Treasure Chest | Oct 18 2011
By Greg Peel
What?
QRxPharma ((QRX)) is rated by three brokers in the FNArena database as a Buy, with an average target price 74% above the current trading price. RBS expects a solid re-rating of the stock in the lead-up and achievement of a partnering deal.
Why?
With US FDA approval of QRX's low side effect pain relief drug MoxDuo expected next year, the biotech has been looking for a joint venture partner under a licencing arrangement to help with the funds required to get MoxDuo over the line. RBS Australia learned from QRX representatives on Friday that there is no change to the company's timelines or progress, meaning a partnering deal will be in place by Christmas.
Background
It's been a disappointing run for QRX shareholders in 2011 given the stock fell from $2.40 in May to under $1.00 in September. Aside from the general market sell-off over the period, QRX was forced to raise $30m in additional capital in July to provide the funding a yet unsigned partner was supposed to assist with. While the benefit to shareholders is that dilution is offset by earnings that will not be lost to paying a partner its dues, the risk is that an ongoing lack of a partnership would mean more dilutive raisings would have to follow.
QRX has remained resolute nevertheless, and as noted RBS reports the company is expecting a deal to be signed before the year is out.
Is the biotech market hotting up?
Pharmaxis ((PXS)) shares put in a double-digit rally on Monday ahead of the impending decision by the EU drug authority on October 21. BA-Merrill Lynch published a report on Friday noting the substantial upside a positive result would achieve while acknowledging a negative result would also suggest significant downside.
At risk is whether or not the EU will approve PXS's Bronchitol drug (a) for use by anyone old or young, (b) for use by adults only, or ( c) provide conditional approval only for patients for whom the drug shows a positive effect, or (d) provide no approval at all. Having crunched the numbers, Merrills estimates on the stock valuations for each outcome are (a) $3.55, (b) $1.63, ( c) $1.63 or more and (d) 15c.
So far Merrrills has based its target price on outcome (b) which implies, with appropriate risk discounting, $1.08. PXS shares closed at 86c on Friday but ran over $1.00 in intraday trade on Monday.
The move was also acknowledged by the RBS Morgans biotech team.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
