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Date : 11/09/2020

AdAlta Limited

ASX :

1AD

Market Cap : $24.5 Million

Watch

52 Week Range : $0.04 - $0.18

Share Price : $0.10

1AD’s stock is highly volatile due to investor mood and momentum driven primarily by its trials. The biggest risk of the stock comes with the chance of failure of i-body’s clinical trials. We, hence, recommend to wait and “watch” the developments.

Company Analysis

1AD is a clinical stage biotech company that develops an i-body platform to discover and develop next generation protein therapeutics.

1AD has completed pre-clinical developments of AD-214 and has commenced Phase 1 Clinical Studies. The i-body platform development is focused on AD-114, which is its lead candidate that can be used in the treatment of idiopathic pulmonary fibrosis (IPF) and other fibrotic diseases. Following further developments, the improved i-body is now called AD-214. The company reports that the new version has shown significant enhancements and forecasts applications to a wider range of fibrotic diseases.

The company has a stellar board and management team with scientific experience. In March 2020, 1AD outlined its strategy to develop multiple i-body enabled products – an internal pipeline product, and an external pipeline product via co-development programs.

The Internal product, AD-214 received approvals to commence Phase 1 Clinical Trials, and the first voluntary participants received AD-214 on the 19th of July 2020. The results for this Phase 1A of the test is expected in early 2021. Following which, the parts B and C can commence. The end point of this trial is to administer the safety and tolerability of AD-214 in volunteers, patients with Interstitial Lung Disease, and patients with Idiopathic Pulmonary Fibrosis.

This is a huge milestone for 1AD that it has been working towards since a long time. However, there is still a long way to go until we can be sure if the drug would pass FDA and TGA approvals.

AdAlta’s external product is being co-developed with GE Healthcare to discover i-bodies specific to an enzyme. GEHC has paid for the initial development and it is looking to take over pre-clinical and clinical developments for use as molecular imaging agents for cancer if it is successful.

The image below shows the Business and Revenue model of 1AD:

Company Updates


Source: Tradingview.com

1AD stock price has been very volatile in recent times. Post the Covid19 induced market slump in March, the stock has continued to be volatile. Changes in the Board, strategy updates, response to Covid-19 operating environments, cash management activities – these are just some of the announcements that have triggered investor mood and momentum in the stock market.
Another slump the stock endured was triggered by the annual report with higher losses than 2019.
The recent halt in trading requested by 1AD did not seem to have much impact. Investor momentum remained the same and the stock closed at the same levels on the first day back on the trading floor.

Industry Analysis

The pharmaceutical manufacturing industry is a low growth industry due to the immensely high barriers to entry. It is an industry that is defined by revenue volatility, high capital intensity, high regulations just to name a few.

On the flip side, a successful approval of a drug results in massive profits postproduction. A few key trends that have been noticed in the industry lately are:

  • Rising costs and increased pricing pressures. This leads to questions over profitability metrics
  • Regulatory changes restrict export revenues
  • An aging population in the OECD may lead to increased demand for new innovations.

There are high barriers to entry in this industry and sector. The checklist for the barriers is as follows:

  • High Competition
  • Low Concentration
  • Mature Life Cycle Stage
  • High Technology Change
  • Very high policy and regulations

Investment Thesis

The average shareholder return for 1AD for the last 1 year is -27.88%, and the last 3 years is -22.51%.
However, the firm is now in a clinical trials phase – suggesting there maybe better days ahead for investors.

1AD believes it now has enough capital to take it through the testing and approval phases. The $3.3m cash in its bank is enough to service all its short-term debt obligations. This validates their notion of having enough capital required for the current phase.

1AD currently has a high level of debt with the Debt to Equity ratio being 59%. However, in an industry that is defined by high debt, it does not cause too much concern.

The past performance of 1AD has not been good enough. It has constantly reported negative net profits, which also have an increasing trend in the last 4 years.

In order to break-even for the early investor, 1AD will have to do a remarkable turnaround in 2021. A growth can be forecasted only once all the phases of clinical trials are completed successfully with positive results.

These factors hence make 1AD a very risky investment at this critical time for them.

Recommendation

With the results of the clinical study expected early 2021, we expect the stock to trade with a moderate level of volatility due to the mood and momentum swings. Due to the high degree of risk associated with 1AD, we thus give it a “Watch” recommendation and wait for the market to price the stock once the new results kick-in.

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