This was posted on ADVFN in January 19:
25 Jan '19 - 22:47 - 145 of 161
Considering a largely successful, rule book-driven career in equity research, what I’m about to do is a first.
I’m going to make a bold prediction:
London-listed Nuformix (NFX) will be the best performing biotech in 2019!
A large number of investors mistakenly fall for the premise that complexity is a key component to superior performance. The City of London’s investment banking sector has cultivated and reinforced this fallacy for generations.
In fact, nothing could be further from the truth. In the end, complex investment strategies almost always suffer from chronic underperformance. And regardless of the hype and prestige these investments are commonly cloaked in, they are usually designed to, first and foremost, enrich those managing and selling them.
Thus, for the experienced and novice investor alike, straightforward and transparent investments are almost always the best of all options.
Take Nuformix for example; the Cambridge-based biotech, which counts Vectura’s former head honcho Chris Blackwell as a director, takes drugs cast off by major pharmaceutical companies in phase III clinical trials (targeting high-value unmet needs) and repurposes them.
How simple and straightforward is that?
Word of caution though: dismiss this business model at your own peril.
Employing cocrystal technology, Nuformix has not only created an IP portfolio containing 14 granted patents covering cocrystal forms of five small molecule drugs, but has also identified two drug cocrystals (NXP001 and NXP002) that its highly credentialed management team believe represent stand-out commercial and therapeutic promise and is seeking to progress these programmes to human pharmacokinetic studies.
And so far, the management team have come up trumps.
According to the Lancet, the average cost of a Phase II clinical trial ranges from £4.0 million to £14.6 million, while the average costs of phase III clinical trials range from £8.3 million to £39.9 million.
Thus, with an estimated, inherent legacy investment value of circa £31.3m, NXP001, the company’s flagship cancer drug candidate, has outperformed all clinical studies so far. Considering that NXP001’s market (oncology supportive care) is currently estimated at £17.5 billion per annum, rising to £23.5 billion in 2021, a positive outcome at the pharmacokinetic studies will thrust NXP001 into blockbuster territory. And we all know what happens then….
As for NXP002, the company is re-profiling the drug to treat a range of fibrotic conditions, which can occur in organs such as the lungs, liver or heart. So far, the drug has achieved primary endpoints in all clinical studies done. Specifically, data generated showed that NXP002 candidates strongly inhibit fibrosis ex-vivo, even in very severely fibrotic human lung tissue taken from patients at end stage with IPF.
Okay, that’s a bit too far down the rabbit hole for most of us without PhDs in medical science.
What’s worth noting, however, is that FinnCap have placed an initial value potential of NXP002 at circa £284m with the corresponding licencing agreements. FinnCap stresses that this valuation does not include markets for other fibrotic conditions which are under-developed. The global liver disease market, for example, is predicted to reach £9.2 billion by 2022.
In the meantime though, Q1 2019 (now…) promises to be very busy for Nuformix, with plenty of newsflow:
• MHRA clearance expected and patients scheduled for dosing shortly after.
• Completion of the pharmacokinetic study triggers a £500,000 milestone payment from Newsummit Biopharma, the company’s Chinese partner.
• Human pharmacokinetic data to be released.
• Demonstration of bioequivalence triggers a £2 million milestone payment.
• Demonstration of bioequivalence propels NXP001 into ‘blockbuster’ territory, drawing the attention of Big Pharma.
• Demonstration of bioequivalence will substantively alter the value proposition being tabled in ongoing commercial discussions.
• Announcements on ongoing commercial discussions expected.
As is evident above, the newsflow is potentially company-making and is likely to keep investors on their toes.
That being said, let’s cut to the chase, because time could be of the essence with this one, and talk numbers:
• Nuformix’s current market cap is £9.2m (2p).
• For the six months ended 30 September 2018, the company’s NAV was £4.49m (included £338,167 cash at bank).
• On the 27 November 2018, the company received £500,000 in milestone payments from NSB.
• The company is set to receive £2.5m in milestone payments from NSB in Q1 2019.
Now, less £7.49m means the market is valuing Nuformix’s highly successful cancer and fibrosis stable of drug candidates, and its substantial IP portfolio, at a paltry £1.7m!
Has the market totally missed this?
The company has excellent clinical data for its drug candidates, is earning significant milestone payments, is in advanced commercial discussions for its stable of drugs, and is firmly positioned for entry into Greater China and South East Asia (all multibillion dollar market opportunities) but is sporting a bargain-basement valuation of £1.7m!
Again I bark, seriously?
Frankly, if ever there was a textbook market anomaly then this is it.
Remember, the stock market is not always the perfect arbiter of value.
And yes, this spectacular value gap offers an incredible opportunity to savvy investors.
Thus, at the minimum, the company’s market cap should find a floor at £65m (15p). To this end, the risk-reward profile here is extraordinarily rare.