NetScientific — Commercial progress across portfolio

NetScientific announced in November 2017 that ProAxsis has seen a significant increase in the number of orders for its Active Neutrophil Elastase Immunoassay (NEIA). This product incorporates the company’s proprietary ProteaseTag technology into a kit designed for research purposes, and the customers of this kit include academic and pharmaceutical company scientists. The product was previously provided by request only, but with increasing demand, the company has recently contracted distributer Diagenics Ltd. to market the product in the UK and Ireland. The company stated that H217 sales were three times that of H117, and that it expects a run rate of over £1m in 2018. This is driven in part by a high number of repeat customers: 75% of 2017 customers ordered more product.

ProAxsis’s ProteaseTag technology uses a small chemical probe that selectively binds to and immobilises activated proteases allowing them to be detected and quantified via ELISA. Other assays either detect the concentration of target proteases regardless of activation state or measure the bulk proteolytic activity from all proteases, whereas ProteaseTags provide a more direct measurement of activity from a single enzyme. This is deployed in the NEIA to provide a measurement of neutrophil elastase (NE) activity, an important biomarker for immune activation. The company also recently CE marked a point of care version of the test, NEATstik, which it intends to market for the detection of exacerbations associated with the lung diseases cystic fibrosis (CF) and chronic obstructive pulmonary disease (COPD). The company recently announced a collaboration with National Jewish Health, a US hospital system and leader in respiratory disease research, to investigate NEATstik in its CF and COPD patients in a clinical trial.

Besides the immediate aspect of increased revenue from sales of the NIEA kit, we believe that this is an encouraging sign for the commercialisation of the NEATstik. The NIEA kit has a range of applicable uses in the research setting outside of CF and COPD, but its increased adoption signals the increased recognition by the research community of the value of measuring NE activity. Moreover, the acceptance of the ProteaseTag brand may have a positive impact on launches of future kits into the research market for other proteases besides NE. The next ProteaseTag kit to be launched will detect active plasmin, an enzyme important for the prevention of thrombosis. The company is also developing other immunoassays for different protease targets important for pulmonary fibrosis and acute respiratory distress syndrome, among others.

Wanda is currently contracted to provide its application platform of the same name to the home healthcare provider Health Resource Solutions (HRS) Home Health, which recently announced in November 2017 that it would expand the deployment of the platform to all of its patients. The Wanda app is a digital health solution for the monitoring and engagement of patients with chronic health conditions, and the current implementation provides support for patients with congestive heart failure and COPD.

HRS Home Health reported that the decision to expand Wanda’s deployment was made after an analysis of patient outcomes in its network. Patients using Wanda had a 4.5% probability of being readmitted to the hospital, a reduction of 72%. Moreover, compliance with the application was 74%. HRS went on to state that the platform allowed the company to identify “variances during care delivery” and implement “prevention and intervention techniques.” This is highly encouraging for Wanda as it is a direct demonstration of the value proposition that the company offers, and these results can be further leveraged to gain other provider contracts.

Wanda currently has two other contracts with home healthcare providers (A to Z Home Health Care and 24Hr HomeCare). However, the company deprioritised this sales channel in 2017 after failing to gain traction. The company currently markets to other players in the healthcare space with significant vested interests in patient outcomes, including hospitals, payers, and accountable care organisations. We believe that these recent results are encouraging regardless of the setting and we expect to see further sales acceleration.

Vortex announced in November 2017 that it had received its first commercial order for the VTX-1 liquid biopsy system. The company officially soft-launched the platform in early 2017 and has been focused on placements of the device with targeted opinion leaders. The goal was to drive acceptance of the platform in the scientific community, as evidenced by a recent publication in which it was used to isolate circulating tumour cells (CTCs) for genomics. This commercial sale is encouraging because it suggests that there has been some degree of positive feedback, although we await further sales to fully assess the commercial viability of the product.

The VTX-1 device is an application of the company’s proprietary microfluidic process of isolating CTCs. The platform leverages the differential size and flow properties of CTCs to isolate them from other cells in the blood. Unlike other isolation methods that require the trapping of CTCs with ligands that bind the cells, this technique leaves the CTCs in a pristine state such that they can be further differentiated with labelling or cultured and expanded. Each purification of CTCs requires the use of a disposable microfluidic chip, which may lead to recurring sales in addition to the placement of the capital device.

We have increased our valuation of NetScientific to £62.1m or 90p per share, from £57.3m or 83p per share. We increased the valuation of ProAxsis to £8.1m (for NetScientific’s share) from £6.3m to reflect the increased demand for the NEIA kit, as well as an increased ramp rate for the launch of NEATstik on the back of increased interest. Finally, we have increased the probability of success for Wanda to 7.5% from 5.0% (resulting in an increase in value to NetScientific to £12.2m from £8.3m), because we find the metrics released by HRS to be highly supportive of the product’s value, which may help it address the significant commercial hurdles that it has faced. This is offset by reduced revenue expectations for 2017. We have reduced the valuation of Vortex’s stake to £15.6m from £15.9m to also reflect lower than expected revenue in 2017. We believe that the first commercial sale of VTX-1 is encouraging but, due to its lateness in the year, we do not expect significant recurring revenue in 2017.

We have decreased our expected revenue to £0.56m for 2017 (from £1.4m) and to £3.5m for 2018 (from £3.8m), to reflect a slower than expected ramp-up for Vortex and Wanda. This is offset by faster than expected ramp for the NEIA kit from ProAxsis. The other adjustments to our forecasts are to reflect the associated expenses with these sales and our models are otherwise unchanged. NetScientific has not provided any additional updates on its ongoing fund-raising activity. It previously stated that Glycotest and PDS financings were expected to close in H217 although, given the lateness in the year, we expect these to occur in 2018. It also previously guided to Vortex and ProAxsis Series As in H118. We currently record the financing shortfall as £16m in illustrative debt in 2018.