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blue-chip

Opportunities to Peck at These Healthcare Firms - VTRS, CRIS

Jul 02, 2021 | Team Kalkine
Opportunities to Peck at These Healthcare Firms - VTRS, CRIS

 

 

Viatris Inc.

VTRS Details

Viatris Inc. (NASDAQ: VTRS) is a healthcare company engaged in providing access to medicines and sustainable operations to patients in over 165 countries. Its portfolio includes over 1,400 approved molecules across a variety of therapeutic areas, divided into Brands, Complex Generics and Biosimilars, and Generic segments. VTRS was formed in November 2020 through the combination of Mylan N.V. and the Upjohn business (previously part of Pfizer Inc.) and was listed on the NASDAQ on November 17, 2020.

Favorable Rulings in EpiPen Class Action: On June 23, 2021, the U.S. District Court for the District of Kansas issued a decision in Mayan’s favor (for the most part) on the class action related to its EpiPen Auto-Injector. The court decided to dismiss all the claims of the plaintiffs under the federal RICO statute, including those alleging that Mylan foreclosed branded competition through rebate arrangements with pharmacy benefit managers. The only remaining claim in the class action suit is related to a patent settlement between Pfizer and Teva, plus other alleged actions in connection with Teva's generic epinephrine auto-injector. The trial is now scheduled to commence on September 07, 2021.

Expanding Access to HIV Self-Tests: On April 29, 2021, VTRS and Atomo Diagnostics Limited signed a multi-year agreement with Unitaid, focused on expanding access to HIV self-testing in 135 low and middle-income countries (LMICs). The Mylan HIV Self-Test, which is designed and manufactured by Atomo and prequalified by the World Health Organisation (WHO), detects the presence/absence of HIV antibodies from a blood sample obtained from a fingertip.

Q1FY21 Results: The company’s total revenues in Q1FY21 (ending March 31, 2021) were USD 4.43 billion, representing a decline of 6% compared to combined adjusted revenue for Q1FY20 (combined results of Mylan and Upjohn business). Revenue from the Brands product category amounted to USD 2.72 billion, representing 61.92% of the total revenue in Q1FY20. Net loss for Q1FY21 was USD 1.04 billion, and free cash flow generated during the quarter amounted to USD 799.3 million. The business paid down USD 1.06 billion in short-term debt in the quarter.

Q1FY21 Key Product Sales (Source: Earnings Presentation, May 10, 2021)

Key Risks: The supply of pharmaceutical drugs is vulnerable to illegal distributions of counterfeit versions, especially over the internet. Such illegal counterfeit versions of VTRS’ products, which are generally unsafe/ineffective, could negatively impact the company’s reputation and business. Moreover, VTRS may be subjected to suspensions/withdrawal of prior approvals if its products fail to comply with the regulatory requirements, which can adversely affect its financial condition.

Outlook: As of Q1FY21, the company is on track to repay about $6.5 billion in debt by 2023 and is dedicated to retaining its investment-grade credit rating.

FY21 Guidance (Source: Earnings Presentation, May 10, 2021)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

VTRS Daily Technical Chart

Stock Recommendation: VTRS stock declined 21.72% in the past 6 months, and is currently close to the mid-point of the 52-week range of USD 12.94 to USD 18.86. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 48.05. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 17.05. Considering the valuation of the newly listed company, the correction in its stock price, extensive portfolio, and its efforts to reduce leverage, we recommend a “Buy” rating on the stock at the current price of USD 14.67, down 0.54% as of July 02, 2021, at 12:55 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV. 

Curis, Inc.

CRIS Details

Curis, Inc. (NASDAQ: CRIS) is a biotechnology company focused on the development of innovative therapeutics for cancer treatments. The company’s key commercial product is Erivedge, used for the treatment of advanced basal cell carcinoma, which is commercialized by Genentech. In collaboration with Aurigene, it also has exclusive licenses to oral small molecule antagonists of immune checkpoints, primarily CA-4948, an IRAK4 kinase inhibitor for treating patients with non-Hodgkin lymphoma (NHL). In addition, CRIS has also collaborated with ImmuNext for the development of CI-8993, a monoclonal anti-VISTA antibody.

Product Pipeline (Source: Corporate Presentation, May 2021)

Positive Results from CA-4948 Phase 1/2: On June 11, 2021, the company updated the data from the Phase 1/2 open trial of CA-4948 in patients with acute myeloid leukemia (AML) or high-risk myelodysplastic syndromes (MDS). Among other key findings, CRIS observed bone marrow blast reductions in 10 of 12 patients eligible for bone marrow response.

Change in Dosage Due to Anomalies: In its Q1FY21 earnings release (on May 12, 2021), the company stated that the 500mg BID dosing regimen in the AML/MDS study in the CA-4948 Phase 1/2 trial had exceeded the maximum tolerated dose according to protocol guidelines, due to which two patients exhibited signs of dose-limiting toxicities. While both adverse events were resolved after discontinuation of dosing, CRIS reduced the suggested dose level to 300mg in current enrolments.

Q1FY21 Results: The company reported a 13.04% decline in total revenues to USD 2.19 million in Q1FY21 (ending March 31, 2021) compared to USD 2.71 million in Q1FY20. Almost 100% of the revenue in Q1FY21 relates to royalties received from Genentech from the sales of Erivedge. R&D expenses during Q1FY21 were USD 6.76 million, lower than USD 7.47 million in Q1FY20. Net loss for Q1FY21 amounted to USD 9.93 million vs USD 9.71 million reported in Q1FY20.

Key Risks: The company’s drug candidates, including CA-4948 and CI-8993, are therapeutic novel chemical and biological entities and their potential benefit as cancer drugs are unproven. As a result, revenue generation from these drug candidates depends significantly on their successful development and commercialization in the future. In addition, the results of preclinical studies and initial stage clinical trials are not indicative of results of future/late-stage clinical trials and are subject to change as more patient data is tested and additional analysis is conducted. Negative changes between preliminary and final published data could significantly harm the company’s business prospects.

Outlook: In H2FY21, CRIS pans to report initial data from 1) Phase 1/2 combination trial of CA-4948 plus ibrutinib in patients with NHL, and 2) Phase 1 monotherapy study of CI-8993 for the treatment of solid tumors.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CRIS Daily Technical Chart

Stock Recommendation: CRIS fell 47.06% in the past one month, and is currently inclined towards the mid-band of the 52-week range of USD 0.90 to USD 17.40. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 32.23. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 9.00. On the technical chart, the next support level is USD 6.72. Considering the significant correction in the stock price, growth potential, possible market overreaction to the CA-4948 dosage anomaly, current valuation, and associated risks we recommend a “Speculative Buy” rating on the stock at the current price of USD 7.66, down 4.25% as on July 02, 2021, at 3.01 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.