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OncoSil Medical Share Price Target Upgraded By Broker

OncoSil Medical (ASX:OSL) is the subject of a research report by WilsonHTM. Here is a summary of the report:

IDE submission for OncoSil

OncoSil Medical made its first submission to the FDA, seeking approval to trial its brachytherapy device for the treatment of pancreatic cancer. A well-designed, pivotal clinical trial is required to support a future application to market the product in the US.

Later this quarter, the FDA's response letter and further trial design detail should come to light, clarifying the pathway towards US licensure. Meanwhile, the European approval process has encountered a longer review period than expected, but we remain confident.

We maintain a SPECULATIVE BUY rating. Target price upgraded to 50 cps (risked) with potential, milestone-dependent upside to $1/share over the next 12 months. Current share price is $0.23.

Key points

OncoSil has filed an application with the FDA to conduct a new clinical trial of OncoSil™ in the treatment of pancreatic cancer - this IDE filing sets out OncoSil's investigational plan to test the safety and efficacy of OncoSil™ in a study which may ultimately support marketing approval in the US.

FDA response letter is the next catalyst - FDA review times can be as short as 30 days for IDE applications, so a positive outcome could see OncoSil's trial recruiting patients by the second quarter. IDE approvals give no assurances with respect to the future approval of products, but they do confirm that the agency sees a reasonable case that the product's putative benefits outweigh the safety risks faced by patients participating in the trial.

The FDA's response letter and the release of OncoSil's proposed trial design are the next catalysts which will help characterise the costs, timing and likelihood of its first US approval. We are anticipating a 225-275 patient study to examine surrogate endpoints such as local progression free survival and tumour regression (overall response rates).

CE Mark process ongoing - the European approval process has taken longer than the company anticipated. The value of the CE Marking process, from our perspective, is independent validation of OncoSil's systems/technologies.

Valuation - our risked DCF lifts to 50 cps in anticipation of FDA clearance and increased confidence in development plans. Un-risked valuation for OncoSil suggests further potential of up to $2.75 per share over a 3-5 year period (upside case) on a fully diluted basis.

Risks and catalysts
Catalysts: a) CE Mark; b) FDA trial guidance; c) EU marketing approval and first sales. Risks: a) access to capital; b) clinical trial design risk; c) regulatory risks; d) product safety/quality/logistics risks; e) sector sentiment.

BUSINESS DESCRIPTION

OncoSil Medical Limited (OSL) is developing a novel form of brachytherapy for the treatment of pancreatic and liver cancers. OncoSil™ provides a means of irradiating tumours from the inside, using microparticles impregnated with the radioactive isotope Phosphorus-32. OncoSil™ is expected to be granted CE Mark this year and be the subject of a large clinical trial in the US next year. We estimate a US$250m sales opportunity in the major pancreatic cancer markets.

INVESTMENT THESIS

OncoSil™ is an attractive product concept on account of its "single treatment" nature and dose intensity. We think the product deserves "accelerated review" status with the FDA and will find good adoption by interventional radiologists, if approved.

REVENUE DRIVERS

- Pricing and reimbursement
- Market penetration (new clinical centres/hospitals, physician acceptance)
- New markets (geographical, clinical indications)

BALANCE SHEET

As at the 1HFY15 result, OncoSil had ~$7m in cash and no debt.

Valuation

Our price target is lifted to 50 cps, which is based on a risked, discounted cash flow (NYSE:DCF) methodology. The upgrade is mainly in anticipation of the FDA clearing OncoSil's IDE study in the manner we have described here, and our increased confidence about the development program, given what we have gathered from our clinical conversations with the company and other sources.

We have developed an explicit forecast for OncoSil™ sales across three segments of the global cancer market: the US, five EU (UK, France, Germany, Italy and Spain) and APAC (principally Australia and New Zealand). We assess peak sales potential of ~US$350-400m for OncoSil™, with 75% of that relating to the treatment of locally advanced and/or metastatic pancreatic cancer in the US.

The most important valuation milestones in the near term are the IDE trial approval and a positive CE Marking decision, which might support valuations of up to $1.00 per share, on a 12-month view. If we completely de-risk the OncoSil valuation model (all clinical and development success probabilities set to 100%, discount rate set closer to 8-9% reflecting a more established medical device business), we can see potential valuations of $2.75 per share emerging over the next 3-5 years.

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