First Royalties Drawing Nearer For Starpharma

This story features STARPHARMA HOLDINGS LIMITED. For more info SHARE ANALYSIS: SPL

– Starpharma still on track for VivaGel revenues this year
– Positive results from refomulation of cancer drug another opportunity
– Bell Potter "reiterates" Buy rating

By Chris Shaw

In May, Southern Cross Equities suggested Australian biotech Starpharma ((SPL)) was a Speculative Buy because of its world-leading position in the dendrimer market and the potential on offer from the group's VivaGel anti-microbial product (see Starpharma, Rising Star, FNArena, 25/5/11).

Having now been integrated under the Bell Potter banner, the stockbroker remains positive, reiterating Starpharma as a Speculative Buy. One reason is expected revenues in the short-term, Bell Potter expecting Starpharma could enjoy VivaGel related condom royalties from Reckitt Benckiser of as much as $30 million annually once the product launches later this year.

There is scope for revenues to eventually become larger, Bell Potter noting there is potentially a billion dollar Western World market for VivaGel as a topical microbicide. This reflects the prevalence of genital herpes infections in women in particular. 

As Bell Potter notes, around 16% of the US population has had genital herpes. Given this, women increasingly want to be able to protect themselves via the use of microbicides, so offering an opportunity for Starpharma.

This opportunity may receive funding from the US government, as in 2009 the government made around US$236 million available for microbicide research and development. Such funding would likely be needed as a trial for HIV efficacy would likely cost as much as US$60 million. 

Down the track, Bell Potter also sees potential for Starpharma to develop a microbicide for HIV as well, so opening another market opportunity.

Bell Potter has also suggested Starpharma has the potential to develop other applications for its dendrimer technology. Examples of opportunities include the drug delivery, animal health and agro-chemicals markets.

Last week, Starpharma announced a reformulation of the cancer drug doxetaxel through the use of a number of dendrimers. The result is the drug's water solubility has improved by 2,000-8,000 times. Further work has been planned, with management declaring its version of the docetaxel drug is now the lead candidate in the drug delivery program.

To Bell Potter this is an example of Stapharma's ability to leverage its dendrimer technology, as the market for docetaxel, the old Taxotere drug of Sanofi-Aventis, generated US$3 billion sales in 2009. This suggests an attractive opportunity for a company able to develop a better formulation of the drug.

Given the potential upside for dendrimers as a platform technology, along with the expected revenues from the VivaGel related royalties, Bell Potter values Starpharma at $1.87 under base case assumptions and $3.68 under more optimistic numbers.

Price target has been set near the base case valuation at $1.90. There is no basis for any valuation comparison as no brokers in the FNArena database cover Starpharma.

Shares in Starpharma today are higher, the stock trading up 3c at $1.50 as at 11.00am. Over the past year Starpharma has traded in a range of $0.48 to $1.665.
 

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