Biocurious: How to get a five-fingered discount without robbing a store

• While sentiment in the local biotech sector is improving, a plethora of smaller revenue-generating stocks remain deeply discounted.While sector conditions are improving, investors still can pick up marked-down, revenue-generating biotechs
• Dozens of offshore life science plays trade at below net asset backing, but the discounts on the ASX aren’t quite so harsh
• Investors have legitimate reasons for the deep discounts, but this does not mean the lowly valuations are justified

More than three years after the depths of the Great Post Pandemic Slump, dozens of overseas bargain biotechs are still trading on valuations below their enterprise value,

For instance, Belgian blood cancer drug developer Galapagos NV has a market cap of around US$2.2 billion, compared with its cash of US$3.56 billion.

As for ASX life science plays, we can’t see any companies trading below cash backing.

But some of them get close, while others are dirt cheap because of the underlying value of their property or other assets.

We’re not talking about wistful, loss-making  early-stage drug developers extrapolating “addressable markets” of billions of dollars.

Here are six revenue – but not necessarily profit – generating ASX biotechs consigned to the bargain bin.

Let’s call it the ‘baker’s half dozen’ and make that seven stocks.

Investors have their reasons to value these stocks harshly.

But are they seeing the wood for the trees?

IDT Australia: old but still cheap

Veteran contract drug developer IDT Australia (ASX:IDT) owns its facility at Boronia, in eastern Melbourne.

IDT’s property plant and equipment are in the books at $21.4 million, but the site is likely to be worth much more as a housing development.

The plant itself can’t be replicated easily.

In the midst of a two-year rebuild, IDT reported a full-year profit surge of $20 million, up 41%, amid surging demand for antibody drug conjugate and genetic medicines.

The company reported an $8.1 million net loss and had skinny end-of-June cash of $503,000.

IDT bears a measly $27 million market cap, with its shares losing around half their value over the past year.

Impatient investors would note that IDT has been listed since 1975 – when Gough was in power (albeit only just).

IDT has long outlived Gough and may yet hits its stride under a new CEO.

Clinuvel’s value runs more than skin deep

A valuation mystery wrapped in an enigma, Clinuvel Pharmaceuticals (ASX:CUV) bears a $580 million market cap and had year-end cash of $224 million.

Did anyone mention the ‘P’ word? Clinuvel reported a $51.6 million profit, up 2%, on revenue of $105 million.

Clinuvel derives its sales from its approved drug for Scenesse, for the rare sun intolerance disorder EPP.

Clinuvel is also trialling Scenesse for the much more common vitiligo and is developing non-prescription cosmeceutical lines such as heavy-duty sun block.

Some investors have pilloried the company for having so much cash.

Management has responded along the lines: “we can’t win. Would you prefer us begging for money?”

Medadvisor shares need a shot in the arm

A medication compliance specialist, MedAdvisor (ASX:MDR) has a $28 million market cap, with June 30 cash of $16.5 million and no debt.

Via pharmacies, Medadvisor executes campaigns for Big Pharma. In July, the company sold its Australian business to Jonas Software for $35 million, so now is solely US-focused.

While the US has better growth prospects, Medadvisor’s performance has been affected by low vaccination rates and the slowdown of new vaccine releases.

Medadvisor reported full-year revenue of $63 million, down 36% and a $10.7 million underlying loss.

The key reason not to buy can be summed up in two words JFK Junior. But the uber vaccine sceptic won’t be around forever.

Compumedics valuation is a no-brainer

Long-established brain and sleep disorder diagnosis house Compumedics (ASX:CMP) is striving to improve its valuation, which at one times revenue lags its offshore peers many times over.

Compumedics is pushing into the US home sleep testing market with its Somfit device, which the FDA has approved in reusable and single-use formats.

Sleep clinics undertake four million tests a year in a US$400 million market, notably to diagnose sleep apnea.

Compumedics is also looking to sell its brain scanning gear, known as Orion MEGS, into the US. To date the company has sold four MEGS in China, realising $20 million of sales.

Compumedics chalked up full-year revenue of $50.9 million, up 2% and underlying earnings of $2.93 million (and reported loss of $1.27 million).

The company has guided to $70 million of revenue in the current year and ebitda of $9 million.

Ignored Tissue Repair is no sob story

The low-key Tissue Repair (ASX:TRP) developed TR Pro+, sold in Australia, New Zealand and Thailand.

TR Pro+ is topical hydrogel containing the agent Glucoprime, which stimulates the immune system for improved wound healing.

The company also is trialling a compound, TR-987 for venous leg ulcers. If approved, TR-987 would be the first approved therapy for this condition in three decades.

Tissue Repair managed full-year revenue of $432,320, up 180% but lost $4.2 million.

The crude calculus is that Tissue Repair’s $17.5 million market cap compares with $12.3 million of cash as of June-end.

The company has stated net tangible assets of 23 cents, compared with last night’s closing share price of 29 cents.

Value Resonates out west

The Perth-based Resonance Health (ASX:RHT) provides non-invasive imaging to measure liver and cardiac iron levels and cardiac fat.

In part, the company caters for clinical trials.

Resonance last year report revenue of $11.1 million, up 28% and adjusted earnings before interest, tax, depreciation and amortisation (ebitda) of $1.4 million (up 24%).

Management has guided to current year revenue of $17 million and underlying ebitda of $2 million.

Resonance has cash of $3 million – or $100,000 net of debt – and a $16 million market cap.

Assay, assay: Genetic’s US prospects look bright

Molecular diagnostics specialist Genetic Signatures (ASX:GSS) has lost 60% of its value over the last year, amid management soul searching about the best way to tackle the US market.

In June last year the FDA cleared Genetic’s Easyscreen assay, which can detect eight of the most common tummy pathogens in the one go.

That leaves the performance of rival tests in the dust.

Last financial year the company sold its first US commercial agreement for the kit, which management expects to generate revenue this year.

Genetic last year reported revenue of $15.9 million up 63% and mainly sourced from Australia.

The company also lost $12.7 million.

Genetic had year-end cash of $30.9 million and has a current market cap of $60 million.

Honourable mentions

Some non-revenue-producing drug developers have been hit by trial setbacks, but still have a decent story to tell.

Syntara (ASX:SNT) shares tumbled after the FDA advised the company to do another myelofibrosis trial, rather than jump to a pivotal study.

The company had June cash of $15 million and a current market cap of $41 million.

Argenica Therapeutics (ASX:AGN) shares fell sharply after its stroke treatment drug candidate ARG-007 showed safety, but missed its overall efficacy endpoint.

The company sees a way forward on efficacy with a significant subset of patients.

Argenica is valued at $36 million and has about $10 million of cash.

Late December Percheron Therapeutics (ASX:PER) shares were poleaxed after a Duchenne muscular dystrophy disease trial flop.

But in June the company acquired a cancer program for about $4.6 million, so the dream endures.

Percheron’s market cap of $11 million only just exceeds its cash balance of $10 million.

To the chagrin of retailers, many people think ‘something for nothing’ involves a bag snatching or a five-fingered discount.

The biotech sector shows there are other ways to get a steal.