Pharmaxis Ltd shares rise as new drugs go live in 2022, broker says

Among a range of factors for the outperformance recommendation, Taylor Collison cites the two FDA-approved respiratory products, Bronchitol for Cystic Fibrosis and Aridol Asthma Diagnosis, which are expected to be cost-effective on an ongoing basis and contribute close to At $ 10 million EBITDA by fiscal 2026.

Pharmaxis Ltd (ASX: PXS, OTC: PMXSF), a biotechnology targeting fibrosis and inflammation, has released two FDA-approved respiratory drugs and a pipeline of in-house developed drugs that target fibrosis and inflammation.

Clinical results of two of these anti-fibrotic drugs, PXS-5505 and PXS-6302, targeting fibrotic bone marrow cancer myelofibrosis (MF) and wound scarring, respectively, are expected in the second half of the year. the year to come.

The company recently announced plans to expand clinical development of PXS-5505 for a second indication in liver cancer, and is currently raising funds – around A $ 25 million – to do so.

The work led Taylor Collison to initiate a hedge and issue an outperformance recommendation on the stock.

The broker raises the outlook

Taylor Collison reports that the two FDA-approved respiratory products, Bronchitol for Cystic Fibrosis (CF) and Asthma Diagnosis Aridol, are expected to be profitable on an ongoing basis and contribute to approximately A $ 10 million in EBITDA. by 2026. financial year.

PXS’s market capitalization of A $ 55 million is viewed by the broker as modest for a company with a portfolio of revenue-generating drugs and with clinical efficacy results in two indications expected next year.

Based on this, Taylor Collison sees the potential for the company to surpass its current rating as it moves closer to clinical data milestones in the second half of 2022, valuing the company at A $ 174 million or $ 0.31 per share. , fully diluted.

“We are initiating the PXS hedge with a valuation of $ 174 million or 32 cents per share (undiluted), based on a risk-adjusted discounted cash flow model, which includes our estimates of future payments. milestone and royalty streams for PXS-5505 and PXS -6302 and the mannitol business segment revenue stream, “said Dr. Dennis Hulme, analyst at Taylor Collison.

Financial outlook

PXS has a healthy track record as it progresses through its drug pipeline. In September, it announced that it had A $ 16.1 million in cash, while in November it announced an institutional placement of A $ 7.2 million and a stock purchase plan. to raise AU $ 2 million from eligible shareholders.

Assuming this offering is fully subscribed, it would bring pro forma liquidity to approximately A $ 25 million.

There are a range of reasons why PXS should consolidate and strengthen its finances as its assets grow. The company’s losses have declined year on year – A $ 3 million in the last fiscal year, compared to A $ 13.9 million the year before. The improvement is due to A $ 16 million in revenue from the Bronchitol milestone payments and the sale of the Bronchitol distribution rights in Russia.

Operating cash flow was also positive – A $ 3.1 million – in 2020-2021, compared to A $ 13.2 million in cash outflows in 2019-20 as operating expenses declined slightly .

The company has A $ 19.9 million liability under a NovaQuest funding agreement, but this is only payable as a percentage (approximately 6-7%) of Bronchitol’s revenue in the United States on a period of up to seven years.

PXS’s Mannitol asset is now expected to operate on its own, generating EBITDA of AU $ 10 million per year by 2026 – the company’s Mannitol segment has improved to AU $ 11.5 million l ‘last year, compared to an EBITDA loss of AU $ 4.0 million the year before.

Oral pan-LOX inhibitor

PXS recently completed a Phase 1c trial that tested three doses of PXS-5505, an inhibitor of the lysyl oxidase (LOX) family of enzymes, in patients with MF.

The drug was well tolerated, so treatment began in a phase 2a extension cohort that will treat 24 patients for six months at the highest dose tested in the phase 1c trial. If the primary endpoint is safety, data on the primary efficacy endpoint, a reduction in fibrosis assessed by bone marrow biopsy, are also expected in the second half of 2022.

In preclinical models, PXS-5505 has shown the potential to be an effective treatment for MF, arresting the progression of fibrosis that crowds out red blood cell production in the bone marrow.

A first clinical trial of PXS-5505 in a second indication, liver cancer, is in the final phase of preparation, after promising preclinical results.

Pan-LOX topical inhibitor

PXS 6302, a topical pan-LOX inhibitor, is being tested as a treatment for scar tissue, including burn scars, at Fiona Stanley Hospital in Perth.

In preclinical studies, PXS-6302 treatment resulted in aesthetic and functional improvement in scars. The drug has the potential to reduce the excessive scar formation that causes burn scars to contract, reduce keloid scar formation after surgery, and help resolve existing scars.

Productive drug development pipeline

The company has a number of drug candidates in its pipeline based on its expertise in the chemistry of amine oxidase inhibitors. In addition to its pan-LOX inhibitors, this line includes selective lysyl oxidase (LOXL2) inhibitors targeting chronic fibrotic diseases, and a semicarbazide sensitive amine oxidase (SSAO) inhibitor (SSAO) PXS-4728.

PXS granted a PXS-4728 license to Boehringer Ingelheim (BI), receiving payments of A $ 83 million. BI abandoned development of PXS-4728 due to dose-dependent drug interactions and returned the rights to PXS in 2020.

Bronchitol and Aridol

After a long delay, PXS Bronchitol’s cystic fibrosis treatment gained FDA approval in October 2020, adding to approvals in Australia, Europe and Russia.

PXS manufactures Bronchitol and the related product Aridol at its plant in Sydney. Mannitol respiratory activity had a bad year in 2019-2020, losing around AU $ 4 million, but is expected to generate positive cash flow now that it is operational. Management estimates that the mannitol business could generate approximately AU $ 10 million in EBITDA by 2026.

The company plans to streamline the mannitol business and sell the distribution rights to Bronchitol in Russia, and Bronchitol and Aridol in Australia, for AU $ 4 million in 2021.

The company’s US partner, Chiesi, predicts sales of Bronchitol in the US to peak at around US $ 50 million per year, of which 20% would flow into PXS pre-tax profits.