##{"id":58103,"date":"2011-05-06T10:19:57","date_gmt":"2011-05-06T00:19:57","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/05\/06\/phosphagenics-a-re-rating-in-progress\/"},"modified":"2011-05-06T10:19:57","modified_gmt":"2011-05-06T00:19:57","slug":"phosphagenics-a-re-rating-in-progress","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/05\/06\/phosphagenics-a-re-rating-in-progress\/","title":{"rendered":"Phosphagenics: A Re-Rating In Progress?"},"content":{"rendered":"

\n\t– Phosphagenics developing transdermal drug patch technology
\n\t– Trial results indicate potential uses for insulin and oxycodone
\n\t– Southern Cross Equities sees significant upside, rates stock a Spec Buy<\/strong><\/p>\n

\n\t
\n\tBy Chris Shaw<\/p>\n

\n\tPhosphagenics ((POH)) is an Australian biotech commercialising TPM, a transdermal drug delivery technology. Transdermal delivery uses an adhesive patch to deliver a specific dose of medication through the skin. TPM allows for the delivery of therapeutic doses of drugs that previously had no transdermal option.<\/p>\n

\n\tSouthern Cross Equities rates Phosphagenics as a Speculative Buy, seeing upside from what to date have been strong clinical data for both small and large molecule drugs. A number of clinical tests to date show TPM patches work efficiently and don't irritate the skin.<\/p>\n

\n\tPotential sources of significant upside for Phosphagenics, according to Southern Cross, include scope for the development of the world's first patches for the analgesic drug oxycodone, a US$3 billion market in the US alone, and for insulin, which is a US$14-$15 billion market globally.<\/p>\n

\n\tA pivotal trial for TPM for oxycodone is being prepared, Southern Cross seeing the possibility this leads to late stage data and a licensable product by as early as next year. This should generate positive news flow through the course of this year, something Southern Cross expects would lead to a share price re-rating for Phosphagenics.<\/p>\n

\n\tOne advantage for Phosphagenics going forward is the TPM technology offers a short lead time to market of less than three years. As well, Southern Cross notes the costs of clinical development are relatively low, so increasing the chance of commercial success.<\/p>\n

\n\tIn trying to value Phosphagenics, Southern Cross has tried to estimate the value of potential licensing deals for TPM. According to these estimates, a licensing deal could yield upfront and milestone payments of as much as US$100-$200 million.<\/p>\n

\n\tUsing relatively conservative sales growth and royalty payment assumptions generates a base case valuation of 44c per share. Southern Cross's valuation factors in a further $15 million capital raising via an equity issue at 13c per share, funds to be used for funding upcoming oxycodone trials and other preclinical and clinical work.<\/p>\n

\n\tBlue sky beyond Southern Cross's base case valuation comes from TPM becoming a successful patch for insulin delivery, especially as at present there are no competitors close to entering this market. Using more optimistic assumptions generates a valuation per share for Phosphagenics of $0.86.<\/p>\n

\n\tLooking beyond insulin and oxycodone, Southern Cross notes Phosphagenics' TPM technology could produce a better way to deliver Vitamin D, while work is also being undertaken with a global dematology company on developing a treatment for acne. Both are likely longer-term possibilities, but add to the attraction of the Phosphagenics story in the view of Southern Cross.<\/p>\n

\n\tWith trial work and licensing agreements still to come, Southern Cross retains a Speculative Buy in recognition of the risks still associated with Phosphagenics. But with the share price well below the target price of $0.40, the broker does see significant potential upside.<\/p>\n

\n\tCurrently Phosphagenics has a market capitalisation of around $120 million and the FNArena database shows no brokers in the database currently providing any coverage. <\/p>\n

\n\tShares in Phosphagenics have traded in a range over the past year of 8.5c to 18.5c.
\n\t <\/p>\n

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