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Biotech's shares 'undervalued' and positioned for 'long-term upside potential'

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Streetwise Reports
0 Comments|December 28, 2017

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In a Dec. 20 research note, Vandermosten notes that Resverlogix Corp. (RVX:TSX) reported zero revenue and a net loss of $0.10 per share in the quarter ended Oct. 31, 2017, which was in line with Zacks' estimates.

The biotech's Q2 FY18 total operational expenses were up year-over-year, to $9.6 million from $7.6 million. Research and development (R&D) expenses also rose, by 33%, since the same time in 2017, to $8.4 million from $6.4 million. In contrast, general and administrative (G&A) expenses dropped 9%, to $1.1 million from $1.3 million in Q2 FY17.

About expenses overall, Vandermosten concluded, "For the first half of FY18, expenses have largely been in line with our estimates with the predominant focus on obtaining additional financing." In upcoming quarters, Resverlogix's R&D and G&A expenses will likely go up, he added, "reflecting increased investigational site costs and inflation."

At Q2 FY18's end, Resverlogix had $0.7 million in cash and $53.3 million in debt. Zacks anticipates that Resverlogix will need to raise further capital in the near term to complete its BETonMACE trial. "We believe that the consistently positive data and news flow from internal and external apabetalone research generate support for financing," Vandermosten wrote. "We note that the company has an active letter of intent from an unidentified entity seeking a regional licensing agreement or equity investment."

Vandermosten noted that during 2017 Resverlogix successfully obtained financing and paid down debt. To date, Dec. 20, 2017, various placements and share issuances yielded about US$80M, which allowed the company to repay its US$54M loan and provided operating monies. "The funding has lifted a substantial burden from Resverlogix, removing the debt and interest overhang from the company," he said.

However, due to the conversion of debt into equity and resulting share dilution, Zacks lowered its target price on the biotech to CA$5 per share from CA$6.50 per share.

Looking forward, a topline data readout is expected in mid- to late 2018 from Resverlogix's Phase 3 BETonMACE trial, for which it "continues to be on track," reported Vandermosten. However, interim findings after 125 major adverse cardiac events (MACE) will "provide a first look." As of early December, about 88% of the total 2,400 patients had been enrolled in the study.

At the current stock price, around CA$1.96, Resverlogix shares are "undervalued and in a position to provide long-term upside potential," Vandermosten stated. "We see additional upside from the realization of expansion into new geographies, the orphan disease program and renal disease."

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