• Percheron could double if clinical goes well
  • But Taylor Collison admits that PER is a speculative investment
  • Probiotec meanwhile offers a resilient business model, says Sequoia


Perceheron could double after trial readout at year-end

Taylor Collison has slapped an Outperform rating on Percheron Therapeutics (ASX:PER), with a price target of 15c (versus current price of 8c), noting however that it’s a “speculative investment”.

Formerly called Antisense Therapeutics, Percheron is a $73m market capped biotech developing antisense pharmaceuticals for large unmet markets in rare diseases. The products are in-licensed from Ionis Pharmaceuticals Inc.

Antisense pharmaceuticals are a type of drug that work by targeting specific RNA molecules within cells, with the potential to treat a variety of diseases, including certain types of cancer, genetic disorders, and viral infections.

Taylor believes Percheron is on track for a Duchenne muscular dystrophy (DMD) topline clinical trial readout around the end of 2024.

The company is currently undergoing a Phase IIa study, treating DMD patients with its flagship drug, ATL1102.

“The corporate slide deck released last week continued to guide that PER expects to complete recruitment in the Phase IIb trial in the current quarter, but we see a high probability that recruitment will extend into Q2 CY24,” said the note from Taylor.

DMD is a genetic disorder characterised by progressive muscle degeneration and weakness. It primarily affects boys, typically becoming evident in early childhood around ages 3 to 5.

So far, the study has shown encouraging improvement in upper limb function of the patients, including PUL 2.0 scores, in marked contrast to the progressive deterioration that is the hallmark of DMD.

The Phase IIb trial will primarily serve as a signal-finding study to determine whether the drug is likely to be an effective treatment for DMD.

“However, if the results are sufficiently positive, they could potentially support an application for marketing approval of ATL1102,” said Taylor Collison.

The Phase IIb trial aims to recruit 45 non-ambulant DMD patients at 16 trial sites in Turkey, Bulgaria, Australia, Serbia and the UK. The majority of trial sites are now open for recruitment, including two sites in Serbia which opened in January.

At the completion of the six-month blinded treatment period, all subjects will have received ATL1102 in an open label treatment period. This open label extension will collect important long term safety and efficacy data.

Percheron is well funded to complete the trial. It had $17.2m cash on 31 December, and received a $1.6m R&D tax incentive payment in February.

“These resources give it a funding runway well beyond the expected release of topline data from the Phase IIb trial,” said Taylor Collison.


Probiotec has a “resilient business model”

Sequoia meanwhile has put price target of $3.00 on Probiotec (ASX:PBP) vs current price of $2.89, with no rating.

Probiotec is a $235m market-capped national contract manufacturer, packer and distributor of pharmaceutical, healthcare and food products.

Sequoia believes Probiotec has a resilient business model, as it operates in the relatively defensive essential health products market as well as FMCG (fast moving consumer goods) category.

“The company offers customers the opportunity to leverage its advanced manufacturing and packing operations, world-class purpose-built facilities, cost efficiency and proven experience to manufacture a range of existing and new formulations in a number of categories,” said Sequoia.

“These could for example be prescription and OTC pharmaceuticals, nutraceuticals and cosmeceuticals, human nutrition.”

PBP currently operates six facilities across Australia, representing ~64,500m2 of manufacturing, packing and storage space. It also has a blue chip client base of 240+ customers, including major international pharmaceutical companies.

Sequoia says PBP has a large market opportunity and emerging tailwinds, as the Australian pharmaceutical manufacturing industry is forecast to grow to $13 billlion by FY29, driven by onshoring of manufacturing.

“The pandemic and the effects of global conflicts have illustrated the vulnerability of global supply chains and has kickstarted a trend to ensuring sovereign capability, which should provide an industry tailwind over coming years,” said Sequoia.

“Other industry drivers include rising life expectancy, ageing population and increasing incidence of chronic disease.”

Over the shorter term, PBP’s 1H FY24 result has just come in at the upper end of previous guidance, with sales revenue of $114.0m (+6.7% on pcp), and underlying EBITDA of $17.2m (+0.1% on pcp).

The company declared a fully franked interim dividend of 3.5cps (pcp 3.0cps).

“PBP offers potential suitors access to valuable assets and a strong market position in Australia pharmaceutical manufacturing,” said Sequoia.

Key attractions include world-class TGA licensed facilities, proven experience in advanced contract manufacturing/packaging and increased capacity.

“Other attractive characteristics include a $3-5m per annum cost savings from the site consolidation program, a long-standing diverse customer base, and positive industry trends to onshoring of manufacturing and outsourcing.”


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