Which of these top 10 Canadian biotech stocks are undervalued?

Which of these top 10 Canadian biotech stocks are undervalued?

What are we looking for?

Valuations for Canadian biotech stocks trading on the Toronto Stock Exchange and TSX Venture Exchange.

The screen

We used StockCalc’s screener to select the 10 largest biotechs listed on the TSX and Venture Exchange. We then used StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see whether it is undervalued or overvalued compared with its price.

Overview of the techniques used:

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  • Discounted cash flow (DCF value) is a valuation technique where cash flow projections are discounted back to the present to calculate value per share;
  • A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
  • An adjusted book value (ABV) is calculated by multiplying book value per share by its historical price-to-book ratio.

If we have analyst coverage we look at the consensus target price.

More about StockCalc

StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code Globe30.

What we found

This industry group contains biotech and biopharmaceutical companies engaged in research, discovery, development and production of innovative drug and drug-related technologies. Of course, the recent focus on health care and biotech stocks has been on COVID-related companies and how quickly we can get vaccine approvals. But investors should remember that many in the sector are also working on cancer drugs and other extremely important medications.

From our valuation calculations two things jump out across this industry: Most are still cash flow negative as shown by our DCF calculations; and none is paying a dividend as any cash that becomes available is earmarked for research. Investment in these companies is on the expectation of capital gains if their research is successful. Note, for example, the one-year return on Trillium Therapeutics Inc. (3,342 per cent) and MedMira Inc. (1,150 per cent). In the StockCalc database we have 48 public biotech companies in Canada (a combined market capitalization of $10-billion) and 450 in the United States (combined market cap of US$1.1-trillion).

Let’s look at a couple of the companies in today’s screen:

Trillium Therapeutics, an immuno-oncology company with offices in Mississauga and Cambridge, Mass., is developing innovative therapies for the treatment of cancer. The company’s two clinical programs, TTI-621 and TTI-622, target CD47, a molecule that tumours frequently use to evade the immune system.

Why did Trillium’s stock price move so much in 2020? In early March, Gilead Sciences Inc. acquired Forty Seven, a biotech that was also working on CD47; that acquisition turned a spotlight on the companies in this space.

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IMV Inc., headquartered in Halifax, is a clinical-stage biopharmaceutical company. It is focused on cancer immunotherapies and vaccines to treat infectious diseases such as COVID-19. It has built a delivery platform called DPX that generates immune cells, which in turn produces the ability to destroy cancer cells.

Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.

Select Canadian-listed biotech stocks 

Company Ticker Mkt. Cap. ($ Mil.) Recent Close ($) StockCalc Val. ($) Diff. (%) DCF Value($) Price Comps ($) ABV ($) Analyst Target ($) 1Y Rtn. (%)
Trillium Therapeutics Inc. TRIL-T 2,658.1 15.49 30.36 96.0 -9.24 12.39 26.54 32.92 3,342.2
Aurinia Pharmaceuticals AUP-T 2,409.8 18.52 24.84 34.1 10.12 8.95 18.89 31.99 -23.4
Aptose Biosciences Inc. APS-T 726.1 5.25 17.12 226.1 -6.10 15.52 9.14 21.40 -8.5
IMV Inc. IMV-T 316.0 4.15 6.00 44.6 -2.71 5.05 19.81 7.15 1.2
Bullus Health Inc. BLU-T 305.5 4.00 5.40 35.0 -4.33 2.95 12.79 6.25 -56.8
Fennec Pharmaceuticals FRX-T 269.8 9.67 11.67 20.7 -11.69 13.64 16.41 0.00 16.8
Medicenna Therapeutics MDNA-T 252.6 5.07 8.62 69.9 -4.07 3.77 7.93 11.50 198.2
Resverlogix Corp. RVX-T 224.4 0.84 1.49 77.0 10.24 1.49 -6.32 0.00 -29.4
MedMira Inc. MIR-X 200.7 0.25 0.31 24.7 -0.01 0.31 0.00 0.00 1,150.0
ImmunoPrecise Antibodies IPA-X 167.2 11.85 12.90 8.9 0.69 9.99 4.95 12.90 374.0

Source: StockCalc

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.

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Published at Mon, 14 Dec 2020 23:00:51 +0000

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