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We have 3 great ASX Life Sciences and 2 Tech stock ideas for you: Investor Webinar 26 July 2023

July 26, 2023

ALA, Arovella Therapeutics, BLG, BluGlass, BOT, Botanix Pharmaceuticals, FLN, Freelancer, IMC, Immuron

 

In this week’s Investor Webinar we talk about ASX Life Sciences and Tech companies:
  • BluGlass (ASX:BLG) is building a brighter future with lasers!
  • Stuart attended BioShares and came back with these 3 great Life Sciences stock ideas.
  • Freelancer‘s (ASX:FLN) share price is bottoming out. We see a great future ahead!

Full transcription below.

 

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Transcription

 

Marc: Good afternoon. It’s Wednesday, the 26th of July, and we’ve got a lot of news for you. Stuart was at Bioshares in Hobart, over the weekend, and we published a report on Freelancer that still we’ll talk to you about. But before we jump into that, let’s have a quick look at Bluglass because we published a report, and we did a video with Bluglass with the management, with the CEO, and one of the non-execs.

So, real briefly, Bluglass manufactures laser diodes, and they’ve been pivoting away from other products in the past. But they’re now ramping up their laser diode production in the U.S. We think the stock is substantially undervalued. So, we just published a research update on Bluglass. And yesterday we recorded an interview with the CEO and one of the non-execs. So, check all that out at pittstreetresearch.com. It’s a research client of our parent company. Just full disclosure there. But have a look at that.

We did a big initiation report last year, so there’s a lot of stuff happening, and they had a pretty good first half of the year, and there’s a lot to look forward to in the next sort of 6, 12, 18 months, really. So, check that out at pittstreetresearch.com. Stuart, tell us about Bioshares. This is probably the most well-known sort of life sciences conference in Australia, right?

Stuart: In the Southern Hemisphere. So, for about a decade and a half now, the Bioshares Conference, traditionally, it was in Queenstown. This year, it was in Hobart, down in Tasmania. Gathers about 200 people involved in the life sciences industry, companies, service providers, investors, and analysts like myself. And we get together to hear some of the key players in the sector talk about their companies and the progress they’re making.

And I came away pretty excited from the meeting. A lot of companies were making a lot of progress. That’s me on the left-hand side of the picture at one of the functions that we put on. There’s the investor forum on the second day of the conference at the bottom. So, biggest attempt ever, more investors and analysts than usual, which I thought was encouraging, lots of success to celebrate, including Neuren (ASX: NEU). They recently gained FDA approval for trofinetide for the treatment of Rett syndrome, and that’s prompted a massive re-rating of that company.

A lot of people, including myself, are very optimistic about Neuren’s next drug, which they think they can keep to themselves rather than having to patent the drug. And so, potentially this could turn into a serious pharma company once that pipeline gets moving on. But Neuren was just one of many companies that was making a lot of progress, so it was an encouraging couple of days at Bioshares. Honor were mentioned for our firm.

The last session of every conference is the investment panel, and I served on the panel last year. Each panel member was asked to nominate the two stocks they would believe would be most likely to succeed over the course of the next year or so. I put up Cyclopharm and PolyNovo. You can see the chart for PolyNovo there at the bottom. Those two stocks average of 53% return. It wasn’t the best suite of recommendations on the panel, but I reckon. Marc, would you knock back 53% return on your portfolio?

Marc: It’s a bit meager, Stuart. I probably want to go for 100% on any of these life sciences stock. But I’m a greedy bastard, [inaudible 00:03:33].

Stuart: Yeah, I get that. One panel member who actually won nominated just Neuren. And that’s been a three-bagger this year. So, that’s why I wasn’t the best call, but I was pretty happy with those two calls. As you can see, right about the time we had Bioshares last year was probably the bottom of the life sciences market, and the really good stock started to rerate at that time. What do I like most in terms of the stories that are out there? Here’s three names to put on your watch list.

The first one is Arovella Therapeutics ASX. That’s actually an incorrect ASX code. It’s ALA. What do I like about that one? Arovella are working on a particular kind of cell called the iNKT cell, part of the immune system that helps keep us healthy. You arm that to go after cancer, and you’ve got a pretty interesting outcome in terms of potentially leaving disease-free at the end of your treatment. So, Arovella has got a decent pipeline of therapeutics, which I was quite intrigued by.

Immuron, working on… Well, their core product is for the treatment of traveler’s diarrhea. They use colostrum from cows as a way to sock up a lot of the bad stuff that would be not so good for gut health. What I like about this company is they’ve got some serious collaborations going on with the U.S. Department of Defense, and that could not only yield a lot of research funding but ultimately a potentially large market for any products they develop out of that.

Marc: Right. So, Stuart, explain to me how that works, and why it’s different from what’s out there already, right? So, I was in Bali a couple of weeks ago. And sure enough, I caught a case of Bali Belly for two days. So, how does this work compared to, say, other products that you can just buy over the counter?

Stuart: Yeah. So, the aim of the game is to have antibodies that would attack the bacteria that causes that distasteful condition you were just describing. And when you buy Travelan, which is an over-the-counter product that Immuron developed a long time ago, you actually got a product that’s capable of soaking up a lot of that bad stuff. So, the mechanism is there’s a fair bit of science behind this in terms of blocking the bacteria from doing their darnedest.

And they wanna adapt that over to a serious therapy for diarrhea treatment for the U.S. Army. One thing that would impact the ability of Uncle Sam to actually deploy troops in tropical areas, say, is Bali Belly or more serious variants of that. So, that’s why Uncle Sam is interested in funding this company. So, watch carefully. The stock’s been trading close to cash backing recently, so you’re buying the business for pretty much next to nothing.

The third one is Botanix Pharmaceuticals. Botanix, their lead product, which I’ll talk about in a second, is actually before the FDA, and I’m expecting approval of that in a matter of weeks. So, very encouraging presentation from that company. So, here’s Botanix Pharmaceuticals. Last year they got hold of Sofpironium Bromide. That’s a gel where the mechanism of action of the drug in the gel is to go block the overactive nerves in the sweat glands.

So, the treatment they intend to get approval shortly is primary axillary hyperhidrosis. It means you sweat a lot more, particularly from the glands in the underarms, but also in the hands and other extremities. About 10% of the population is afflicted with axillary hyperhidrosis in some way.

Marc: It’s usually the fat guy sitting next to you on the plane that suffers from that, right?

Stuart: Right. Right. So, there’s actually treatments now, and a certain percentage of the population, and I quote that figure at the bottom. Fifteen million patients suffer from hyperhidrosis in the U.S. alone. Will actually approach dermatologists saying, “What’s out there to help treat that?” Well, this is probably the best treatment ever. The company that vended this product to Botanix spent about $100 million developing it. Came up with some good phase three data showing that you could choke off the overactive neurons that were causing the problem.

And the fruits of that is so that company didn’t feel it was capable of actually launching the drug, gave it to Botanix, which their management team is pretty good at that sort of stuff. They’ve brought it before the FDA, and they’re expecting approval shortly. The drug’s quite clean, so there’s no reason why that FDA approval will not be forthcoming. And when it does, we’re talking about a large market opportunity in dermatology, which is a great way to actually build a business.

So, you’ve seen the chart there on the left-hand side of the screen is showing a bit of a rerating, but I wouldn’t be surprised if that previous peak could be surpassed based on what’s coming shortly.

Marc: All right. Good stuff. So…

Stuart: [inaudible 00:08:24]

Marc: Awesome. So, moving on to something completely different, Freelancer, Stuart.

Stuart: Yeah. So, our parent company Pitt Street Research, we just published a report on Freelancer (ASX: FLN). I wanna share that with you because I’m pretty excited about the potential for a rerating in Freelancer. Let’s talk about that company. First of all, there’s the chart, and as you can see, Marc, there on the right-hand side of the screen. I think the long slide in 2021 and 2022 started coming to an end about September last year. And it’s more or less base building in the meantime. And I think showing some signs of life at the right-hand side of the screen.

Founder and CEO, Matt Barrie, who owns about 43% of the stock. He’s been an on-market buyer recently. So, he’s quite bullish about the prospect for rerating of the company that he created back in 2009. And when you read our research report at pittstreetresearch.com, you’ll get a sense of what the upside is for him. So, who is Freelancer? If you go to freelancer.com, they’re the world’s largest freelancing and crowdsourcing platform.

You want to go get some freelancer to do something for you, chances are they’ll find them on freelancer.com. So, for instance, if we wanted to find someone to do data entry, we could probably find it on freelancer.com, and they would pay the appropriate price. There’s 67 million people who are active on Freelancer. So, as I joke with Matt Barrie, he’s actually the president of a moderately sized republic of 67 million people. He says, I’m not the president, I’m the benign dictator.

So, the opportunity there is 10% of the value of the projects going through the platform are coming back to Freelancer in Sydney. Add to that escrow.com, the world’s leading Escrow platform for high-value transactions to make sure that the money stays in escrow until the transaction is completed. Escrow has all the necessary approvals in terms of, well, not approval, so much as licenses to do escrow in every U.S. state, and a whole lot of other jurisdictions as well.

Then there’s Loadshift. Take the basic Freelancer concept and use it to upend a particular vertical, in this case, freight and heavy haulage. The opportunities are abundant in mobile marketplaces. Loadshift is just the start. Freelancer did 55 million in revenue in FY22, lost 6.6 million at the EBITDA line. Now, if the company is this good, why is it losing money? Well, I think there was a modest decrease in freelancing activity in the course of coming out of the pandemic.

The company expects that will come back. More importantly, the company’s been investing heavily in this growth. Got a lot of cash, so it can afford to run these kinda losses. We’re expecting it to get back to profitability in the next couple of years. And at the moment, you can buy a company that was formally a billion-dollar market cap for just $122 million. There’s our research report building an Amazon of services. So, we go into a lot of detail about the various elements of the Freelancer story and talk about why there’s potential for rerating.

Basically, Matt Barrie and his colleagues have picked some of the world’s most important problems, namely how to do labor, how to do payments, how to move things around. And they’re now providing a pretty efficient tech solution, which works to connect up the relevant parties to the transaction in a serious way. So, commend that research report to you. And potentially given the valuation range we’ve put around this company, there could be a lot of upside.

What are the key takeaways of the report? Well, freelancing is continuing to grow around the world. Wherever you go in the world, there are people who wanna make their skills available to people who will hire them. And this is the most efficient platform, 67 million people and growing. It’s growing in enterprise. So, the same platform that lets freelancers hide themselves out also lets major companies in the Western world, like say HP, to go organize their crowdsource platform elsewhere in the world.

escrow.com, I think has a very enviable competitive position because of all the licenses they’ve got. Freight movement with Loadshift, that’s grown quite strongly in Australia, and it’s proof that Freelancer can enter a new vertical and actually transform it along the principles that created the original freelancer.com. And then I think if we’ve done our homework, this stock has the potential to rerate. So, I encourage folks to go take a look.

Marc: So, Stu, with their published results yesterday, what was your key takeaway from that?

Stuart: So, this is the early stages of the turnaround. You had a situation where coming out of the pandemic, a lot of less people were freelancing. Meantime, most of the businesses were growing, okay. So, I think we’ll see a pretty significant improvement in the second half of FY24. Coming in at 24, we’re gonna see significantly improved results at the other end of that. But this was the first hint that the company’s really going back to normal in terms of its growth post-pandemic. And you can expect much more of that in the first half of FY24.

Marc: All right. Good stuff. Well, go check that out, the report on Freelancer and on Bluglass, including the interview that we did with the company. They’re all available at pittstreetresearch.com. In the meantime, happy investing, and we’ll catch you next week. Oh, by the way, Stu, important as well, today Australian inflation numbers for the past quarter came out lower than expected. So, the market is now forecasting only 29% chance of an increase in interest rates. And we’re nearly there, basically, and the peak is now.

Stuart: We’re out of the woods now.

Marc: Basically.

Stuart: The inflation we saw in the last year or so, that’s more or less ancient history now.

Marc: Yeah. So, we saw it today when those numbers came out, market immediately adjusted its expectations for peak interest rates. 4.3% is what now is sort of implied by the market if you look at the futures. So, that’s very good news for shares. So, share market is doing well today. And as we’ve been saying, Stu, for a little while now, yeah, we’re very close to peak interest rates, and actually invest, the market is looking beyond that already.

Looking into what early stages of 2024, when probably we’ll see interest rates come down elsewhere in the world. Maybe not so much in Australia just yet, but definitely in the U.S. is the expectation. So, good stuff for equity investors. That’s it. So, thanks for watching, and we’ll see you next week.

Stuart: See you next week.