ValiRx Plc (LON:VAL) is a clinical-stage bio-pharmaceutical company focused on the development of therapeutics for the treatment of cancer, associated biomarkers and companion diagnostics. The company’s two leading assets are in clinical trials: VAL201 (Phase I/II) – a peptide for advanced prostate cancer and potential to treat other hormone- induced indications; and VAL401 (Phase II) – a novel reformulation of risperidone, in trials for lung cancer. Both drugs are targeted at multi-billion dollar markets that are inadequately served by current drugs. The aim is to progress the clinical data and exit via a collaboration or commercial out-licensing to a larger partner.
Strategy: ValiRx operates as a virtual business, out-sourcing most of its activities. The core strategy is to develop its therapeutic assets through the clinical pathway and seek a partner/licensing deal to complete the development programme and regulatory submissions to commercialise the products.
Assets: The company has two novel products (VAL201, VAL401) in clinical development for which evidence of their respective advantages is expected in 2017. VAL301 is in late pre-clinical development for endometriosis, together with VAL101, an interesting a gene silencing platform. VAL has global rights to related biomarkers.
Valuation: Whether by DCF or peer group comparisons, ValiRx is undervalued by the market. A basic DCF on VAL201 and VAL401 only, using modest pricing and market penetration assumptions, generates a risk-adjusted NPV of £31.8m (10.4x current market cap). The discrepancy using peer analysis is even greater.
Risks: New and/or first-in-class drugs carry the risk that they might fail in clinical trials. However, the substantial safety history of the active ingredient in VAL401 and the consistent safety record to date in the VAL201 trial mitigate these risks. More capital is needed to further its proprietary assets along the value chain.
Investment summary: ValiRx plc is undervalued. The reason for this is certainly its need for more capital to advance its clinical programmes, thereby building value. Given the clinical progress seen to date, the company should be attracting potential commercial partners and/or institutional investors in order to achieve the real value of its assets.
