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ValiRx: is share price still justified given new team and market cap discrepancy?


It has been a year since biotechnology company ValiRx [LON:VAL] brought on a new management team and its financials have already improved over the period. If new chief executive officer Dr Suzanne Dilly can continue on this trajectory the AIM-listed stock can finally deliver some value to investors.

Early stage drug development is a risky part of the market, although there is significant continued demand for it. ValiRx has two clinical stage drugs, which is a good sign for any biotech company. Meanwhile, the group has also launched a new incubator programme that is expected to create a pipeline of new projects in oncology and women’s health through pre-clinical development.

Success rate for oncology drugs is low

With any biotech business there are risks. Most drug candidates fail and the overall success rate of oncology drugs is 3.4%, according to an analysis by a group of authors from MIT, although approximately 35.5% move from phase three trials to approval from regulators. Biotech companies also typically have long development lead times and it can take years for a new drug to be tested and ready for distribution.

So far, ValiRx, which has a market cap of £13 million, seems to be on a stable financial footing and has at least enough money to continue through to next year. Structural changes and the launch of a new strategy to drive growth after the appointment of a new management team is encouraging.

ValiRx had encouraging 2020 results

The results for 2020 showed a stronger financial position, with losses narrowing to £1.5 million from £2.7 million in 2019. Total overheads were also reduced by 41% to £1.66 million, while research and development expenses fell by 77%. This was mainly due to the completion of one of ValiRx’s drug trials and a move to preclinical state research and development.

ValiRx has enough cash to support its activities for almost 12 months, standing at £1.5 million as at 31 March 2021. The group’s market capitalisation is far less than its peer-group median, which stands at £52.1 million. According to analysts at SPAngel, this price discrepancy is unjustified, considering the two clinical stage drugs and its pre-clinical programme.

Although the first evaluation agreement it struck with US biotech company Kalos Therapeutics as part of its incubator strategy in November 2020 was scrapped last month, the company has plans to evaluate up to four new projects this year and the success of these will be crucial.

In a recent note, analysts at SPAngel wrote: “With a new team in place, ValiRx has refocused its strategy to identify, develop and generate data for undervalued yet promising preclinical therapies. The new strategy could add additional value to the Group’s current offering at a lower R&D cost compared to clinical development.”

A few surges over the last 12 months on good news have contributed to a 161% increase in ValiRx’s share price over one year to 20.25p. They are still down from a 52-week high of 73p and are 94% lower than where they were three years ago.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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