Bionomics’ share price implies 185% upside to Bell Potter’s price target

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Bionomics (ASX: BNO) has announced its intention to trial the company’s drug candidate BNC210 on adults suffering from post-traumatic stress disorder (PTSD).

Management highlighted that there wasn’t any current effective treatment for the condition and research indicated that between 5% and 10% of the population will suffer PTSD at some point.

BNO is a global, clinical stage biopharmaceutical company leveraging its proprietary platform technologies to discover and develop a pipeline of best in class, novel drug candidates focused on the treatment of serious central nervous system disorders and on the treatment of cancer.

BNC210 is its lead drug candidate, currently in phase 2 for the treatment of generalised anxiety disorder. The group is also developing BNC101, a lead humanised monocional antibody targeting a key receptor on cancer stem cells that is overexpressed in metastatic colorectal cancer, pancreatic cancer and many other solid tumours.

Management rates BNC210 as a first in class compound for the treatment of anxiety that lacks the side-effect profile of current therapies such as benzodiazepines, selective serotonin reuptake inhibitors and serotonin norepinephrine reuptake inhibitors.

Analysts at Bell Potter expect results from trials will be available by the end of calendar year 2017/early 2018. The broker believes that BNO can partner this asset at the back of positive phase II general anxiety disorder (GAD) trial results due next quarter.

The broker highlighted that having a phase II trial in PTSD with multi-million dollar sales potential nearing completion is likely to strengthen its value proposition and improve its licensing prospects.

Should BNO return positive results from the phase II GAD trial this could result in a substantial share price rerating based on Bell Potter’s expectations. The broker highlighted that such a development would strengthen the BNC210’s licensing package and is likely to be a harbinger of a commercial licensing deal.

In framing earnings projections, the broker has assumed that BNC210 is licensed in the second half of fiscal 2017 for a deal worth US$345 million, and delivering double-digit royalty on sales.

Based on these assumptions, Bell Potter is forecasting a net profit of $46.1 million equating to earnings per share of 9.5 cents. This implies a PE multiple of 3 relative to yesterday’s closing price of 28.5 cents.

After a strong run in the latter half of calendar year 2015 when Bionomics’ shares increased circa 40% to a high of 55 cents the group has slipped off the radar in 2016, arguably because of a lull in definitive trial result activity.

Trading activity in the biotech sector often results in erratic share price movements, both positive and negative. However, with the weight of upcoming information extremely material in nature there is the prospect that its shares could rerate significantly given that they are trading close to the 12 month low of 27 cents.

Furthermore, Bell Potter’s price target of 81 cents implies share price upside of 185%.

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