The market should start to re-appraise the value of this bargain stock.
The listed Health Care sector has boosted many a portfolio with outstanding returns being achieved over the medium-term by stocks including CSL Limited (ASX: CSL), Sonic Healthcare Limited (ASX: SHL), Mesoblast Limited (ASX: MSB) and Ramsay Health Care Limited (ASX: RHC).
However, a much-misunderstood and consequently undervalued stock called Starpharma Holdings Limited (ASX: SPL) had slumped to be near four-year lows. That is until it was announced yesterday that the company had achieved regulatory approval from the Therapeutic Goods Administration (TGA) for the VivaGel condom. Approval resulted in a 19% rise in the share price to 70 cents, on a day when the benchmark S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) rose just 8 points.
VivaGel will form part of the lubricant to ward-off sexually transmitted diseases and the company will launch the condom under the LifeStyles Dual Protect brand, to be marketed by condom and glove-maker Ansell Limited (ASX: ANN). Ansell President and General Manager, Sexual Wellness Global Business Unit, Peter Carroll said: "Our partnership with Starpharma is a great example of two highly innovative Australian businesses working together to bring to market a ground-breaking new sexual health product."
So What for VivaGel specifically: Starpharma has a licensing agreement that provides marketing rights to Ansell for the VivaGel condom in countries outside of Japan. In Japan, Starpharma has licensed the product to Okamoto Industries Inc., which is Japan's leading marketer of condoms with approximately 60% of the Japanese condom market, the second largest global market to the U.S.
According to broking firm Bell Potter, Ansell is the second largest player in the condom market by sales. By virtue of an agreement entered into in 2011, Ansell will assume responsibility for registration, manufacturing and launch of the product as well as bear the commercialisation costs. Starpharma will be paid royalties in the range of 10% to 15% in a billion dollar market that was estimated to be growing at around 5% per annum a few years ago. The TGA approval will support regulatory processes in a number of other markets that both Ansell and Starpharma may access.
So What for Starpharma generally: Starpharma Holdings is currently developing drugs aimed at treating an array of medical issues, particularly relating to women's health. The company has also used its platform technology and applied it to agricultural crop protection. It's expected that the portfolio will provide potential upside over at least the next 10 years.
The company is a standout in the biotech area in that it has an unusually low cash-burn rate and sufficient cash on hand to fund any commercialisation delays.
Now What: Just on a month ago I strongly recommended Starpharma as a good medium-to-long term proposition. In my opinion, nothing has changed except that a dearth of announcements has come to an end and the market should start to re-appraise the value of this bargain stock.
