Australia | Oct 13 2006
By Chris Shaw
While the loss of some industry research means biotechnology stocks now receive limited coverage in the Australian market, it doesn’t mean there isn’t money to be made in the sector.
ABN Amro Morgans analysts suggest two likely candidates for upside are Peplin (PEP) and Ventracor (VCR), both stocks currently trading well below the broker’s respective target prices and with prospects for positive news flow in coming months.
Following Peplin’s annual general meeting this week the broker has reiterated its $1.13 price target and Buy rating as it suggests the current Phase 2B trial of its Actinic Keratosis (AK) compound for sun spots is proceeding well, with results due by the middle of next year prior to the commencement of Phase 3 trials.
Additionally, the company is to commence trials of its Base Cell Carcinoma (BCC) product this quarter, which is also expected to provide positive news flow. The broker notes management’s estimates of the respective markets of around US$300m and US$60m based on 1.5 million and 200,000 treatments respectively are in line with its own forecasts, strengthening its view the stock is undervalued.
Artificial heart company Ventracor is also rated as Buy with a $1.13 price target, though this has been set well below the broker’s valuation of $1.62. Following a breakfast presentation by the company the broker notes the clinical results continue to enjoy excellent results, with a success rate to date of 83%. As a result, it expects a European CE Mark submission for the device in the near future.
With seven heart assist devices having been implanted in patients in the US market the broker notes the company is looking to establish a direct sales force, with a similar but smaller force being planned for the European market. The potential growth in the European market is being aided by a BRACE study involving 75 patients, which is enabling additional data to be collected as well as increasing awareness of the product in the market.
The broker notes such brand awareness remains a key, as the benefits of being the preferred product are significant given the substantial costs involved in retraining for a new product.
The broker continues to expect CE approval for the company’s device to be given in the first quarter next year, after which it expects sales will commence.
Peplin shares are slightly stronger today, as at 12.00pm the stock was up 2c at $0.72, compared to a range over the past 12 months of $0.48 to $1.02. Ventracor shares are virtually unchanged, the stock down 0.5c at $0.77, compared to a year range of $0.58 to $1.32.