Stock Watch by Nordic Investment Group spotlights various companies listed on the Oslo Børs that any ambitious investor should consider keeping a close eye on.
In this article, we are featuring Nordic Nanovector AS.
At first glance, Nordic Nanovector, one of 8 listed pharmaceutical companies listed on the Oslo Børs, is far from appealing. In fact, since their inception in 2012 they have been operating at a loss, and year after year this number continues to fall at an alarming rate. Their negative earnings are sharply reflected in their metrics, sporting a price to earnings ratio of 13.14, which is notably low compared to an industry average in Norway of approximately 24. The 5-year trailing earnings per share growth sits at just over -17%, resulting in a very discouraging PEG of -0.77. Additionally, we see an ROI of -40.95% and an ROE of -41.03%. You get the point, we will spare you the gory details, but the list goes on. Considering the pharmaceutical index in Norway has risen 17.3% (YTD), we would expect a portfolio worthy stock to reflect a similar if not better figure. However, just like their earnings the Nanovector stock price has dropped nearly 20% since this time last year. Needless to say, the market as it currently stands does not hold the highest expectations for this company given their 5-year history.
From the outside looking in, this company’s past, present and future looks a little bleak. Nevertheless, any knowledgeable investor would advise diving beyond the surface, perhaps there is more to the story that is Nordic Nanovector. But before we start peeling back the layers, we feel it appropriate to mention that this posture is all too common with adolescent pharmaceutical companies. Without having propped their foot in the door, or having released a product there is little to no revenue generated by the company. Thus, without the internal capital to fund their medicament research and development, pharmaceutical companies rely almost solely on equity financing to sustain the company through R&D and testing in order bring these drugs and treatments to market. If you take a close look at their past records of assets, you will see that the amount of cash and fixed assets continues to increase at an imposing rate, all the while the amount of share capital has remained almost parallel. In fact, Nordic Nanovector holds the second largest volume of shares outstanding of the listed pharmaceutical companies listed on Oslo Børs.
So, the question remains, who is Nordic Nanovector? And what do they do exactly? In short, Nordic Nanovector is a biopharmaceutical company founded for the development of a drug called Betalutin. This drug aims to improve upon and complement current treatment options for Non-Hodgkin’s Lymphoma (NHL), a type of hematological cancer that accounts for 3.2% of all cancer-related deaths globally, and is expected to rise over 2% annually. Betalutin is the first in its class of NHL treatment, and has generated a high level of anticipation within the medical community. Nordic Nanovector began development of Betalutin in 2012, and now in 2018 are nearing their final stages of testing, and if all goes accordingly, it is expected to clear regulatory approval in the first half of 2019. Throughout its phases of testing, Betalutin has seen a favorably high response rate in test patients, as well as boasting a strong safety profile. It is safe to say that if released, Betalutin is expected to generate high level of profit for the company. Ultimately, due to these facets the expected growth of Nordic Nanovector after the commercialization of the drug is outstanding. According to various analyst predictions, share value is forecasted to grow between 100.8% and 116.9% in the next 12 months, even before the release of the drug.
However once on the market, the profitability and sustainability of drug is favorable. As the number of patients diagnosed with NHL continues to rise, and naturally the associated therapeutic market will rise alongside, which according to the latest statistic from GBI Research was valued at $5.4 billion in 2013, and is projected to increase 7.4% annually, reaching $9.2 billion in 2020.
Now let’s talk about Nordic Nanovector’s risk profile. There are two obvious risks. The first risk is the case where the release of the drug is delayed for one of the numerous variable that could potentially arise. We know that the return for this company relies on the release of the drug. A delay could simply mean that receiving the return will come later than expected, and in a worst-case scenario it could mean that it loses the trust and support from investors, which would ultimately send the share price back down. The second risk is the elephant in the room that perhaps the drug is not released at all. The final word goes through the EMA (European Medical Association). The EMA is the regulatory filter that stands between the drug and the market.
While it is not very likely that Betalutin will be denied given its astoundingly high success rate during testing, the fact remains that there are various roadblocks that can leave even the most prospective drugs subject to denial by the EMA. The moral of the story is one we have heard time and time again, “don’t judge a book by its cover!” Even companies that are seemingly unprofitable on the outside, some research may reveal that the complete opposite is true. Not only Nordic Nanovector, but companies that concentrate more on R&D than immediate profit will likely have similar measures. All in all Nordic Nanovector stands as a high-risk high-reward stock, the company is still on the ground floor, but this may not be the case for much longer.