Sifting through the life sciences sector, analyst Zhining Xu begins with a broad guideline for investors: ‘Near term, the key value driver [for companies] lies in more lucrative deals being signed with big pharmaceutical companies for both late and early stage drug candidates. However, in the long term, it is still positive clinical progress that drives the value of these companies.’

Thus, he affixes buy recommendations to four stocks ‘due a re-rating’. Among them is sexual health specialist Futura Medical, whose erection-improving gel is shortly expected to get the regulatory nod, thereby allowing Durex to employ the product. ‘This market is substantial,’ advises the analyst, arguing that Futura ‘can realistically become a self-sustaining company’ if all goes to plan.

Protherics hold-up immaterial
Despite signing a deal with AstraZeneca, shares in drug developer Protherics have fallen back to pre-deal levels following a ‘setback’ with its other main product, Voraxase. Xu views this hold-up as ‘immaterial to the value of the company’, especially considering its strengthened position and deeper pipeline of drugs.

An earlier-stage drug discoverer is Sareum, although it can rely on a profitable fee-for-service operation for cash. Its first drug candidate is expected to advance to Phase 1 trials in the next 12 months, a development that ‘will increase the value of the company substantially’.

Finally, having made two recent acquisitions and expanded its plant, fast-growing molecular diagnostic and services outfit Tepnel is slated by the analyst to be ‘on course to achieve higher profitability in the future’. Furthermore, it is ‘clearly undervalued’ compared to its peers.