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Research: Healthcare
Oxford Biomedica (OXB) is a pioneer and global leader in the development and manufacture of commercial-scale lentiviral vectors (LVV), a critical component of cell and gene therapies. Ongoing investment in manufacturing capacity and R&D is imperative to reap economic returns in this highly innovative and potentially lucrative therapy area, which has witnessed a step up in investment globally. Multiple deals in 2019 included an expansion of its commercial supply agreement with Novartis by five years and R&D partnerships with Santen and Microsoft. We expect further platform deals to be announced in 2020, as OXB exploits its position as the only FDA-approved commercial-scale LVV manufacturer. In the long term, much value resides in OXB’s ability to develop and monetise its own gene therapies. We value OXB at £692m.
Written by
Oxford Biomedica |
OxBox investment to aid future growth |
Corporate update |
Pharma & biotech |
6 February 2020 |
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Oxford Biomedica is a research client of Edison Investment Research Limited |
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Oxford Biomedica (OXB) is a pioneer and global leader in the development and manufacture of commercial-scale lentiviral vectors (LVV), a critical component of cell and gene therapies. Ongoing investment in manufacturing capacity and R&D is imperative to reap economic returns in this highly innovative and potentially lucrative therapy area, which has witnessed a step up in investment globally. Multiple deals in 2019 included an expansion of its commercial supply agreement with Novartis by five years and R&D partnerships with Santen and Microsoft. We expect further platform deals to be announced in 2020, as OXB exploits its position as the only FDA-approved commercial-scale LVV manufacturer. In the long term, much value resides in OXB’s ability to develop and monetise its own gene therapies. We value OXB at £692m.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
37.6 |
(13.1) |
(16.7) |
0.0 |
N/A |
N/A |
12/18 |
66.8 |
0.3 |
4.3 |
0.0 |
146.3 |
N/A |
12/19e |
76.9 |
(7.9) |
(7.3) |
0.0 |
N/A |
N/A |
12/20e |
89.8 |
2.9 |
7.4 |
0.0 |
85.0 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
OxBox investment to attract partnerships
By mid-2020 OXB’s commercial LVV production capacity will have increased via its investment in OxBox, an 84,000 sq ft state-of-the-art bioprocessing manufacturing facility. The extension of the Novartis commercial supply agreement (in December 2019) validates OXB’s foresight to invest for growth as vector manufacturing capacity continues to be constrained globally. OXB is a leader in its field and its expertise in LVV development means it continues to remain extremely attractive to future and existing partners. In 2019 OXB signed two R&D collaborations with Santen (gene therapy for an inherited retinal disorder) and Microsoft (to improve the yield and quality of vectors using machine learning).
Debt removed, investment is key
Novo Holdings’ equity investment (£53.5m) in May has enabled OXB to fully repay its costly revolving debt facility, leading to a much-improved debt-free balance sheet, and boosted cash for developing its platform and own portfolio of assets. We continue to expect ongoing growth in the top line, driven in the near term by Kymriah (Novartis), the progression of Sanofi/Bioverativ’s haemophilia products to the clinic and the rapid advancement of its partnered products with Orchard and Axovant. OXB is in a growth phase and ongoing investments are necessary to ensure future growth. We expect OXB to remain at break even or positive operating income in the near term.
Valuation: £692m (£9.02 per share)
We value OXB at £692m (£9.02 per share). Our sales forecasts are unchanged and our core drivers remain OXB’s partnerships, We reflect net cash of £26.1m at end June 2019 (excluding £11.5m Axovant milestone). For details of our valuation please see our outlook note, In a cell and gene therapy sweet spot.
The 2019 foundations are set for 2020 growth
OXB is a leader in its field, as one of the world’s premier developers and manufacturers of commercial-scale, GMP-approved LVVs. The announcement on the extension of the Novartis commercial supply agreement reinforces the need to continue investing in the growth of OXB (capacity, yield improvements, development of own gene therapies). As vector manufacturing capacity continues to be constrained globally, companies such as OXB are in a strong position to drive value for their platforms. Additionally, OXB’s expertise in lentiviral development means it continues to remain extremely attractive to future and existing partners. Partner Axovant is rapidly progressing clinical development of AXO-Lenti-PD. The 12-month data published early this year from the first two patients in the ongoing Phase I/II dose-escalation study (SUNRISE-PD) in advanced Parkinson’s disease (PD) patients are encouraging and serve as validation of OXB’s internal pipeline; in the long term, much value resides in OXB’s ability to develop and monetise its own gene therapies
Novartis committed to CAR-T as programmes expand
OXB has expanded its commercial supply agreement with Novartis by five years, effectively removing uncertainty around the future of the partnership. The expanded agreement serves as validation of OXB’s investment in OxBox. OXB is now working on five different LVVs for use in Novartis’s CAR-T products. Although the targets are undisclosed by OXB, we assume (based on Novartis’s recent R&D day) they are focused on CD19, BCMA, CD22, IL3RA and EGFRvIII. We note that the $75m minimum revenue announced in the expanded commercial partnership is for vector batches only. As a result, OXB will benefit separately from development revenue for these new assets, which could provide substantial upside to our current assumptions.
Partnerships advancing through financial milestones
Partner Axovant has swiftly accelerated AXO-Lenti-PD into the clinic, with a Phase I/II dose-escalation study (SUNRISE-PD) in advanced PD patients ongoing. Following positive early data in the lowest dose cohort (n=2), a second dose cohort is enrolling (OXB received a $15m milestone payment on enrolment of first patient) for which data are expected mid-2020. In January 2020 Axovant reported 12 month post-dosing data, which demonstrated an average 22-point change from baseline (represents a 37% improvement) in motor function as assessed by the UPDRS Part III ‘OFF’ score. These data are encouraging (although restricted to two patients) as they expand from the 17-point change from baseline (29% improvement) seen at 6 months on the same scale. We anticipate further milestone payments (OXB has guided up to $55m in development milestones in the medium term, of which $15m have been received) as progress continues. The haemophilia development partnership with Sanofi (previously Bioverativ) is progressing towards clinical development material in the coming 12 months, which could lead to an increase in payments to OXB (the total deal value is up to $100m in product development and regulatory and sales-related milestones).
Balance sheet strengthened
The equity investment in May of £53.5m by Novo Holdings (for 10.1% of the outstanding share capital) has enabled OXB to fully repay the £43.6m debt facility with Oaktree Capital Management. This is a welcome move as the debt cost was substantial (as shown by the H119 interest payment of £4.8m) and its removal will allow OXB to fully focus its cash resources on growing the business. Additionally on 4 February, OXB sold 635,000 ADS of its Orchard equity stake raising gross cash proceeds of $8.4m, further strengthening its balance sheet. We continue to expect ongoing growth in OXB’s top line, driven in the near term by Kymriah (Novartis), progression of Sanofi’s (previously Bioverativ) haemophilia products to the clinic (via development milestone payments) and the rapid advancement of OXB’s partnered products with Orchard (notably OTL-101, where a biologics licence application/marketing authorisation rolling submission is expected in H120) and AXO-Lenti-PD. Early-stage collaborations with Santen and Boehringer Ingelheim and the UK Cystic Fibrosis Gene Therapy Consortium will continue to contribute a growing share of the top line as OXB undertakes development work.
Exhibit 1: Financial summary
Accounts: IFRS, year-end: December, £000s |
|
2016 |
2017 |
2018 |
2019e |
2020e |
INCOME STATEMENT |
|
|
|
|
|
|
Total revenues |
|
27,776 |
37,590 |
66,778 |
76,907 |
89,799 |
Cost of sales |
|
(11,835) |
(18,442) |
(22,763) |
(24,240) |
(26,807) |
Gross profit |
|
15,941 |
19,148 |
44,015 |
52,667 |
62,991 |
Administrative expenses |
|
(5,957) |
(7,276) |
(7,433) |
(10,035) |
(13,547) |
R&D and bioprocessing costs |
|
(24,299) |
(21,611) |
(29,714) |
(44,264) |
(46,532) |
Other income/(expense) |
|
3,002 |
1,774 |
1,064 |
0 |
0 |
Exceptionals and adjustments |
|
0 |
2,297 |
5,983 |
(1,411) |
0 |
Operating profit/(loss) |
|
(11,313) |
(5,668) |
13,915 |
(3,043) |
2,913 |
Finance income/(expense) |
|
(8,994) |
(6,093) |
(8,901) |
(6,238) |
6 |
Reported PBT |
|
(20,307) |
(11,761) |
5,014 |
(9,280) |
2,919 |
Income tax expense (includes exceptionals) |
|
3,666 |
2,744 |
2,527 |
2,653 |
2,786 |
Reported net income |
|
(16,641) |
(9,017) |
7,541 |
(6,627) |
5,705 |
Basic average number of shares, m |
|
56 |
62 |
65 |
71 |
77 |
Basic EPS (p) |
|
(29.9) |
(14.6) |
11.6 |
(9.3) |
7.4 |
Adjusted EBITDA |
|
(6,773) |
(2,645) |
13,535 |
5,333 |
10,868 |
Adjusted EBIT |
|
(10,448) |
(7,020) |
9,178 |
(1,632) |
2,913 |
Adjusted PBT |
|
(19,442) |
(13,113) |
277 |
(7,869) |
2,919 |
Adjusted EPS (p) |
|
(28.4) |
(16.7) |
4.3 |
(7.3) |
7.4 |
BALANCE SHEET |
|
|
|
|
|
|
Property, plant and equipment |
|
27,514 |
25,370 |
31,791 |
51,119 |
58,422 |
Intangible assets |
|
1,330 |
97 |
117 |
113 |
109 |
Other non-current assets |
|
657 |
2,954 |
10,966 |
0 |
0 |
Total non-current assets |
|
29,501 |
28,421 |
42,874 |
51,232 |
58,532 |
Cash and equivalents |
|
15,335 |
14,329 |
32,244 |
8,532 |
1,256 |
Inventories |
|
2,202 |
3,332 |
4,251 |
4,527 |
5,006 |
Trade and other receivables |
|
6,904 |
17,088 |
30,585 |
37,927 |
44,284 |
Other current assets |
|
3,000 |
2,232 |
2,446 |
13,619 |
13,752 |
Total current assets |
|
27,441 |
36,981 |
69,526 |
64,605 |
64,298 |
Non-current loans and borrowings |
|
34,389 |
36,864 |
41,153 |
0 |
0 |
Contract liabilities and deferred income |
|
0 |
0 |
6,434 |
6,434 |
6,434 |
Other non-current liabilities |
|
622 |
630 |
1,566 |
9,735 |
9,735 |
Total non-current liabilities |
|
35,011 |
37,494 |
49,153 |
16,169 |
16,169 |
Trade and other payables |
|
6,003 |
8,690 |
11,422 |
12,163 |
13,451 |
Contract liabilities and deferred income |
|
3,313 |
13,072 |
17,084 |
17,084 |
17,084 |
Total current liabilities |
|
9,316 |
21,762 |
28,506 |
29,247 |
30,535 |
Equity attributable to company |
|
12,615 |
6,146 |
34,741 |
70,420 |
76,125 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
Operating profit/(loss) |
|
(11,313) |
(5,668) |
13,915 |
(3,043) |
2,913 |
Depreciation and amortisation |
|
3,675 |
4,375 |
4,357 |
6,964 |
7,955 |
Share based payments |
|
865 |
945 |
1,246 |
0 |
0 |
Other adjustments |
|
(579) |
(1,326) |
(8,012) |
0 |
0 |
Movements in working capital |
|
1,423 |
141 |
(2,292) |
(6,876) |
(5,549) |
Income taxes paid |
|
4,081 |
4,512 |
3,654 |
2,446 |
2,653 |
Cash from operations (CFO) |
|
(1,848) |
2,979 |
12,868 |
(509) |
7,973 |
Capex |
|
(6,458) |
(1,969) |
(10,148) |
(26,288) |
(15,255) |
Other investing activities |
|
47 |
38 |
52 |
43 |
6 |
Cash used in investing activities (CFIA) |
|
(6,411) |
(1,931) |
(10,096) |
(26,245) |
(15,249) |
Net proceeds from issue of shares |
|
17,497 |
385 |
19,808 |
50,475 |
0 |
Movements in debt |
|
0 |
8,361 |
0 |
(41,153) |
0 |
Interest paid |
|
(3,258) |
(10,800) |
(4,665) |
(6,280) |
0 |
Other financing activities |
|
0 |
0 |
0 |
0 |
0 |
Cash from financing activities (CFF) |
|
14,239 |
(2,054) |
15,143 |
3,042 |
0 |
Increase/(decrease) in cash and equivalents |
|
5,980 |
(1,006) |
17,915 |
(23,712) |
(7,276) |
Currency translation differences and other |
|
0 |
0 |
0 |
0 |
0 |
Cash and equivalents at beginning of period |
|
9,355 |
15,335 |
14,329 |
32,244 |
8,532 |
Cash and equivalents at end of period |
|
15,335 |
14,329 |
32,244 |
8,532 |
1,256 |
Net (debt)/cash |
|
(19,054) |
(22,535) |
(8,909) |
8,532 |
1,256 |
Source: Oxford Biomedica accounts, Edison Investment Research
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|
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