A European Biotech Stock Basket For 2015 – An Update | Seeking …
Summary
As an update from my previous article, I am reviewing some European biotech picks and introducing new favorites.
Owing to strong fundamentals and an increasing number of significant deals in the sector, a technologically diversified, European biotech portfolio makes more sense now than ever.
The main investment thesis remains that leading small-cap European biotechs are reaching maturity and present a great value opportunity when compared to U.S. equivalent companies.
Some months ago, I published an article entitled “A European Biotech Stock Basket For 2015”. The purpose of this article was to review a short selection of European micro-cap biotechs of interest, which shared a combination of strong fundamentals and apparent undervaluation.
Here is an updated review of those companies, followed by an introduction to new promising picks and favorites:
1. TiGenix (OTC:TGXSF) – The Belgian/Spanish biotech is closing in on crucial Phase 3 results of its leading allogeneic adipose-derived stem cell product, Cx601, which should be released in just a few weeks. With a market cap of ~$130 million, up 50% YTD but still undervalued considering the marketing and broad therapeutic opportunities hold by its technology, I believe that TiGenix could be one of the major value play of this year and beyond. While, for now, it remains a risky bet hanging on the outcome of its late-stage trial, I do believe that TiGenix’s Phase 3 trial is likely to succeed given past evidence of efficacy and a carefully thought out trial design. In case of success, upside in the range of 50-100% seems probable.
2. Genfit (OTCPK:GNFTF) – The French biotech delivered Phase 2b results in a landmark NASH trial in March, leading to a sharp and unjustified sell-off, which I believe to be the consequence of widespread misunderstandings and blatant propaganda. While regaining more than 30% since the announcement, I believe that today’s share price is an unexpected opportunity to build or increase one’s position, based on the analysis of Phase 2b data and favorable head-to-head comparisons with Genfit’s main competitor, Intercept (NASDAQ:ICPT). The announcement of Genfit’s large Phase 3 NASH trial design should come before the end of the year, and lucrative partnering deals could materialize anytime now, catalyzing the stock and reducing the valuation gap with Intercept – my price target for Genfit’s stock remains $100 before year’s end.
3. Onxeo (OTC:OXNXF) – The French/Danish biotech continues to execute on its transformation towards a specialized orphan cancer biotech – with one Phase 3 ongoing (Livatag in HCC) and two more Phase 3-ready products (Validive in severe oral mucositis caused by HNC and Beleodaq in PTCL, already approved conditionally in the U.S. based on Phase 2 results). Onxeo’s market cap still looks far too cheap (~$220 million) for a biotech with such advanced product candidates in the oncology field. Beleodaq’s sales in the U.S. through partner Spectrum (NASDAQ:SPPI) are picking up ($7.7 million in the first three quarters since product launch), and two of Onxeo’s other U.S. partner companies have recently merged or been acquired by larger companies – Innocutis bought by Cipher (NASDAQ:CPHR) and DARA BioSciences’ (NASDAQ:DARA) merging with Midatech – which could significantly help improve product distribution and sales in the mid-term, increasing Onxeo’s revenues while clinical developments are still progressing.
4. Pharming Group (OTC:PHGUF) – On the clinical front, everything is progressing smoothly for the Dutch biotech, specialized in recombinant proteins, with positive interim results from an ongoing Phase 2 pediatric study of Ruconest in hereditary angioedema (HAE) attack treatment, and another Phase 2 study ongoing in HAE prophylactic treatment (a $400 million market in U.S. only with just one competitor at the moment). When considering that Dyax (NASDAQ:DYAX), which recently released positive Phase 1b results for its monoclonal antibody HAE attack treatment (DX-2930), gained more than $2 billion of market cap on the announcement, it is very hard to believe that Pharming’s own market cap currently stands below $150 million with one safe and effective product already on the market. However, with a $30 million cash reserve and a low cash burn rate (~$4 million per quarter), Pharming does have some time on its hands to progress its current pipeline while revenues should increase significantly in the coming quarters, all the more with the help of Valeant’s (NYSE:VRX) commercial power after the big pharma company acquired Salix earlier this year. While speculators seem to have shifted their attention to somewhere else at the moment, leading to a slow decline in the stock’s price since February’s highs, I see no reason why patient shareholders should not be largely rewarded in this case.
5. MDxHealth (OTC:MDXHF) – Revenues continue to increase in this Belgian molecular diagnostics specialist, in part from Exact Sciences’ (NASDAQ:EXAS) Cologuard sales, but also thanks to growing volumes of sales from the company’s wholly-owned prostate cancer test, ConfirmMDx ($3.8 million in Q1-2015). The company’s net loss is improving, although it still needs to expand revenues significantly to achieve long-term sustainability. A recent $30 million private placement (oversubscribed and with virtually no discount on the share price) provides visibility for the coming years, and strengthening of the U.S. commercial force is on the program.
New Coverages:
6. arGEN-X (OTC:ARGNF) – A Dutch/Belgian biotech developing a new generation of differentiated therapeutic antibodies based on the singular properties of the immune system of llamas – a unique approach in the field, which generated more than $70 billion of sales worldwide and significant big pharma deals in 2014, and a broad portfolio of product candidates for the treatment of cancer, severe autoimmune diseases and orphan diseases with unmet needs. Current partnerships include strategic, long-term collaboration deals with the likes of Shire (NASDAQ:SHPG), Bayer (OTCPK:BAYZF) and Boehringer Ingelheim, and the company’s market cap (~$200 million) is still significantly lower than other European antibody specialists such as Ablynx (OTC:ABLYF), Innate Pharma (OTCPK:IPHYF) or Galapagos (NASDAQ:GLPG). With more than $60 million in cash (providing sufficient operating funds until end-2017) and some major value inflexion points coming up in the second half of 2015, this comes out as an attractive investment thesis – see my detailed article here.
7. MediGene (OTCPK:MDGEF) – A German cancer immunotherapy company, playing in the hot field of adoptive immunotherapy (CAR-T, TCR…) but still trading at a tiny fraction (~$250 million) of the market cap of other biotech peers such as Kite Pharma (NASDAQ:KITE) or Juno Therapeutics (NASDAQ:JUNO). MediGene, while currently lacking any major partnership deal in the field, recently completed a successful capital increase providing ~$50 million of cash for further developments – see this very nice article by SA author Decision Analytics.
In addition to this, some impressive performances YTD from European biotech stocks are also worth mentioning, such as Adocia (OTC:ADOCF) (up 75%), Innate Pharma (up 100%), Cellectis (NASDAQ:CLLS) (up 175%) or Galapagos (up 230%), which are characterized by the recent signing of important deals with big pharma players – a sure sign that an increasing number of European biotechs are reaching maturity in leading technological fields while still trading at modest valuations, which make them attractive targets for partnering or buyouts.
In conclusion, this concurs to the main thesis of this review, which is that current leading small-cap European biotechs present a great value opportunity when compared to U.S. equivalent companies and should lead to significant growth in European biotech stocks in the coming years. With big pharmas on the lookout, a diversified, European biotech portfolio does make sense, now more than ever.
Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Source:
A European Biotech Stock Basket For 2015 – An Update
Disclosure: I am/we are long TGXSF, GNFTF, OXNXF, ARGNF. (More…)I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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A European Biotech Stock Basket For 2015 – An Update | Seeking …
