Aurinia Pharmaceuticals Inc.

Aurinia Pharmaceuticals Inc. (TSX: AUP), is a fully integrated biopharmaceutical company focused on delivering therapies to treat targeted patient populations that are impacted by serious diseases with a high unmet medical need.

Key highlights 

• Decent Liquidity Position: As of December 31, 2020, the company had cash & cash equivalents of USD 423 million, increased by USD 117 million, compared to USD 306 million on December 31, 2019. The management believes that it has sufficient financial resources to fund its needs at least till 2023. 

• FDA approved LUPKYNIS (voclosporin): Recently, the company received “FDA” approval for LUPKYNIS (voclosporin) in combination with a background immunosuppressive therapy regimen to treat adult patients with active lupus nephritis (LN). It’s a milestone for the company as LUPKYNIS is the first FDA-approved oral therapy for LN. LUPKYNIS is now commercially available to patients in the United States.

• Exclusive Agreement with Lonza: The company expanded its exclusive manufacturing relationship through a collaborative agreement to build a dedicated manufacturing capacity within Lonza’s existing API facility in Switzerland. This facility will provide cost and production efficiency and secure API supply for future commercial demand.

Financial overview of Q4 2020 (amounts in thousands of U.S. dollars)

Source: Company

• In Q4 2020 the Company posted licensing revenue of USD 50 million, compared to USD 0.29 million in the previous corresponding period. The rise in revenue was primarily due to y due to the upfront payment from Otsuka of USD 50.0 million recorded as licensing revenue.
• R&D expenses stood constant at USD 13.17 million in Q4 2020, compared to USD 13.29 million in Q4 2019.
• The Company increased its Corporate, administration and business development expenses to USD 38.7 million, compared to USD 7.3 million in Q4 2019. The increase reflects the investment incurred to support the launch of voclosporin as a treatment for LN planned for early 2021.
• The Company minimized its net loss to USD 8 million in Q4 2020, against a loss of 34.4 million in pcp, the losses minimized primarily due to higher revenues. 

Risks associated with investment

The Company's income depends upon the results of the clinical trial and the subsequent approval of trials. There is a chance of cancellation of the drug approval, which might result in the commencement of new clinical activities and require more funds and delay the launch's timeline.

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The Company has introduced LUPKYNIS (voclosporin), the first FDA-approved oral therapy dedicated to treating adult patients with active lupus nephritis (LN). FDA approval is a key milestone for the Company. Moreover, it made a license agreement with Otsuka Pharmaceutical Co., Ltd. to develop and commercialize oral voclosporin to treat (LN) and received an upfront cash payment of USD 50 million along tiered royalties ranging from 10% to 20% on net sales upon commercialization. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing price of CAD 17.09 on March 11, 2021. We have considered Genetron Holdings Ltd, Sutro Biopharma Inc, Cytokinetics Inc, etc. as the peer group for the comparison.

1-Year Price Chart (as on March 11, 2021). Source: Refinitiv (Thomson Reuters)

Delta 9 Cannabis Inc.

Delta 9 Cannabis Inc. (TSX: DN) is a Canada-based company engaged in Biotechnology and Medical Research. The company is a licensed producer of medical marijuana and operates a production facility in Winnipeg, Manitoba.

Key Updates:

• Impressive Guidance: For Q4FY20, the company expects its net revenues within the range of CAD 13.7 million to CAD 14.2 million, reflecting a growth of 29% to 34% on y-o-y basis. For FY20, the group expects its top line within the range of CAD 51.8 million to CAD 52.3 million, against CAD 31.8 million in FY19. For Q4FY20, the group is expected to produce 2,128,288 grams of cannabis, higher than 1,908,875 grams of cannabis in Q3FY20. Moreover, the company expects strong growth from its three core business units, which is a key positive.
• Agreement with Fourth Generation Cannabis Ltd.: On March 04, 2021, the company announced that it has completed its final services milestone under an agreement with Alberta based Micro Cultivation partner, Fourth Generation Cannabis Ltd. As per the agreement, the group would provide services related to cannabis production, development of standard operating procedures and sanitation programs, consulting on Health Canada licensing, marketing services etc.
• Introduction of a new delivery service program: Recently, the company introduced a same-day home delivery service program to meet growing consumer demand from the online segment across all retail markets. Recently the management statute that same-day delivery programs across Manitoba received positive traction resulted a strong growth in online sales. We believe the momentum to sustain in the coming quarters supported convenient delivery options offered by the group.

• Event Update: The company would disclose its fourth quarter FY20 result on March 30, 2021.

Q3FY20 Financial Highlights:

• DN announced its quarterly result, wherein the company posted the revenue of CAD 13.13 million, significantly higher from CAD 6.66 million in the previous corresponding period (pcp). The growth was driven by strong traction from the Retail and Wholesale Cannabis segments.
• Gross profit stood lower at CAD 1.62 million, as compared to CAD 3.422 million in pcp. The decline was primarily attributed to a significant rise in the cost of sales (CAD 9.168 million versus CAD 4.62 million in pcp).
• Net loss from operations was recorded at CAD 5.549 million compared to CAD 1.267 million in Q3FY19.
• The group reported cash balance of CAD 7.22 million, while total assets stood at CAD 77.486 million.

Key Risks: The products are relatively new to the market, and a change in consumer preference would take a toll on the company’s overall sales volumes. Moreover, the company is witnessing higher input costs, which has dampened its profitability as well. Continuation of the above trend would dampen the company’s bottom line.

Valuation Methodology (Illustrative): EV to Sales

(Note: All forecasted figures have been taken from Thomson Reuters).

Stock Recommendation:

The group would continue its expansion within the retail store chain and market the Company’s price leader strategy to leverage customer acquisition at new and existing Company stores. Moreover, the company would focus on building momentum in the cannabis wholesale segment through product expansion and enhancing its distribution across the markets. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Paratek Pharmaceuticals Inc, Opiant Pharmaceuticals Inc etc. Hence considering the aforesaid facts, we give a ‘Speculative Buy’ rating in the stock of DN at the closing price of CAD 0.50 on March 11, 2021.

1-Year Price Chart (as on March 9, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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