Abzena has announced another licensing deal, this time involving its Composite Human Antibody technology. The deal is with Telix Pharmaceuticals, a biopharmaceutical company which specialises in the development and commercialisation of radiopharmaceuticals. The agreement is the third announced this year, which includes royalties and milestone payments, based on successful development, alongside a service contract. We have reviewed our service business valuation as we expect these deals to enable benefits of scale. As a result we have increased our valuation to £160m or 75p per share. We note the potential for further advances as more deals come through and if forecasts are met.
Abzena |
Continuing to secure deals that validate model |
Licence agreement |
Pharma & biotech |
19 July 2017 |
Share price performance
Business description
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Abzena has announced another licensing deal, this time involving its Composite Human Antibody technology. The deal is with Telix Pharmaceuticals, a biopharmaceutical company which specialises in the development and commercialisation of radiopharmaceuticals. The agreement is the third announced this year, which includes royalties and milestone payments, based on successful development, alongside a service contract. We have reviewed our service business valuation as we expect these deals to enable benefits of scale. As a result we have increased our valuation to £160m or 75p per share. We note the potential for further advances as more deals come through and if forecasts are met.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/16 |
9.9 |
(7.4) |
(5.86) |
0.0 |
N/A |
N/A |
03/17 |
18.7 |
(8.3) |
(5.82) |
0.0 |
N/A |
N/A |
03/18e |
29.7 |
(10.1) |
(4.52) |
0.0 |
N/A |
N/A |
03/19e |
41.1 |
(2.6) |
(1.04) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Licence agreement using Abzena technology
Abzena has announced a licensing deal with Telix Pharmaceuticals, a biopharmaceutical company specialising in the development and commercialisation of radiopharmaceuticals for diagnostic (imaging) and therapeutic use. The agreement grants Telix an exclusive worldwide, royalty bearing, sub-licensable licence to its prostate-specific membrane antigen (PSMA) antibodies (created using Abzena’s Composite Human Antibody technology) in radio-immunoconjugation. The agreement, according to the company, has the potential to deliver $65m in licence fees and milestone payments if successfully developed.
Continuing deal momentum
Abzena’s deal momentum is growing. To date, the company has announced three significant ADC deals (two this year) and now another Composite Human Antibody deal (the previous deal was with Trieza in December 2016), which includes potential milestones as well as royalties. Also of note, all the deals this year have included the addition of a service agreement. This is an important validation of Abzena’s integrated model and underpins its strategy (to leverage a broader service, while maintaining potential upside through Abzena inside). For a more detailed overview please see our May 2017 outlook note.
Valuation: Increased to £160m or 75p per share
In light of the recent deals including service contracts, we have reviewed our valuation. We expect these deals to offer benefits of scale to the service business and have therefore increased our service division valuation to an rNPV of £70m (vs £43m). Our overall rNPV is now £160m (from £134m) or 75p per share (vs 63p). We do not currently include the Telix Pharma deal in our valuation as it is preclinical; however, it is important to note that this deal was agreed based on Abzena’s track record of its antibody technology entering the clinic, which is a positive indicator of the potential of this deal momentum to continue.
Exhibit 1: Financial summary
£'000s |
2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
|
|
|
||||
Revenue |
|
|
5,667 |
9,854 |
18,654 |
29,667 |
41,140 |
55,443 |
of which: Biology |
4,158 |
5,299 |
5,719 |
8,237 |
9,061 |
11,132 |
||
Manufacturing |
594 |
2,096 |
5,316 |
11,789 |
19,571 |
27,992 |
||
Chemistry |
657 |
2,174 |
6,961 |
8,891 |
10,669 |
11,942 |
||
Total Service revenues |
5,409 |
9,569 |
17,996 |
28,917 |
39,301 |
51,066 |
||
Licenses/milestones/royalties |
258 |
285 |
658 |
750 |
1,839 |
4,377 |
||
Cost of Sales |
(2,532) |
(5,319) |
(10,547) |
(17,350) |
(20,830) |
(25,533) |
||
Gross Profit |
3,135 |
4,535 |
8,107 |
12,317 |
20,310 |
29,910 |
||
R&D expenses |
(2,989) |
(4,216) |
(3,849) |
(3,984) |
(4,183) |
(4,392) |
||
SG&A expenses |
(5,634) |
(9,047) |
(14,611) |
(19,492) |
(19,784) |
(22,950) |
||
EBITDA |
|
|
(4,510) |
(6,817) |
(7,450) |
(7,208) |
127 |
6,345 |
Operating Profit (before GW and except) |
|
(4,795) |
(7,618) |
(8,607) |
(10,093) |
(2,650) |
3,523 |
|
Intangible Amortisation |
(504) |
(588) |
(723) |
(666) |
(607) |
(554) |
||
Depreciation |
(285) |
(801) |
(1,157) |
(2,885) |
(2,777) |
(2,822) |
||
Exceptionals |
0 |
(2,542) |
0 |
0 |
0 |
0 |
||
Other |
0 |
(155) |
(412) |
(400) |
(400) |
(400) |
||
Operating Profit |
(5,299) |
(10,903) |
(9,742) |
(11,159) |
(3,657) |
2,568 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Interest |
79 |
244 |
277 |
9 |
52 |
27 |
||
Profit Before Tax (norm) |
|
|
(4,716) |
(7,374) |
(8,330) |
(10,084) |
(2,598) |
3,549 |
Profit Before Tax (reported) |
|
|
(5,220) |
(10,659) |
(9,465) |
(11,150) |
(3,605) |
2,595 |
Tax |
498 |
961 |
347 |
431 |
384 |
486 |
||
Profit After Tax (norm) |
(4,218) |
(6,413) |
(7,983) |
(9,653) |
(2,214) |
4,035 |
||
Profit After Tax (reported) |
(4,722) |
(9,698) |
(9,118) |
(10,719) |
(3,221) |
3,081 |
||
Average Number of Shares Outstanding (m) |
71.6 |
109.4 |
137.2 |
213.6 |
213.6 |
213.6 |
||
EPS - normalised (p) |
|
|
(5.89) |
(5.86) |
(5.82) |
(4.52) |
(1.04) |
1.89 |
EPS - reported (p) |
|
|
(6.59) |
(8.86) |
(6.65) |
(5.02) |
(1.51) |
1.44 |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
10,432 |
27,347 |
33,494 |
40,951 |
40,575 |
39,207 |
Intangible Assets |
8,942 |
23,177 |
25,882 |
25,224 |
24,625 |
24,080 |
||
Tangible Assets |
1,490 |
4,170 |
7,612 |
15,727 |
15,950 |
15,127 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
20,924 |
22,108 |
11,267 |
17,338 |
14,840 |
19,636 |
Stocks |
817 |
1,379 |
1,876 |
1,876 |
1,876 |
1,876 |
||
Debtors |
3,161 |
5,436 |
4,982 |
4,982 |
4,982 |
4,982 |
||
Cash |
15,799 |
13,724 |
4,135 |
10,480 |
7,982 |
12,778 |
||
Other |
1,147 |
1,569 |
274 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(2,354) |
(5,850) |
(6,319) |
(6,319) |
(6,319) |
(6,319) |
Creditors |
(2,354) |
(5,488) |
(6,032) |
(6,032) |
(6,032) |
(6,032) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Short term leases |
0 |
0 |
(169) |
(169) |
(169) |
(169) |
||
Other |
0 |
(362) |
(118) |
(118) |
(118) |
(118) |
||
Long Term Liabilities |
|
|
(1,153) |
(2,549) |
(2,508) |
(2,455) |
(2,402) |
(2,349) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long term leases |
0 |
0 |
(494) |
(441) |
(388) |
(335) |
||
Other long term liabilities |
(1,153) |
(2,549) |
(2,014) |
(2,014) |
(2,014) |
(2,014) |
||
Net Assets |
|
|
27,849 |
41,056 |
35,934 |
49,515 |
46,694 |
50,175 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
(4,938) |
(11,330) |
(8,100) |
(7,429) |
(137) |
6,106 |
Net Interest |
79 |
244 |
277 |
115 |
158 |
133 |
||
Tax |
(133) |
371 |
1,665 |
705 |
384 |
486 |
||
Capex |
(1,082) |
(2,047) |
(3,320) |
(11,008) |
(3,008) |
(2,008) |
||
Acquisitions/disposals |
0 |
(9,357) |
0 |
0 |
0 |
0 |
||
Financing |
19,037 |
20,013 |
(89) |
23,900 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
79 |
31 |
(22) |
62 |
105 |
80 |
||
Net Cash Flow |
13,042 |
(2,075) |
(9,589) |
6,345 |
(2,498) |
4,796 |
||
Opening net debt/(cash) |
|
|
(2,757) |
(15,799) |
(13,724) |
(4,135) |
(10,480) |
(7,982) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(15,799) |
(13,724) |
(4,135) |
(10,480) |
(7,982) |
(12,778) |
Source: Abzena accounts, Edison Investment Research
|
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Research: TMT
mic is still in the midst of a major and, to some extent, painful refocusing process. It is to be hoped that the major unpleasant surprises are behind us but we are still some way short of having a firm basis for valuation. All of mic’s operating investments are at an early stage of development. Of three major high-potential business units only one has generated material revenue.