I attended the Bioshares conference in Queenstown New Zealand on 21-22 July 2017, and had the opportunity to catch up with Dr Richard Hopkins the CEO of PAA. I also was able to take in a number of presentations, meet key people in the industry and assess the general "vibe" of the sector and opportunities ahead. I have identified a number of very exciting growth opportunities in the sector and will be reporting these to clients in my new role in coming weeks.
Following the market overreaction to what was a very solid June 2017 quarterly report, I believe PAA is an outstanding biotech growth story and well undervalued relative to its peers. This is based on
* Talented and well respected management team. Dr Hopkins has extensive knowledge, is commercial and is the right person to lead PAA. Dr Richard Mollard and his capabilities cannot be underestimated either. Dr Roger Aston is on a number of other boards and it was a logical step for him to step back.
* Epichem achieved record revenue of $3.05m in FY 2017, and has forecast $4m for 2018. The lab is under expansion and from my two visits over the last 12 months, the business offers a strong growth profile. Achieving ISO17025 and ISO17034 accreditation will be a major boost and assist in even greater revenue growth.
* MPL has seen issues with taste, however these are being addressed and the reformulation process is underway.
* 3/4 dogs in the phase 2 pilot trial achieved stabilisation and tumour reduction. There are examples of other phase 2 companies capped well in excess of $80m in this area.
* Core patents for MPL atrained in China/Japan and in Europe for non-cancer uses. PAA are building a very strong platform on MPL and this will open up a plethora of other opportunities.
* The canine market in the US is massive , and further success with MPL in phase 2 will enhance discussions with Novartis animal health.
PAA is now capped below $10m, following a strong sell off on what appeared to be cash burn rates. Epichem is fully staffed and unfortunately as per guidelines in Australia they have to be paid for their services. Prior to leaving my previous broking role at Argonaut I was one of the largest net buyers of the stock and raised the company in excess of $1m at 5c with a 1 for 3 unlisted 12c option.
I have been nothing but impressed with Dr Hopkins thus far and believe that PAA is on the cusp of significant growth through both Epichem and further developments with MPL. It should also be noted that Dr Wayne Best who heads up the Epichem operations at Bentley WA is the Chairman of an upcoming IPO Nanollose, which looks very exciting and could actually be truly "disruptive".
Despite the negativity on Hotcopper that follows any share price correction or slightly downbeat report, I believe PAA is well on the way to providing multiple share price upside and I will be basing my strategy on this accordingly.
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