Abzena
Written by
Abzena |
Validating ADC deal |
Licensing deal |
Pharma & biotech |
10 February 2016 |
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Abzena has achieved a significant licensing deal for its site-specific ThioBridge antibody drug conjugate (ADC) linker technology with a large US biotech company. This provides important validation of the proprietary technology and the overall strategy. Our rNPV-based valuation of £130m is largely unchanged as underlying assumptions remain broadly similar.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/14 |
5.3 |
(3.4) |
N/A |
0.0 |
N/A |
N/A |
03/15 |
5.7 |
(4.7) |
(5.89) |
0.0 |
N/A |
N/A |
03/16e |
9.1 |
(7.2) |
(5.36) |
0.0 |
N/A |
N/A |
03/17e |
16.5 |
(3.5) |
(2.19) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of intangibles, exceptional items
Significant licence deal with US biotech
Abzena has signed a significant licensing deal for its novel site specific ThioBridge technology, which links antibodies/proteins to cytotoxic agents. The partner is a publicly listed US biotech company that is developing and commercialising oncology therapies, including biological agents. The deal includes an initial licence fee and the potential to receive up to $150m ($50m per ADC product assumed) in development/commercial milestones if the partner successfully develops each of three ADC products; so far the research collaboration with this partner has screened multiple ADC candidates and one has been selected for further development. We anticipate the first ADC product to enter the clinic in 2017.
Greater economics
Whereas Abzena’s licensed portfolio of antibodies developed using its Composite Human Antibodies technology offers the prospect of small royalties (~1%) on sales, given the greater technological and IP input with ThioBridge we have always expected that Abzena secures greater economics from deals over its ADC products. This deal with $50m milestones per ADC supports this assumption, while we maintain our royalty estimate at low to mid-single digit royalties. We note that the recent acquisition of TCRS, a contract chemistry and bioconjugation business focused on ADCs, also offers the prospect of earning more downstream revenues (not currently included).
Valuation: Unchanged at £130m with upside potential
Our rNPV-based valuation is largely unchanged at £130m, or 96p/share (vs 95p), as we had already included three potential ADC products, although the deal gives us greater comfort with our assumptions. We estimate that ~$15-20m of the $50m total milestones per ADC would be triggered by development/regulatory progress, and include risk-adjusted estimates in our model. Recent news that partner Gilead Sciences has stopped its Phase II study of simtuzumab in idiopathic pulmonary fibrosis (IPF) due to a lack of efficacy is disappointing, although we note Phase II trials in non-alcoholic steatohepatitis (NASH) and primary sclerosing cholangitis (PSC) remain on track, as well as Gilead’s fresh plans to expand development of GS-5745 into cystic fibrosis and COPD, with Phase II studies to start in Q316.
Exhibit 1: Financial summary
£000s |
2014 |
2015 |
2016e |
2017e |
2018e |
||
Year-end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
|
|||||
Revenue |
|
|
5,261 |
5,667 |
9,071 |
16,530 |
22,467 |
of which: Immunology |
2,196 |
2,940 |
4,238 |
4,662 |
5,035 |
||
Protein engineering |
932 |
1,218 |
1,290 |
1,380 |
1,463 |
||
Bioconjugation |
165 |
657 |
639 |
703 |
738 |
||
Cell line development |
419 |
594 |
651 |
703 |
738 |
||
Biomanufacturing (PacificGMP) |
1,091 |
3,382 |
5,073 |
||||
TCRS |
900 |
5,100 |
8,670 |
||||
Total Service revenues |
3,712 |
5,409 |
8,809 |
15,930 |
21,717 |
||
Licenses/milestones/royalties |
1,549 |
258 |
262 |
600 |
750 |
||
Cost of Sales |
(1,697) |
(2,532) |
(4,894) |
(7,965) |
(10,641) |
||
Gross Profit |
3,564 |
3,135 |
4,177 |
8,565 |
11,826 |
||
R&D expenses |
(2,601) |
(2,989) |
(3,993) |
(3,394) |
(3,563) |
||
SG&A expenses |
(4,787) |
(5,634) |
(8,143) |
(9,365) |
(10,067) |
||
EBITDA |
|
|
(3,116) |
(4,510) |
(6,294) |
(1,778) |
1,524 |
Operating Profit (before GW and except) |
|
(3,394) |
(4,795) |
(7,228) |
(3,524) |
(1,187) |
|
Intangible Amortisation |
(304) |
(504) |
(514) |
(569) |
(518) |
||
Depreciation |
(278) |
(285) |
(934) |
(1,746) |
(2,711) |
||
Exceptionals |
(426) |
0 |
(2,000) |
0 |
0 |
||
Operating Profit |
(4,124) |
(5,299) |
(9,743) |
(4,093) |
(1,705) |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Net Interest |
27 |
79 |
38 |
55 |
34 |
||
Profit Before Tax (norm) |
|
|
(3,367) |
(4,716) |
(7,191) |
(3,469) |
(1,153) |
Profit Before Tax (FRS 3) |
|
|
(4,097) |
(5,220) |
(9,705) |
(4,038) |
(1,671) |
Tax |
548 |
498 |
927 |
485 |
201 |
||
Profit After Tax (norm) |
(2,819) |
(4,218) |
(6,264) |
(2,984) |
(952) |
||
Profit After Tax (FRS 3) |
(3,549) |
(4,722) |
(8,778) |
(3,554) |
(1,470) |
||
Average Number of Shares Outstanding (m) |
1.4 |
71.6 |
116.8 |
136.1 |
136.1 |
||
EPS - normalised (p) |
|
|
N/A |
(5.89) |
(5.36) |
(2.19) |
(0.70) |
EPS - FRS 3 (p) |
|
|
N/A |
(6.59) |
(7.52) |
(2.61) |
(1.08) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
10,139 |
10,432 |
25,770 |
26,954 |
26,225 |
Intangible Assets |
9,446 |
8,942 |
22,595 |
22,025 |
21,507 |
||
Tangible Assets |
693 |
1,490 |
3,175 |
4,929 |
4,718 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
5,856 |
20,924 |
18,962 |
14,224 |
13,483 |
Stocks |
295 |
817 |
933 |
933 |
933 |
||
Debtors |
2,263 |
3,161 |
4,070 |
4,070 |
4,070 |
||
Cash |
2,757 |
15,799 |
13,032 |
8,737 |
8,279 |
||
Other |
541 |
1,147 |
927 |
485 |
201 |
||
Current Liabilities |
|
|
(1,278) |
(2,354) |
(4,550) |
(4,550) |
(4,550) |
Creditors |
(1,160) |
(2,354) |
(3,976) |
(3,976) |
(3,976) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Short term leases |
0 |
0 |
0 |
0 |
0 |
||
Other |
(118) |
0 |
(574) |
(574) |
(574) |
||
Long Term Liabilities |
|
|
(1,183) |
(1,153) |
(1,088) |
(1,088) |
(1,088) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Long term leases |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
(1,183) |
(1,153) |
(1,088) |
(1,088) |
(1,088) |
||
Net Assets |
|
|
13,534 |
27,849 |
39,094 |
35,540 |
34,070 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(4,328) |
(4,859) |
(9,541) |
(1,808) |
1,494 |
Net Interest |
0 |
0 |
0 |
0 |
0 |
||
Tax |
251 |
(133) |
982 |
927 |
485 |
||
Capex |
(264) |
(1,082) |
(2,558) |
(3,500) |
(2,500) |
||
Acquisitions/disposals |
(6,133) |
0 |
(11,712) |
0 |
0 |
||
Financing |
10,670 |
19,037 |
20,000 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
(6) |
79 |
63 |
85 |
64 |
||
Net Cash Flow |
190 |
13,042 |
(2,767) |
(4,296) |
(457) |
||
Opening net debt/(cash) |
|
|
(2,754) |
(2,757) |
(15,799) |
(13,032) |
(8,737) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
(187) |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(2,757) |
(15,799) |
(13,032) |
(8,737) |
(8,279) |
Source: Company accounts, Edison Investment Research
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