Abzena — Abzena inside product progresses to Phase II

Abzena — Abzena inside product progresses to Phase II

Abzena has announced the progression of one of the Abzena inside Composite Human Antibody products into a Phase II clinical trial. The product is being developed by a major US pharmaceutical company for the treatment of neurodegenerative conditions. We have increased our valuation to £105m (vs £102m) as a result of an increase of the Abzena inside product’s assigned probability (to 35% from 15%).

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Abzena

Abzena inside product progresses to Phase II

Abzena inside update

Pharma & biotech

7 March 2017

Price

38.5p

Market cap

£53m

$1.24/£

Net cash (£m) at 30 September 2016

9.4

Shares in issue

137.8m

Free float

39%

Code

ABZA

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.9)

13.2

(22.2)

Rel (local)

(7.3)

4.5

(33.7)

52-week high/low

56.00p

32.50p

Business description

Abzena is a UK group that offers a range of services and technologies for biopharmaceutical development including immunogenicity tests, protein engineering, bioconjugation, polymer/synthetic chemistry, biomanufacturing and ADC chemistry.

Next events

Further Abzena inside products into the clinic

2017

Phase III GS-5745 futility analysis in gastric cancer

H217

FY17 results

June 2017

Analyst

Dr Linda Pomeroy

+44 (0)20 3077 5738

Abzena is a research client of Edison Investment Research Limited

Abzena has announced the progression of one of the Abzena inside Composite Human Antibody products into a Phase II clinical trial. The product is being developed by a major US pharmaceutical company for the treatment of neurodegenerative conditions. We have increased our valuation to £105m (vs £102m) as a result of an increase of the Abzena inside product’s assigned probability (to 35% from 15%).

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

5.7

(4.7)

(5.89)

0.0

N/A

N/A

03/16

9.9

(7.5)

(6.00)

0.0

N/A

N/A

03/17e

19.1

(9.1)

(6.17)

0.0

N/A

N/A

03/18e

25.0

(6.6)

(4.17)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Progression of Abzena inside pipeline

Abzena has announced the progression of one of its Abzena inside products into a Phase II clinical trial. The product is being developed by a major US pharmaceutical company for the treatment of neurodegenerative conditions. To date, the product has been studied in two Phase I clinical trials. Other recent newsflow includes a 12th Abzena inside product entering the clinic, a manufacturing agreement with UCL for Magacizumab, an antibody previously created using the Abzena inside technology, and a grant awarded to a UCL research group to progress development of a novel treatment that uses Abzena’s proprietary conjugation technology.

Recent services business update

Abzena indicated recently that FY17 revenue was currently in line with its expectations; however, costs were higher due to investment in increasing its US capacity being affected by a strong $/£ rate. Abzena has increased capacity in the US with two new biomanufacturing cleanroom suites, office and lab space, and developed GMP capability for the manufacture of ADC linker payloads, which now enables it to manufacture for ThioBridge partners. It has indicated that it is exploring options to fund the growth of the manufacturing business through a significant expansion programme. If achieved, it could enable Abzena to leverage the integrated service offering more fully.

Valuation: Increased to £105m (vs £102m)

We have increased our valuation to £105m (vs £102m) or 76p per share (vs 74p). This is due to the increase in probability that we assign to one of the Abzena inside products included in the clinical pipeline within our model. As it has moved into Phase II, we increase the probability of success from 15% to 35% in line with parameters used for previous Abzena inside products in Phase II. We currently include peak sales of $1bn, which could prove conservative if this product becomes successful in neurodegenerative conditions. We continue to expect potential uplifts to our valuation as the benefits from its US investment programme are realised and its Abzena inside products progress.

Exhibit 1: Financial summary

£'000s

2014

2015

2016

2017e

2018e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Revenue

 

 

5,261

5,667

9,854

19,076

25,008

of which: Biology

3,128

4,158

5,299

6,422.5

8,237

Manufacturing

419

594

2,096

5,658.0

9,006

Chemistry

165

657

2,174

6,395.2

7,015

Total Service revenues

3,712

5,409

9,569

18,476

24,258

Licenses/milestones/royalties

1,549

258

285

600

750

Cost of Sales

(1,697)

(2,532)

(5,319)

(11,233)

(13,342)

Gross Profit

3,564

3,135

4,535

7,842

11,666

R&D expenses

(2,601)

(2,989)

(4,216)

(3,794)

(3,984)

SG&A expenses

(4,787)

(5,634)

(9,047)

(14,023)

(15,075)

EBITDA

 

 

(3,116)

(4,510)

(6,972)

(7,893)

(5,473)

Operating Profit (before GW and except)

 

(3,394)

(4,795)

(7,773)

(9,144)

(6,627)

Intangible Amortisation

(304)

(504)

(588)

(731)

(666)

Depreciation

(278)

(285)

(801)

(1,251)

(1,154)

Exceptionals

(426)

0

(2,542)

0

0

Operating Profit

(4,124)

(5,299)

(10,903)

(9,875)

(7,293)

Other

0

0

0

0

0

Net Interest

27

79

244

50

2

Profit Before Tax (norm)

 

 

(3,367)

(4,716)

(7,529)

(9,095)

(6,625)

Profit Before Tax (FRS 3)

 

 

(4,097)

(5,220)

(10,659)

(9,825)

(7,291)

Tax

548

498

961

590

875

Profit After Tax (norm)

(2,819)

(4,218)

(6,568)

(8,505)

(5,750)

Profit After Tax (FRS 3)

(3,549)

(4,722)

(9,698)

(9,236)

(6,416)

Average Number of Shares Outstanding (m)

1.4

71.6

109.4

137.8

137.8

EPS - normalised (p)

 

 

N/A

(5.89)

(6.00)

(6.17)

(4.17)

EPS - FRS 3 (p)

 

 

N/A

(6.59)

(8.86)

(6.70)

(4.65)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

10,139

10,432

27,347

28,230

28,924

Intangible Assets

9,446

8,942

23,177

22,461

21,809

Tangible Assets

693

1,490

4,170

5,769

7,115

Other

0

0

0

0

0

Current Assets

 

 

5,856

20,924

22,108

11,540

14,590

Stocks

295

817

1,379

1,379

1,379

Debtors

2,263

3,161

5,436

5,436

5,436

Cash

2,757

15,799

13,724

4,135

6,900

Other

541

1,147

1,569

590

875

Current Liabilities

 

 

(1,278)

(2,354)

(5,850)

(5,850)

(5,850)

Creditors

(1,160)

(2,354)

(5,488)

(5,488)

(5,488)

Short term borrowings

0

0

0

0

0

Short term leases

0

0

0

0

0

Other

(118)

0

(362)

(362)

(362)

Long Term Liabilities

 

 

(1,183)

(1,153)

(2,549)

(2,549)

(12,549)

Long term borrowings

0

0

0

0

(10,000)

Long term leases

0

0

0

0

0

Other long term liabilities

(1,183)

(1,153)

(2,549)

(2,549)

(2,549)

Net Assets

 

 

13,534

27,849

41,056

31,370

25,116

CASH FLOW

Operating Cash Flow

 

 

(4,328)

(4,859)

(10,870)

(7,774)

(5,350)

Net Interest

0

0

0

0

0

Tax

251

(133)

371

961

590

Capex

(264)

(1,082)

(2,047)

(2,864)

(2,515)

Acquisitions/disposals

(6,133)

0

(9,357)

0

0

Financing

10,670

19,037

20,013

0

0

Dividends

0

0

0

0

0

Other

(6)

79

(185)

89

41

Net Cash Flow

190

13,042

(2,075)

(9,589)

(7,235)

Opening net debt/(cash)

 

 

(2,754)

(2,757)

(15,799)

(13,724)

(4,135)

HP finance leases initiated

0

0

0

0

0

Other

(187)

0

0

0

0

Closing net debt/(cash)

 

 

(2,757)

(15,799)

(13,724)

(4,135)

3,100

Source: Edison Investment Research and Abzena

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Abzena and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Abzena and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

Thin Film Electronics — Cloud portal launch strengthens NFC proposition

For Thinfilm (THIN), 2016 has been principally dominated by a steadily growing list of new client partnerships, preparations for the move to the new R2R plant and a successful $61.7m funding round. The restart of EAS orders in January adds to revenue security this year. THIN is also shortly to scale up go-to-market activities for the Smart ElastiTag solution with hang-tag specialist, Bedford Industries, including a joint marketing road-show. This is expected to accelerate new NFC product field trial numbers in 2017, helped also by the recent launch of THIN’s cloud-based software portal CNECT. Earnings for 2016 were affected by higher than expected stockpiling costs and one-off FX losses, with no material impact on our forecasts. Our DCF valuation remains $9.70 per ADR.

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