A Lovely Day in May : Pharmaxis

I quite like Pharmaxis (ASX: PXS).

Good management team, solid board, consistent investment thesis. This company understands that to be a market leader in a particular area, you need to have portfolio focus. I can’t tell you how I tire of ASX-listed companies that are trying to schizophrenically battle infectious diseases, cancer and vascular diseases, all at once (classic example : Benitec, ASX: BLT … you are on notice by the way). They also don’t feed us bullshit public disclosures about irrelevant things like filing patents or attending conferences, or whether the 2nd patient in a clinical trial had a lousy day. Indeed, they are about the only micro-cap ASX-listed company that mostly seems to avoid this highly annoying practice – keep up the good work!

The company has a couple of products out there. They are not whizz-bang but maybe they could increase in revenue with some marketing investment – lung mucus for CF is still a very real clinical challenge. With about $5m in revenue, if I recall their last annual report correctly, they are not overpriced with a $50-60m market cap. Revenue multiples for a company like this could be justified in the 15-20x range for a product portfolio with growth potential. I don’t truly know if Aridol (Dx) or Bronchitol (Rx for lung mucus clearance) have the potential to be really much bigger than they are, unfortunately they are a bit long in the tooth as far as products go.

However … what seems to have mostly passed the punters by is the announcement about a month ago that Pharmaxis signed an interesting deal with Boehringer Ingelheim (“BI”) for their SSAO (PXS4728A) program. Frankly, I have been waiting a few weeks for follow-on commentary to drive a major stock blip but I haven’t seen it yet and this surprises me. I mean, relative to its pittance share price prior to the 12th of March it has obviously increased by a decent measure but relative to historical pricing, it’s nothing major. In my view, this company has a lot more potential.

Let me tell you why.

PXS stock since the 12th of March when it disclosed its BI collaboration (source : ASX)

PXS stock since the 12th of March when it disclosed its BI collaboration (source : ASX)

The NASH space is super interesting and it’s potentially HUGE. Intercept (NASDAQ: ICPT) was one of the superstars of the US IPO scene over the last couple of years and I remember the week after their IPO sitting in various bankers offices in NYC listening to them wax lyrical about how much money they made out of this company. It was a total slam-dunk, especially for the VCs like Orbimed that backed it. Even though its clinical development hasn’t been straightforward it is still a rock-star company with a massive $6.3Bn valuation (even after some recent corrections), a tightly held institutional investor base (almost 70% of its float is still held by institutional funds) and a valuation that surged almost 30% in March because Genfit’s GFT505 “competing” program stumbled and ICPT’s FLINT trial still looks relatively promising.

Don’t get me wrong, this is not a congestion-free space – for example, rock-star Gilead is now in there as well following the acquisition of Phenex. BUT if Intercept makes it there with OCA, notwithstanding that it is going to have a few more years before it prints money, it’s going to define a completely new therapeutic arena with huge valuation and a lot of the big boys are going to look carefully at the space.

In my opinion, Boehringer Ingelheim is sort of a weird company and sits at the ridiculous end of the conservative spectrum. However because of their conservatism, they also have a highly rational view of their pipeline development strategy and given the interest in the NASH space, I think it was very grown-up that PXS got a decent option (relative to revenues) for a very short diligence period. I also don’t think the disclosed potential up-fronts, etc. on a mere Phase I program (with clinical data yet to be formally reported) are all that bad, providing that the latter stage milestones are a bit heftier. I would imagine that a future disclosure, post-exercise of option, would detail some of those critical later milestones.


Of course, given PXS’ market cap – if BI does decide to exercise the option, it would just be easier to acquire the company. Quite frankly dear readers, THAT is the “punt” if you ask my honest opinion. If you compare a ~$40m up-front for an option exercise price, to a ~$60m market cap, it’s a hell of a lot simpler just to buy the company. Less hassle, less baggage. Even with a 50% price premium. That’s how big-pharma rolls, people …

PXS really is worth peanuts if you think about it.

The 15th of May is going to be an interesting day. For all you punters out there, this is probably worth a roll-of-the-dice. Please don’t bet the super fund, but treat it like a beery afternoon at the TAB with a good horse, middle-odds and a dry track. Mercifully, at least it will be a quick turnaround and we wont have to sit in suspense for too long to see how it plays out. For that alone, the management team deserves our respect for the way they have handled it.

Well done.


Credit: Feature image a cropped photo of Peter Miller’s “The Maypole”. Lovely.

5 thoughts on “A Lovely Day in May : Pharmaxis

  1. Pingback: Frankly I’d Prefer a BLT | The Long Tail

    • Thanks Mark – it felt nice. I was sorely tempted to break my promise not to trade on the back end of my writing, but glad that a lot of people picked up my article and ran with it.


  2. Pingback: Pharmaxis – BOOM | The Long Tail

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