Quite often, initial public offerings (IPOs) trade under their issue prices for long periods, when, in some cases, the businesses arguably grow more attractive, putting good runs on the board. Here are three examples of this in the biotech field, where I think you can make a case that current pricing is cheap, for impressive Australian companies with global prospects.
- Microba Life Sciences (MAP, 31 cents)
Market capitalisation: $107 million
12-month total performance: 26.5%
Listed: April 2022 at 45 cents
Analysts’ consensus target price: 44 cents (Stock Doctor/Refinitiv, one analyst), 60 cents (FN Arena, one analyst)
Brisbane-based Microba Life Sciences was formed in 2017 to commercialise research that came out of the University of Queensland on the human ‘microbiome,’ which is a vast community of trillions of micro-organisms, including bacteria, viruses and fungi, that live in and on the human body. 90% of those microorganisms live in the gastrointestinal tract, particularly in the large intestine, and that community, known as the ‘gut microbiome’ has been shown to play a central role in health and disease.
The Microba technology for measuring the human gut microbiome enables accurate and comprehensive microbiome testing services; and from that testing, Microba has built a proprietary databank of health and microbiome data. In turn, the databank drives the discovery and development of novel therapeutics for major chronic diseases, with therapies currently being developed to address autoimmune, inflammatory, metabolic, mental health disorders and cancer immunotherapy.
The first of these therapeutics, the lead product, MAP-315, is currently in Phase I trials for irritable bowel syndrome, which can lead to inflammatory bowel disease (IBD), a chronic gastrointestinal disorder that causes intestinal inflammation. The next two therapeutics in the pipeline will be aimed at immuno-oncology and auto-immune diseases.
The other side of the business is the gut microbiome testing that builds the database. Five years after launching its first services and product in Australia in July 2018, Microba now sells its testing products in 13 countries, namely New Zealand, the US, Switzerland, the UK, the Gulf Cooperation Council countries, Poland, Hungary, Romania, Croatia, Turkey and the Czech Republic. Microba sells both personal testing and research testing products.
In February, Microba launched its next-generation testing product range MetaXplore, made up of the MetaXplore, MetaXplore GI and MetaXplore GI Plus products. The main features of the range include an easy-to-interpret report format that is designed for healthcare professionals, as well as scientifically graded clinical insights that use guidelines from the National Health and Medical Research Council. Other features include diagnostic and investigative gastro-intestinal health markers, diagnostic pathogen and parasite detection, complete microbiome profiling, and microbiome production and consumption of metabolites.
Microba says it has world-leading technology in the emerging and rapidly growing US$4.89 billion ($7.5 billion)) microbiome sector. It has significant partnerships with market leaders, including Australian medical diagnostics giant Sonic Healthcare, US-based Ginkgo Bioworks and Germany-based SYNLAB. In November, Sonic Healthcare spend $17.8 million buying a 19.99% stake in Microba. The deal gave Sonic rights for microbiome testing distribution into seven countries, including Australia, Germany, the UK, Germany, Switzerland, New Zealand, Belgium and the US.
Sold through the prospectus at 45 cents, Microba shares hit the Australian Securities Exchange (ASX) on Tuesday, 5 April 2022, opening at 44 cents, and closing at 35 cents. Since then, 41 cents in April 2022 is as good as it got for the share price. However, Microba is in much better shape than it was at 14 cents, in October 2022. The company is well-funded, with $35.40 million in cash (or cash equivalents) at 31 March 2023.
MAP is not widely followed, but the analysts that cover it are quite bullish; the most bullish is Bell Potter, which has a price target of 60 cents. The company is kicking big goals and looks to be a world leader in a growing space.
- Clarity Pharmaceuticals (CU6, 72.5 cents)
Market capitalisation: $96 million
12-month total performance: 61.1%
Listed: August 2021 at $1.40
Analysts’ consensus target price: $1.34 (Stock Doctor/Refinitiv, three analysts), $1.35 (FN Arena, one analyst)
Clarity Pharmaceuticals is a radio-pharmaceutical company that is developing next-generation products to address the growing need for the use of radio-pharmaceuticals in cancer treatment.
Radio-pharmaceuticals are pharmaceutical drugs that contain radioactive isotopes. Very small amounts of radiopharmaceuticals are given to the patient; the radio-pharmaceutical then passes through, or is taken up by, an organ of the body (which organ depends on what radiopharmaceutical is used and how it has been given); then, the radioactivity is detected, and pictures are produced, by special imaging equipment. These pictures allow doctors to diagnose and treat serious cancers, such as those of the breast and prostate.
Like Microba, Clarity is a great example of academic research being commercialised: the company was established in 2010 with licences of intellectual property from The University of Melbourne and the Australian Nuclear Science and Technology Organisation (ANSTO).
The company’s SAR Technology platform makes it a global leader in targeted copper theranostics (therapy and imaging), or TCT, which uses copper isotopes – what Clarity calls the “perfect pairing” of copper-64 (64Cu) and copper-67 (67Cu) for diagnosis and therapy respectively. Central to the technology platform is a bifunctional chelator (cage) that strongly binds and retains copper isotopes, and prevents them from leaking into the body. (The chelator was originally called sarcophagine, which gave the name to the SAR technology platform.)
The cage is linked to a targeting molecule, which finds and binds tumour specific receptors on cancer cells. Combining molecular targeted drugs linked to radioisotopes means that doctors can bind specific proteins on cancer cells, which helps with achieving accurate targeting of cancerous tissue, while radioisotopes attached to them deliver radiation which aims to kill the cancer in a localised manner.
Clarity has three core product areas currently in clinical trials, which address both large indications (prostate cancer and breast cancer) as well as rare and orphan indications (neuroendocrine tumours NETs and neuroblastoma) of cancer, all addressing high unmet needs that currently exist in respect of the medical treatment used for these types of cancers. The products in clinical trials include:
- SARTATE: for the treatment of neuroblastoma (Phase I/IIa stage) and for the diagnosis of neuroendocrine tumours (NETs), Phase II stage;
- SAR-Bombesin: a pan-cancer treatment product, including for the treatment of breast cancer and prostate cancer, (Phase I stage); and
- SAR-bisPSMA: for the treatment of prostate cancer (Phase I/IIa stage) and for the diagnosis of prostate cancer (Phase I stage).
All six clinical-stage products are under an investigational new drug (IND) application in the US. The company expects Phase III clinical trials to commence next year.
Recently the Propeller trial of SAR-bisPSMA in prostate cancer met all primary and secondary endpoints. This month, the SECuRE trial evaluating SAR-bisPSMA in patients with metastatic castration-resistant prostate cancer (mCRPC) – a type of prostate cancer that has spread to other parts of the body and is no longer responding to hormone treatment that lowers testosterone – also reported good progress, moving on a second cohort of patients, with clinical benefits seen in some first-cohort patients, and no safety issues encountered.
Clarity is not only trying to show that TCTs perform better than the current standard-of-care for cancer imaging, but that they are better environmentally, with minimal radioactive waste disposal issues compared to products based on gallium and luthenium. As the number of patient treatments increases with an ageing population, Clarity believes these environmental factors will position theranostic radiopharmaceuticals as a better choice.
Clarity also gives every indication of a world-leading Australian-developed technology that has huge potential in the US$35 billion ($53.8 billion) global radiopharmaceuticals market. The company is well-funded, with $66.7 million cash in the bank as at 31 March 2023.
The company raised $92 million at $1.40 in its initial public offering, and the heavily over-subscribed shares traded as high as $1.71 on the first day; but the stock began to slide shortly afterward, and by May 2022, CU6 had sunk to 41 cents. Clarity has mounted a determined recovery from there, and analysts see further rises ahead. Once again, Bell Potter is the most optimistic, seeing $1.35 as achievable.
- Trajan Group (TRJ, $1.48)
Market capitalisation: $225 million
12-month total performance: –43.5%
Listed: June 2021 at $1.70
Analysts’ consensus target price: $2.50 (Stock Doctor/Refinitiv, three analysts), $2.50 (FN Arena, one analyst)
Analytical science and devices company Trajan Group listed in June 2021 at $1.70 and got off to a flying start: the stock opened at $1.86. The love continued for quite a while, with TRJ hitting $4.41 in early 2022, before starting a slide that saw it retreat all the way to $1.39 earlier this month.
Therein lies the opportunity, because Trajan Group is arguably a much stronger investment proposition than it was when it floated; for a start, it is twice the size it is today in both revenue and EBITDA (earnings before interest, tax, depreciation and amortisation). Not all of that is organic growth – Trajan has bought five more businesses since it listed – and analysts expect it to do more.
Trajan develops and manufactures scientific measurement devices, with a range that spans the scientific measurement process. Examples range from syringes, microscope slides, test tubes, home blood sample pens, to more complex devices such as machines to dispense liquids and separate elements in a given sample. It makes more than 8,000 products and sells those products to more than 1,000 customers. Trajan has seven manufacturing sites in four countries (one in Australia, four in the US, one in Germany and one in Malaysia.)
The crucial attributes for investors contemplating Trajan really come down to the fact that it has built a highly defensible market position, with high barriers to entry, on the back of specialist products designed, developed, and manufactured at scale, through proprietary intellectual property (IP) and expertise; the fact that it has built long-term relationships with global ‘blue-chip’ customers including global scientific OEMs (original equipment makers), pharmaceutical companies, and contract research organisations; and a global infrastructure footprint that includes manufacturing and distribution operations, with capacity to meet future growth; and a high-quality global management team.
Also, Trajan has consistently met or exceeded financial guidance; most recently, in February, it upgraded its full-year financial guidance after lifting first-half (December 2022) revenue by 83%, to $80.1 million, and ‘normalised’ EBITDA by 116%, to $10.3 million. For the full year, Trajan now expects revenue of between $155 million and $165 million and normalised EBITDA of between $21.7 million and $25.8 million. (In FY22, it brought in revenue of $107.6 million, and made ‘normalised’ EBITDA of $12.5 million).
Aside from the healthcare and pharmaceutical industries, Trajan’s products are also used in food safety and environmental testing. Trajan earns more than 95% of its revenue outside Australia, mainly from North America. About 54% of revenue comes from the analytical product segment and 46% from life sciences.
Trajan was founded in 2011 when husband-and-wife founders Stephen and Angela Tomisch acquired a small business supplying consumable products (such as microscope slides, stains and blades) to anatomical pathology providers, and started to ask customers what else they wanted. 16 acquisitions later, the initial few million dollars in revenue is forecast to be as much as $165 million this financial year. But the Trajan IPO was not an exit story: did sell $40 million worth of shares into the float but held on to 59% of the equity — Stephen is still CEO (Angela heads the company’s philanthropic Foundation), and that makes Trajan one of those founder-led businesses that fund managers like, because the ‘alignment’ of the management and the shareholders is rock-solid.
Again, this is an Australian global leader that is now much cheaper than it was when it listed – despite being a stronger business – and analysts like the prospects for future growth.
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