Ph III. Hence any investment now should be re-evaluated at least in the middle of 2009.
From a technical analysis point, AVX has been quite volatile. A year ago, it was less than 25c, but news of successful Ph IIb pushed it close to 85c, but other concerns, perhaps ability to find a big pharma partner has caused the price to go as low as 45c. The recent low is 50c and news of Ph III entry approval has caused a rise. It price to NTA is currently 3.07 which is on average, but not cheap. Noting that Ph III is a cash burner, expect the P/NTA to increase in coming months, thus making the stock expensive. In conclusion, the share price itself is too volatile and investors sentiment is totally locked into one product of the company. I estimate 2 years before the results of Ph III to be known.
Recommendation: Wait until mid 2008 and buy if the price is 30c or below.
NTA ($) 0.19
P/NTA 3.07
Team 8.5
BurnPeriod 11.92
ProductPipe 3.6
ForeignMarket 2
Cash:Debt DebtFree
Avexa is developing drugs for HIV and antibacteria-resistant infections. It has one lead product that has recently obtained successful results in Ph IIb trials. More results for Ph IIb are expected to be released in the early months of 2008. Even so, it has received the green light for Ph III. Entering Ph III itself is an important stage of biotechs - it is the stage where global pharmaceuticals may become a main partner or even take over the junior biotech at a high premium. However, it is also a stage where R&D companies may crash if the Ph III clinical
results are disappointing.
AVX's drug are to target anti-bacteria resistance and its lead product ATC is an antiviral for HIV. Ph IIb results have shown that ATC is able to target current drug resistant HIV, i.e. it works where other drugs have failed. One of its mechanism is to stop the replication of the HIV virus.
AVX cited other products in the pipeline, however they are at the early preclinical stage - hence the low product index of 3.6. Although AVX beliefs that it's approx $70 cash-at-hand is a de-risking factor, the lack of other advance stage products in the pipeline mean that the share price is almost certain to fall below 50%, likely more, if the lead product receives a setback.
AVX has an incredible line up in the Board and management, if PhD's are the only indicator to go buy - which is the case in our analysis since we don't know them individually. The management index is a score of 8.5, almost double the points of what we consider as average. A positive note goes to CEO Dr. Chick who has served since 2004 or earlier and has through the various Phases of clinical trials of ATC.
The Foreign Market index of 2.0 for AVX is relatively low. Its main product is ATC was acquired from a North American company. It currently has collaboration with Shanghai to develop inhibitors that prevent HIV binding to cells. We may suppose AVX's drug is known in the specialist anti-HIV community for its effectiveness, but its lack of commercial association with big pharmas present a risk especially when AVX has openly stated its strategy include looking for partners for Ph III and beyond.
Financially, AVX is debt free which is good. Quarterly cash burn has doubled in the last quarter to almost $6m. This is expected given it is entering Ph III. Cash burn rate calculation of over 11 quarters is based on linear trend. But as Ph III spending will definitely increase, the real cash burn should be greater than that. But given the amount of cash left, it is very likely to last over 1.5 years without further injection - this would bring it to the middle of Ph III. Hence any investment now should be re-evaluated at least in the middle of 2009.
From a technical analysis point, AVX has been quite volatile. A year ago, it was less than 25c, but news of successful Ph IIb pushed it close to 85c, but other concerns, perhaps ability to find a big pharma partner has caused the price to go as low as 45c. The recent low is 50c and news of Ph III entry approval has caused a rise. It price to NTA is currently 3.07 which is on average, but not cheap. Noting that Ph III is a cash burner, expect the P/NTA to increase in coming months, thus making the stock expensive. In conclusion, the share price itself is too volatile and investors sentiment is totally locked into one product of the company. I estimate 2 years before the results of Ph III to be known.
Recommendation: Wait until mid 2008 and buy if the price is 30c or below.
Friday, January 4, 2008
Brief - CYT Update, AVX coverage soon, Technical Analysis RoC
Three items on today's brief
1. CYT Update
2. AVX coverage soon
3. Technical Analysis RoC
1. CYT Update
--------------
CYT was analysed in Oct 07 with recommendation to buy up to 55c. Today's bid, offer is 47c vs 51c - a difference in opinion between buyers and sellers. Interesting news today is that Acom Capital doubled their shareholding in CYT and now holds about 12.7% (up from 11.2%). Other news since the original coverage include the commencement of PhII trials and raising of $5m capital. Recommendation is unchanged.
2. AVX coverage soon
----------------------
Avexa announced the commencement of PhIII trials. The share price increased but have not leaped yet. It has over $70m in cash and last quarter cash burn was about $5m. Looks promising. Coverage to be initiated soon - the figures here will be finalised later.
3. Technical Analysis RoC
--------------------------
Rate of Change indicator for technical analysis does seem to be a leading indicator. Note that different stocks need different "days" for the Rate of Change (RoC). The following 2 gold stocks CRK(10days), DGR are at the turnaround point, ie. RoC graph crossing the zero level - signal to watch and prepare for action. If it crosses to positive - go Long, if crosses to negative - go Short.
More detail of this method to be explained later.
1. CYT Update
2. AVX coverage soon
3. Technical Analysis RoC
1. CYT Update
--------------
CYT was analysed in Oct 07 with recommendation to buy up to 55c. Today's bid, offer is 47c vs 51c - a difference in opinion between buyers and sellers. Interesting news today is that Acom Capital doubled their shareholding in CYT and now holds about 12.7% (up from 11.2%). Other news since the original coverage include the commencement of PhII trials and raising of $5m capital. Recommendation is unchanged.
2. AVX coverage soon
----------------------
Avexa announced the commencement of PhIII trials. The share price increased but have not leaped yet. It has over $70m in cash and last quarter cash burn was about $5m. Looks promising. Coverage to be initiated soon - the figures here will be finalised later.
3. Technical Analysis RoC
--------------------------
Rate of Change indicator for technical analysis does seem to be a leading indicator. Note that different stocks need different "days" for the Rate of Change (RoC). The following 2 gold stocks CRK(10days), DGR are at the turnaround point, ie. RoC graph crossing the zero level - signal to watch and prepare for action. If it crosses to positive - go Long, if crosses to negative - go Short.
More detail of this method to be explained later.
Sunday, December 23, 2007
Analysis - CUV - Clinuvel
Price($) 0.33
NTA ($) 0.22
P/NTA 1.52
Team 4
BurnPeriod 5.42
ProductPipe 12.6
ForeignMarket 3
Cash:Debt Debt Free
Previously known as Epitan, Clinuvel (CUV) is an "Australian biopharmaceutical company developing its photo-protective drug CUV1647 as a preventative treatment for a range of UV-related skin disorders as well as in cancer related treatments." Essentially 1 drug CUV1647 but with 5 applications. The product index is exceptionally high for a biotech at 12.6 (above 5 is good). This is due to CUV having over 2 pipelines in Ph III, 1 in PhII and 2 ready to start PhII.
On a quarterly basis, a few interesting financial patterns can be seen. The receipts have reduced from over $200k per quarter from 07Q1 to $0 in 08Q1. Although the receipts are relatively small compared to operational spending - this fact is interesting to note, suggesting that the operations that is earning income has stopped, perhaps to focus on trials. The 2007 Annual Report claims that the funding is sufficient for clinical trials until end of calendar year 2009. Fy07, including 08Q1, is one of CUV's highest spending period with investment spending of about $50m, and capital raising of $60m from equity.
This results in significant dilution of shareholders value with 302.15m shares and worth 3.3 cents a share. Hence the Price to cash is about 10 times - extremely risky. From the analysis of quarterly statements, if operational outflow remains at similar level with no large investments, then current cash level would last for another 5 quarters, 4 quarters short of CUV's prediction. In general, we consider cash lasting 8 quarters to be quite safe, and about 4 quarters to require a wait-and-see approach.
The management index of 4.0 is a about average but note that 2 PhD directors (excluding the current 4) have resigned. This may or may not reflect CUV's development into a late clinical stage company. Clinuvel has a presence in the US and Europe market by having offices there which are involved in clinical operations to an extent. The market exposure of 3.0 is slightly below desirable but not unacceptable.
In terms of product development, CUV has an excellent advanced stage pipeline with a product index of over 12 points. In general, we consider an index value above 5 to be good. CUV has two products undergoing PhIII and others at PhII or earlier. Biotechs at PhIII usually command good valuation with higher multiples over its NTA as will be considered shortly. The risk is that an unsuccessful trial, especially in PhIII, that fails will lead to extremely negative shareholder sentiment - a reduction of share value of 70% is not impossible.
All 5 of its top products currently in trial are based on a single compound CUV 1647. The advantage nature of several of these trials have de-risked safety issues related to this compound. Only efficacy of these drugs now need to be proven beyond PhIII and the multiple pipelines represent good diversification and increases of probability of compounds to market. The products range from protection against sun poisoning, sun intolerance to skin cancer related products.
The share price has been plunging from a high of over $1.2 in April 07 to the current value of about $0.35. Management believe this value does not account for any of its product potential at all. One speculative reason is the its 20% shareholder Absolute Capital Management (ACM) may have been affected by the credit meltdown of recent months. Apart of any unforseen financial obligation to ACM, the worst case scenario of the collapse of ACM is a sell-off of its holding in CUV. Despite this we believe the value of CUV should hold itself independent of its shareholders. At least 2 analyst reports value CUV to have a target price of over $1.00 (Analyst reports can be seen on the CUV's website).
According to the 2007 annual report, it holds about $28m in funds, with another $34m in cash. Ordinarily this is fine. But given the volatility of the share-market in recent times, the significant portion of $28m should be considered in the risky category and potentially worthless. Also note that in the latest quarter 08Q1, it has only over $9.9m in cash.
From the balance sheet point of view, CUV is debt free, as are most biotechs. In the current credit difficulty period, debt freeness is one less item to worry about. The intangibles are only a small fraction of total assets, yet due to the high number of shares, the NTA per share is only $0.21 - i.e Price/NTA of 1.52. This NTA is based on the 07Q4 which was $65.6m. To be conservative, removing the $28m of financial instruments (most likely liquid funds / derivatives) and also accounting for 08Q1 financial spending of $22m, that leaves NTA as about $15m. The revised Price to NTA ratio should be about 6 times, this is higher than desirable of 3 or below.
In summary, close scrutiny indicates that its financial position is not as cash-ready CUV would want investors to believe. Yet, with a number of late stage products in the pipeline, CUV should command a premium. Also taking technical analysis into account of the decreasing share price, the recommendation would be to buy CUV when it stabilizes slightly above half the current price at $0.20.
Recommendation: buy at $0.20 when stabilised.
NTA ($) 0.22
P/NTA 1.52
Team 4
BurnPeriod 5.42
ProductPipe 12.6
ForeignMarket 3
Cash:Debt Debt Free
Previously known as Epitan, Clinuvel (CUV) is an "Australian biopharmaceutical company developing its photo-protective drug CUV1647 as a preventative treatment for a range of UV-related skin disorders as well as in cancer related treatments." Essentially 1 drug CUV1647 but with 5 applications. The product index is exceptionally high for a biotech at 12.6 (above 5 is good). This is due to CUV having over 2 pipelines in Ph III, 1 in PhII and 2 ready to start PhII.
On a quarterly basis, a few interesting financial patterns can be seen. The receipts have reduced from over $200k per quarter from 07Q1 to $0 in 08Q1. Although the receipts are relatively small compared to operational spending - this fact is interesting to note, suggesting that the operations that is earning income has stopped, perhaps to focus on trials. The 2007 Annual Report claims that the funding is sufficient for clinical trials until end of calendar year 2009. Fy07, including 08Q1, is one of CUV's highest spending period with investment spending of about $50m, and capital raising of $60m from equity.
This results in significant dilution of shareholders value with 302.15m shares and worth 3.3 cents a share. Hence the Price to cash is about 10 times - extremely risky. From the analysis of quarterly statements, if operational outflow remains at similar level with no large investments, then current cash level would last for another 5 quarters, 4 quarters short of CUV's prediction. In general, we consider cash lasting 8 quarters to be quite safe, and about 4 quarters to require a wait-and-see approach.
The management index of 4.0 is a about average but note that 2 PhD directors (excluding the current 4) have resigned. This may or may not reflect CUV's development into a late clinical stage company. Clinuvel has a presence in the US and Europe market by having offices there which are involved in clinical operations to an extent. The market exposure of 3.0 is slightly below desirable but not unacceptable.
In terms of product development, CUV has an excellent advanced stage pipeline with a product index of over 12 points. In general, we consider an index value above 5 to be good. CUV has two products undergoing PhIII and others at PhII or earlier. Biotechs at PhIII usually command good valuation with higher multiples over its NTA as will be considered shortly. The risk is that an unsuccessful trial, especially in PhIII, that fails will lead to extremely negative shareholder sentiment - a reduction of share value of 70% is not impossible.
All 5 of its top products currently in trial are based on a single compound CUV 1647. The advantage nature of several of these trials have de-risked safety issues related to this compound. Only efficacy of these drugs now need to be proven beyond PhIII and the multiple pipelines represent good diversification and increases of probability of compounds to market. The products range from protection against sun poisoning, sun intolerance to skin cancer related products.
The share price has been plunging from a high of over $1.2 in April 07 to the current value of about $0.35. Management believe this value does not account for any of its product potential at all. One speculative reason is the its 20% shareholder Absolute Capital Management (ACM) may have been affected by the credit meltdown of recent months. Apart of any unforseen financial obligation to ACM, the worst case scenario of the collapse of ACM is a sell-off of its holding in CUV. Despite this we believe the value of CUV should hold itself independent of its shareholders. At least 2 analyst reports value CUV to have a target price of over $1.00 (Analyst reports can be seen on the CUV's website).
According to the 2007 annual report, it holds about $28m in funds, with another $34m in cash. Ordinarily this is fine. But given the volatility of the share-market in recent times, the significant portion of $28m should be considered in the risky category and potentially worthless. Also note that in the latest quarter 08Q1, it has only over $9.9m in cash.
From the balance sheet point of view, CUV is debt free, as are most biotechs. In the current credit difficulty period, debt freeness is one less item to worry about. The intangibles are only a small fraction of total assets, yet due to the high number of shares, the NTA per share is only $0.21 - i.e Price/NTA of 1.52. This NTA is based on the 07Q4 which was $65.6m. To be conservative, removing the $28m of financial instruments (most likely liquid funds / derivatives) and also accounting for 08Q1 financial spending of $22m, that leaves NTA as about $15m. The revised Price to NTA ratio should be about 6 times, this is higher than desirable of 3 or below.
In summary, close scrutiny indicates that its financial position is not as cash-ready CUV would want investors to believe. Yet, with a number of late stage products in the pipeline, CUV should command a premium. Also taking technical analysis into account of the decreasing share price, the recommendation would be to buy CUV when it stabilizes slightly above half the current price at $0.20.
Recommendation: buy at $0.20 when stabilised.
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