- Expanded applications of CardioCel® across heart valve reconstruction and vascular repair moves company away from just relying on a single product.
- HSV-2 Phase 2 trial expected to read out interim results this quarter.
- Share consolidation likely to reduce daily share price volatility.
- AGM to highlight continued sales growth of CardioCel®.
- Investment view remains positive.
Current price: A$0.066
Target price: A$0.18
Previous target: A$0.18
Market cap: US$86.01m, A$121.9M
Average daily turnover: US$0.12m, A$0.16m
Current shares o/s 2,247m
Regenerative tissue portfolio continues to grow and CardioCel® continues to gain traction
Since our last update AHZ now has CardioCel® in around 120 centres globally and over 2,500 implants. More recently the company announced positive results from an animal study and the initiation using CardioCel® in heart valve reconstructions.
The product is already cleared the FDA for this indication with the study designed to expand market expansion. The company is also progressing with its vascular tissue product range and expanding into dura mater, illustrating its ability to develop an entire portfolio of tissue products. The excitement is the ability of the company to develop a portfolio of revenue generating products and not replying on a single product.
Immunotherapy phase II recruitment closing AHZ is progressing with two vaccine trials. The first of the trials, a Phase II trial for a therapeutic vaccine for Herpes Simplex Virus (HSV-2), is on track to complete recruitment in 4QFY15 with interim results expected in late CY15.
The second trial, a therapeutic treatment for HPV, is currently progressing towards a phase Ib trial.
AGM and share consolidation
The AGM on 13 November is expected to highlight the continued growth in sales of CardioCel® and confirm that the interim HSV-2 results are due this quarter. The share consolidation (10 to 1) will help reduce the volatility in the daily share price. The last day for trading pre-consolidation is 16 November and shares will trade post consolidation on 27 November.
Investment outlook remains positive
We maintain our Add recommendation on AHZ. Catalysts include interim results on the Phase II HSV-2 vaccine trial and further growth in CardioCel® sales which are reported each quarter and expansion of the regenerative tissue portfolio. The key risk to our price target of A$0.18 is a higher-than-forecast cost of building the CardioCel® business.
Our DCF valuation remains unchanged at A$0.18. The divisional components of our DCF valuation are regenerative medicines at A$0.09 (unchanged), immunotherapies at A$$0.05 (unchanged) and medical products at A$0.04 (unchanged).
FY15 result and 1QFY16
AHZ posted a FY15 net loss of A$26.8m, which was higher than our forecast and largely attributable to increasing costs associated with the launch of CardioCel® and an increasing ownership of the vaccine business, which now sees us consolidating the trial and operating costs.
The 1QFY16 results reported sales of A$3.0m (up 42.5% on pcp) and net cash outflow of A$7.4m. AHZ had A$16.7m in cash reserves at 30 September 2015. There were no changes in our forecasts for FY16, FY17 and FY18 respectively.
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