Australia | Apr 11 2011
– Morningstar ceases coverage of Circadian Technologies
– Decision based on lack of consistent earnings
– Circadian still seen as attractive given significant upside potential
By Chris Shaw
Circadian Technologies ((CIR)) is a developer of biologics based therapies for the treatment of cancer and other illnesses. In recent months the company has delivered some good news with a number of successful patent applications and some less positive such as needing to reach a settlement over licensing and royalty payments with Ark Therapeutics Group.
Given the company is in the development stage of its technology there is a lack of any consistent earnings base, which has caused Morningstar (formerly Aspect Huntleys) to cease coverage of the company. Morningstar analysts are at pains to point out the decision is not based on a negative view on the outlook for Circadian.
As the analysts note, if coverage was continued Circadian would be rated as a Speculative Buy below $0.80, a Speculative Accumulate below $1.20 and a Sell rating would only apply at prices above $3.20.
This reflects the view there is significant upside potential on offer in Circadian shares. In part this is because of the attraction of successful Australian R&D companies in terms of replenishing the drug pipelines of major global pharmaceutical and biotech companies.
In Circadian's case, current Phase I trials of the antibody IMC-3C5 are likely to attract some attention shorter-term. These trials are being conducted by Imclone Systems, a subsidiary of Eli Lilly.
As well, Circadian's lead anti-cancer therapeutic, VGX-100, has been shown to significantly inhibit tumour growth and spread in early testing. This suggests the therapeutic has the potential to be a new treatment option for some types of cancer.
A further positive in Circadian's case is, as at the end of the first half of FY11, the company had cash reserves of a little over $25 million, This suggests there is funding available to further progress towards commercialisation of some of the group's therapies.
With Morningstar ceasing coverage on Circadian further research on the company is likely to prove difficult to find, as the FNArena database shows no coverage of the stock. Morningstar research is whitelabeled by medium and small sized stockbrokerages in Australia.
Over the past year the stock has traded in a range of $0.50 to $0.77.