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How is the Needle Moving on these US Stocks - VRTX PSFE and VYNT

May 07, 2021 | Team Kalkine
How is the Needle Moving on these US Stocks - VRTX PSFE and VYNT

Vertex Pharmaceuticals Inc.

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) is a company that discovers and develops small-molecule drugs for the treatment of serious diseases. Its key drugs are Kalydeco, Orkambi, Symdeko, and Trikafta for cystic fibrosis, where Vertex therapies remain the standard of care globally.

Key highlights

  • Updated financial guidance for FY2021: The organisation is confident in its overall Cystic Fibrosis (CF) product sales for FY2021, which are expected to be in the range of USD 6.7-6.9 billion. The group expects a marginal increase in the R&D and SG&A costs to USD 3.8-3.95 billion from USD 2.9-3.05 billion previously stated. The increase in costs is mostly due to a burgeoning product production pipeline.

   Source: Company Reports

  • Active clinical development pipeline: The firm has a strong and expansive portfolio of potentially game-changing small molecule, cell, and genetic therapies in development for severe diseases. The corporation received clearance for four drugs under the Cystic Fibrosis (CF) program. In the clinical trials test program, namely CTX001 for Sickle Cell Disease (SCD) and treatment of Transfusion-dependent beta Thalassemia (TDT) more than 30 patients have been dosed. Many products would be on the next stage of their clinical trials by the second half of 2021.

Source: Company Reports

  • Investing in External Innovation: In April, the firm announced a collaborative partnership with Obsidian Therapeutics, Inc. aimed at developing innovative gene-editing therapies to treat severe diseases. We believe that by working together, they would take advantage of Obsidian's cytoDRiVE platform technologies to find gene-editing medicines whose therapeutic action can be precisely regulated using small molecules.
  • Industry beating margins: Despite the hard time for the industry and economy, the management's solid determination helped them leaping the industry median margins on many fronts in Q1 2021, which is a key positive.

Source: Refinitiv (Thomson Reuters)

Financial overview of Q1 2021 (in thousands of USD)

Source: Company

  • In Q1 2021, the company increased its revenue to USD 1,724.3 million, against USD 1,515.1 million in the previous corresponding period. This 14% increase was driven by the strong international uptake of KAFTRIO and the continued performance of TRIKAFTA, drugs used for treating Cystic Fibrosis.
  • Income from operation stood at USD 887.8 million compared to USD 720.2 million in pcp. Higher revenues helped the company in posting increased income from the operation, partially offset by higher cost of sales and higher SG&A expenses.
  • Net income in the reported period stood at USD 653.1 million, against USD 602.7 million in the previous corresponding period.

Risks associated with Investment

The Company's income depends upon the results of the clinical trial and the subsequent approval of trials. There is a chance of cancellation of the drug approval, which might result in the commencement of new clinical activities and require more funds and delay the launch's timeline.

Valuation Methodology (Illustrative): EV to EBITDA

Note: All forecasted figures and peers have been taken from Thomson Reuters

1-Year Price Chart (as on May 6, 2021). Source: Refinitiv (Thomson Reuters)

Stock recommendation

The first quarter continued to make significant progress towards its goal that all eligible patients have access to and can benefit from CFTR modulators. The company also delivered strong revenue and earnings growth. The group is significantly progressing across its broad pipeline, including the advancement of VX-548 to Phase 2 in acute pain, initiation of the Phase 1/2 clinical trial with VX-880 in type 1 diabetes and completion of enrollment and dosing in Phase 2 proof-of-concept study with the AAT corrector, VX-864. Furthermore, the recent amendment of its agreement with CRISPR Therapeutics for the CTX001 program further enhances its leadership position in cell and genetic therapies. The group looks forward to completing the ongoing trials for CTX001 sickle cell disease and beta-thalassemia this year. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the closing price of USD 213.16 as of May 6, 2021. We have considered Neurocrine Biosciences Inc, Incyte Corp, etc., as the peer group for the comparison.

Paysafe Limited

Paysafe Limited (NYSE: PSFE) is a leading specialized payments platform, which enables businesses and consumers to connect and transact flawlessly through payment processing, digital wallet, and online cash solutions. The platform is used by ~5 million people across more than 120 countries.

Key Updates

  • Shifting to Amazon Web Services (AWS) cloud solutions: On April 29, 2021, PSFE reported its switch to AWS cloud solution wherein the company would migrate its eCash solutions, paysafecard and Paysafecash, and digital wallets service and Skrill segments. This would help the company to develop new cloud-native merchant payment and consumer wallet products for its operations and consumers.
  • Diversified revenue-base: The company's operation is not dependent on a single segment and thus reduces the risk. Most of the the company’s revenue is derived from North America (~47% in FY20), Europe (~39% in FY20) and RoW contributes 14% of total revenue. Additionally, on the segment front, Processing segment contributes majorly around 50% of total revenue followed by Wallets segment (27%) and eCash contributes 23% inn total revenue. Hence, on revenue vertical, the company maintains an impressive risk profile, which is a key positive.

Source: Company Presentation

  • Event Update: The company would report its Q1FY21 result on May 11, 2021.

FY20 Financial Highlights:

  • PSFE announced its full-year result, wherein the company posted revenue of USD 1,426.489 million, which remained flat as compared to USD 1,418.140 million in FY19.
  • Operating income stood significantly lower at USD 19.680 million, as compared to USD 51.812 million in FY19. The decrease was primarily attributable to the higher cost of services (USD 534.823 million v/s USD 508.735 million in FY19) coupled with slightly higher selling, general and administrative (USD 465.897 million v/s USD 443.064 million in FY19).
  • Net loss widened to USD 126.714 million, from a loss of USD 110.137 million in the previous year.
  • The company reported its cash and cash equivalent of USD 387.616 million, while total assets were recorded at USD 7,409.331 million.

FY20 Income Statement Highlights (Source: Company Report)

Risks: The company is yet to mark profitability despite having an impressive product presence. Continuation of the above trend is likely to dampen the financial flexibility of the firm.

Valuation Methodology (Illustrative): EV to Sales based

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

One-Year Price Chart (as on May 06, 2021). Source: Refinitiv (Thomson Reuters)

Stock Recommendation:

The group has an impressive business model of a specialized payments platform. Moreover, the company has a decent presence across geographies, which is a key positive. However, on the flip side, the company’s operating expensed remain elevated which resulted in loss at the bottom-line level. Continued losses are likely to dampen the financial flexibility of the firm, which remains as a key concern. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a double-digit downside (in percentage terms). For the said purposes, we have considered industry (Software & IT Services) mean on NTM basis. Moreover, the stock of PSFE corrected ~10% and ~29% in the last one months and three months, respectively. Considering the aforesaid facts, we suggest a 'Watch' stance on the stock at the last closing market price of USD 12.76 on May 06, 2021.

Vyant Bio Inc.

Vyant Bio Inc. (NASDAQ: VYNT) operates through its two wholly-owned subsidiaries, StemoniX and vivoPharm. Integrating the above two businesses, the company would work upon discovery and development of preclinical and clinical pipelines for biopharma partners as well as for the proprietary pipeline of the Company.

Key Updates:

  • Appointment of Board of Directors: Recently, the company appointed several experienced members from the pharma industry on its Board. The names of the newly appointed directors are listed below: John Fletcher, Joanna Horobin, Marcus F. Boehm, Geoffrey Harris, Howard McLeod and Paul Hansen.
  • Collaboration with Ordaos Bio and Cellaria, Inc.: On April 22, 2021, the company reported its collaboration with Ordaos Bio and Cellaria, Inc. wherein the company would work on the rapid iteration of therapeutic design using artificial intelligence and the company's ‘avatar clinical trials. This would enable the design, development, and testing of potential therapeutics on a particular patient population during preclinical development.

FY20 Financial Highlights:

  • VYNT announced its full-year result, wherein the company reported a lower revenue of USD 5.751 million v/s USD 7.305 million, a decline of 21% on y-o-y basis. 
  • Loss from continuing operations widened to USD 8.183 million, from a loss of USD 5.703 million in FY19. The increase in losses was primarily driven by lower revenue and inclusion of impairment of intangible assets amounting to USD 2.201 million.
  • The company reported a higher net loss of USD 8.043 million compared to the loss of USD 6.885 million in FY19. The period witnessed a significantly lower net interest expense of USD 0.272 million, as compared to USD 1.329 million in pcp.
  • Cash and cash equivalent stood at USD 2.444 million, while total assets stood at USD 8.348 million.

FY20 Income Statement Highlights (Source: Company Report)

Risks: The company is working on the research for Human iPSCSpheroids and is yet to report full commercialization. Moreover, future operations depend upon the timely approval from the regulatory bodies and a delay in clinical trials and approval would impact the company’s overall performance.

One-Year Price Chart (as on May 06, 2021). Source: Refinitiv (Thomson Reuters)

Stock Recommendation:

The group is working on its Human-based disease model for HT drug discovery and is using Artificial - Intelligence based technology, which would lead to billions of potential molecules to the best compounds and would help the company’s research and development. The VYNT stock declined ~28% and ~19% in the last one month and three months, respectively. Moreover, the company is witnessing constant losses, which is likely to affect the financial flexibility of the group. We prefer to remain on the sideline on account of the lack of the growth drivers. Hence, considering the aforesaid facts, we give an 'Avoid' rating on the stock at the last closing price of USD 3.29 on May 06, 2021.