Last close As at 05/08/2026
—
— 0.00 (0.00%)
Market capitalisation
—
Research: TMT
Life sciences is one of Mercia’s areas of focus and investment expertise. Seven of Mercia’s top 20 holdings at 31 March 2020 were in life sciences, valued at £29m in aggregate or 33% of total portfolio value (all of which had originated through Mercia’s third-party managed funds), with another c 40 earlier-stage life sciences investments across its third-party managed funds. COVID-19 has accelerated the opportunity for a new generation of novel and recombinant vaccines. This explosion of potential new treatments will require new diagnostics and bio-manufacturing support to scale supply once they are approved. These are areas where Mercia is already invested.
Written by
Mercia Asset Management |
Life sciences helping the COVID-19 fight |
Portfolio update |
Investment companies |
14 October 2020 |
Share price performance
Business description
Next event
Analysts
Mercia Asset Management is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
Life sciences is one of Mercia’s areas of focus and investment expertise. Seven of Mercia’s top 20 holdings at 31 March 2020 were in life sciences, valued at £29m in aggregate or 33% of total portfolio value (all of which had originated through Mercia’s third-party managed funds), with another c 40 earlier-stage life sciences investments across its third-party managed funds. COVID-19 has accelerated the opportunity for a new generation of novel and recombinant vaccines. This explosion of potential new treatments will require new diagnostics and bio-manufacturing support to scale supply once they are approved. These are areas where Mercia is already invested.
Period end |
Net cash* (£m) |
Direct |
FUM |
NAV |
NAV per share (p) |
P/NAV |
03/17 |
59.6 |
52.0 |
336.5 |
121.4 |
40.4 |
0.53 |
03/18 |
49.4 |
66.1 |
400.0 |
123.5 |
40.7 |
0.53 |
03/19 |
29.8 |
87.7 |
381.0 |
126.1 |
41.6 |
0.51 |
03/20 |
30.2 |
87.5 |
658.0 |
141.5 |
32.1 |
0.67 |
Note: *Includes liquid securities but not funds held on behalf of EIS investors.
Mercia remains well funded
Mercia ended FY20 with £30m of unrestricted balance sheet cash and short-term liquidity investments included within total liquidity of c £320m across all asset classes. This means it is in a strong position to continue to deploy capital, both through its managed funds as well as in direct investments on its balance sheet.
Overall beneficial impact from COVID-19
Although Mercia’s engineering/materials related investments have experienced the most negative impact from COVID-19, some of these have started to show signs of recovery. However, 80% of Mercia’s direct investment portfolio is in sectors that have seen positive benefits from COVID-19, such as life sciences (33% of the direct investment portfolio) and software (49% of the direct investment portfolio), providing a strong underpinning for FY21.
Valuation: 0.67x NAV + £20m for MFM
Mercia’s shares continue to trade at a discount to NAV (0.67x), even before considering the embedded value of Mercia’s fund management operations (MFM), which we estimate could be worth an additional £20m (c 4.5p per share) on top of NAV. Catalysts for a re-rating include further scaling of the business, commercialisation of the direct investment portfolio and/or further successful exits similar to that of The Native Antigen Company announced in July 2020.
Mercia’s life sciences portfolio
COVID-19 presses the accelerator
For many years, life sciences has been a significant growth sector globally, with new technologies and techniques being applied across numerous specialist fields. The UK is a global leader in life sciences, with new businesses being set-up or spun out of universities across the breadth of the country. COVID-19, and the search for better diagnostics, vaccines and bio-manufacturing, has delivered a boost for the sector, with momentum anticipated to continue even once new vaccines have been found.
Mercia has a 15-year track record in the life sciences sector, which is not surprising given most of the UK’s fast-growing life sciences’ industry is based in the UK’s regions and, as such, life sciences is one of Mercia’s three principal sectors.
Mercia and its life sciences portfolio companies have issued a series of announcements in 2020 (including the sale of The Native Antigen Company announced in July 2020):
■
In early April, two of Mercia’s direct portfolio companies, The Native Antigen Company and Oxford Genetics (OXGENE), announced the formation of a new strategic partnership to scale up COVID-19 antigen production. This was followed in early May by the announcement of a £3m funding round into OXGENE, with Mercia investing a further £1m alongside Canaccord Genuity Wealth Management. OXGENE’s technology accelerates the design, discovery and manufacture of new biologics.
■
14 May 2020 – Medherant, a transdermal drug delivery company, announced a partnership agreement with Cycle Pharmaceuticals to develop new products using Medherant's proprietary TEPI Patch technology. Under the agreement, Medherant will receive upfront payments for each candidate drug targeted and royalty payments on future product sales.
■
1 July 2020 – MIP Diagnostics completed a £5.1m funding round to scale production of its polymer antibodies, with Mercia committing £0.5m alongside the Business Growth Fund, Downing Ventures, Calculus Capital and MIP management.
■
9 July 2020 – Mercia announced the sale of The Native Antigen Company for up to £18m in cash, with management expecting to realise £5.2m (1.2p per share) for the group’s 29.4% direct investment. The Native Antigen Company was held at £3.5m on the balance sheet at 31 March 2020, with the sale representing a fair value gain of up to £1.9m – an 8.4x return on Mercia’s initial December 2014 direct investment and an internal rate of return (IRR) of 65%.
Given the significant progress made in FY20, Mercia provided an update on its life sciences portfolio on 18 September 2020 to highlight the unrecognised value in the portfolio.
Life sciences in the context of the overall portfolio
Life sciences is one of Mercia’s areas of focus and investment expertise.
Seven of Mercia’s top 20 holdings at 31 March 2020 were in life sciences, valued at £29m in aggregate or 33% of total portfolio value (all of which had originated through Mercia’s third-party managed funds) with another c 40 earlier-stage investments across its third-party managed funds. In FY20 to date, £4.2m has been invested into six of Mercia’s direct life sciences investments, with a further £1.6m invested in the sector through Mercia's managed funds.
At 31 March 2020, Mercia held £30m of unrestricted cash and short-term liquidity investments within total liquidity of c £320m across all asset classes. This financial firepower means Mercia is in a strong position to continue to deploy capital through its managed funds as well as directly from its balance sheet.
Although Mercia’s engineering/materials related investments have experienced the most negative impact from COVID-19, a number of these have started to show signs of recovery over the past few months. However, over 80% of the portfolio is in sectors that have responded positively to the COVID-19 pandemic, such as life sciences (a third of the direct investment portfolio), software and digital entertainment (49% of the direct investment portfolio), providing a strong underpinning for FY21.
Exhibit 1: Direct investment portfolio
£000s |
Net value |
Net cash invested FY20 |
Fair value change |
Net value |
Fair value change |
Mercia’s holding at |
Estimated enterprise value** at |
£000s |
£000s |
£000s |
£000s |
% |
% |
£000s |
|
nDreams |
15,120 |
1,000 |
- |
16,120 |
- |
36.4 |
44,300 |
OXGENE |
10,161 |
- |
1,582 |
11,743 |
16 |
30.2 |
38,900 |
Intechnica |
6,677 |
500 |
- |
7,177 |
- |
27.5 |
26,100 |
Medherant |
5,205 |
1,500 |
- |
6,705 |
- |
30.1 |
22,300 |
Voxpopme |
3,026 |
2,000 |
1,004 |
6,030 |
33 |
17.1 |
35,300 |
Ton UK (Intelligent Positioning) |
5,473 |
400 |
(1,519) |
4,354 |
(28) |
28.2 |
15,400 |
Impression Technologies |
5,381 |
2,000 |
(3,087) |
4,294 |
(57) |
25.9 |
16,600 |
Faradion |
3,525 |
500 |
- |
4,025 |
- |
15.6 |
25,800 |
Warwick Acoustics |
7,904 |
1,065 |
(5,313) |
3,656 |
(67) |
52.9 |
6,900 |
The Native Antigen Company* |
2,863 |
- |
630 |
3,493 |
22 |
29.4 |
11,900 |
Soccer Manager |
2,099 |
300 |
135 |
2,534 |
6 |
34.8 |
7,300 |
Edge Case Games |
2,300 |
- |
- |
2,300 |
- |
21.2 |
10,800 |
Locate Bio |
500 |
1,750 |
- |
2,250 |
- |
17.4 |
12,900 |
VirtTrade (Avid Games) |
3,938 |
550 |
(2,288) |
2,200 |
(58) |
25.8 |
8,500 |
PsiOxus Therapeutics |
2,377 |
160 |
(344) |
2,193 |
(15) |
1.4 |
156,600 |
sureCore |
1,834 |
333 |
- |
2,167 |
- |
22.0 |
9,900 |
W2 Global Data Solutions |
2,000 |
- |
- |
2,000 |
- |
15.2 |
13,200 |
Eyoto Group |
1,755 |
875 |
(878) |
1,752 |
(50) |
15.7 |
11,200 |
One Touch Apps (Clear Review) |
- |
500 |
- |
500 |
- |
3.9 |
12,800 |
Concepta |
1,133 |
750 |
(1,408) |
475 |
(124) |
22.4 |
2,100 |
Other direct investments |
4,388 |
1,473 |
(4,358) |
1,503 |
|
||
Total |
87,659 |
15,656 |
(15,844) |
87,471 |
Source: Mercia. Note: Excludes post year-end investments. *The sale of The Native Antigen Company was announced at the start of July 2020 for up to £18m in cash, a c 50% uplift on fair value. **Enterprise values are estimated from fully diluted shareholding percentages.
Update on life sciences portfolio
We have provided a summary of Mercia’s seven direct investments in Exhibit 3, but Mercia’s full announcement, including commentary on the managed fund investments in the sector can be found here.
We have also recorded an Edison TV interview, where Dr Mark Payton (CEO with responsibility for OXGENE, Medherant and MIPs), Peter Dines (COO and previous head of life sciences with responsibility for Sense Bio, Locate Bio, The Native Antigen Company and Axis) and Dr Mark Wyatt (investment director with responsibility for Abingdon Health) discuss Mercia’s approach to investment in the life sciences sector, the impact of COVID-19 and what this might mean for Mercia’s future investment strategy in life sciences.
|
Exhibit 2: Management interview video - Mercia’s approach to life sciences |
|
|
Source: Edison Investment Research |
Mercia’s approach to investment in life sciences
Mercia’s investment track record in the life sciences sector stretches back over 15 years. Today, Mercia manages a portfolio of over 400 businesses through its venture capital, private equity and debt managed funds, of which c 10% by number are in the life sciences sector. Together with its focus on the regions and wide network of offices (eight locations around the country), Mercia has privileged, early access to deal flow from the regions. This provides a filtered pipeline of future direct investments at the parent level. It is notable that all seven life science investments in Mercia’s top 20 holdings originated through its managed funds.
It is also worth making the point that life sciences is a very broad investment category. Within the Mercia senior management team, Dr Mark Payton, Peter Dines and Dr Mark Wyatt, all have industry expertise in the sector as well as a long-term investment track record. However, given the breadth of the sector, the team benefits from Mercia’s collective network of contacts to validate and undertake diligence on potential investment opportunities in specific fields. Mercia has built relationships with 19 university partners to support the business. With over 40 life sciences companies in the group, Mercia also has access to a network of non-executive directors, each a source of potential deal flow and sector contacts.
Given its financial resources, Mercia targets businesses with relatively modest capital needs, typically up to c £20m in total across multiple rounds. Given that leading biotechs often raise hundreds of millions of dollars of pure risk capital, this constrained access to capital means Mercia tends to look for opportunities in relatively unloved sectors such as diagnostics, medtech (although recent valuations have been picking up) and improvements in bio-manufacturing production.
COVID-19 has accelerated investment in life sciences
COVID-19 has also had a major impact. As has happened with the acceleration of the transition to a digital economy, COVID-19 has also significantly accelerated vaccine development, with five years of normal development time being compressed into just months. In the last 20 years, no more than a handful of new vaccines have been approved for use on the public. However, in response to COVID-19, c 40 new vaccines are under clinical development, with six in Phase III trials, of which five are based on novel recombinant technologies. Another 100+ are in pre-clinical trials.
For Mercia, COVID-19 has accelerated the opportunity for a new generation of novel and recombinant vaccines. There is unlikely to be a single vaccine, with multiple vaccines a more probable outcome to be used amongst different groups by governments around the world. This explosion of potential new treatments will all require new diagnostics to measure their efficacy, as well as bio-manufacturing support to scale supply once they are approved. These are areas where Mercia has invested.
Exhibit 3: Mercia’s direct investments in life sciences
OXGENE |
|
Stage: Series B |
Bio-manufacturing – gene therapy, gene editing and antibody discovery |
Valuation: £38.9m |
Direct stake: 30.2% fully diluted |
Mercia direct funding as at 31/3/20: £5.1m |
Managed funds: c 10% fully diluted stake |
Strategic partnership with Fujifilm Diosynth Biotechnologies |
100%+ annual revenue growth (FY18–20) |
Co-investors: Canaccord Genuity Wealth Management |
Indirect spin-out from Oxford University |
|
|
Medherant |
|
Stage: Series A |
Medtech – transdermal drug-in-adhesive patches |
Valuation: £19.2m |
Direct stake: 30.1% fully diluted |
Mercia direct funding as at 31/3/20: £5.2m |
Managed funds: c 16% fully diluted stake |
Co-investors: Cycle Pharma, Innovate UK |
University of Warwick |
In June 2020, the company completed a £2.8m syndicated round, with Mercia investing £1.4m |
In May 2020, Medherant announced a strategic partnership with Cycle Pharma to commercialise the TEPI Patch® technology |
|
|
Locate Bio |
|
Stage: Seed |
Orthobiologics – therapies include bone protein to overcome lower back pain and biological renewal of the intervertebral disc |
Valuation: £12.9m |
Direct stake: 17.4% fully diluted |
Mercia direct funding as at 31/3/20: £2.3m |
Managed funds: c 17% fully diluted stake |
New CEO appointed (ex ApaTech) |
University of Nottingham |
Co-investors: Wellcome Trust, Heraeus Medical, Future Fund |
In July 2020, Locate secured a syndicated investment of £2.5m of which Mercia made a direct investment of £0.8m. |
|
|
MIP Diagnostics |
|
Stage: Series A |
Diagnostics – development and manufacture of synthetic affinity reagents, polymers designed to bind to specific target molecules for detection, purification or extraction |
Valuation: £12.9m |
Direct stake: 3.3% fully diluted |
Mercia direct funding as at 31/3/20: £0.3m |
Managed funds: c 30% fully diluted stake |
Co-investors: Downing, Calculus, BGF |
University of Leicester |
£5.1m syndicated funding round in July 2020 to accelerate global expansion |
Partnership with Stream Bio to develop a rapid COVID-19 viral infection detection assay |
|
|
The Native Antigen Company |
|
Stage: Exited |
Diagnostics – leading producer of infectious disease reagents that include antigens for COVID-19 antibody test kits |
Valuation: £18.0m (50% premium to book value) |
Direct stake: 29.4% fully diluted |
Mercia direct funding as at 31/3/20: £0.1m |
Managed funds: c 30% fully diluted stake |
Co-investors: Angel investors |
University of Birmingham |
Sold to global life sciences tools company LGC in July 2020 |
The exit generated an 8.4x return and a 65% IRR on Mercia’s original direct investment and a 12.1x return, a 31% fund IRR, on Mercia’s blended managed fund investments |
Source: Edison Investment Research, Crunchbase, Mercia Asset Management
Exhibit 4: Financial summary
£'000 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||
Revenue |
|
|
508 |
1,755 |
6,660 |
10,197 |
10,675 |
12,747 |
Cost of Sales |
(10) |
(79) |
(92) |
0 |
0 |
0 |
||
Gross Profit |
498 |
1,676 |
6,568 |
10,197 |
10,675 |
12,747 |
||
Operating costs |
(1,495) |
(4,011) |
(9,051) |
(10,633) |
(12,115) |
(12,661) |
||
Fair value changes |
3,934 |
896 |
4,268 |
2,823 |
3,916 |
(15,844) |
||
Realised gains |
0 |
0 |
839 |
871 |
0 |
0 |
||
Normalised operating profit |
|
|
2,937 |
(1,439) |
2,624 |
3,258 |
2,476 |
(15,758) |
Amortisation of acquired intangibles |
0 |
(17) |
(301) |
(301) |
(301) |
(852) |
||
Exceptionals |
(1,018) |
(372) |
(1,125) |
(1,125) |
0 |
(695) |
||
Share-based payments |
(44) |
(230) |
(395) |
(497) |
(171) |
(528) |
||
Reported operating profit |
1,875 |
(2,058) |
803 |
1,335 |
2,004 |
(17,833) |
||
Net Interest |
93 |
361 |
186 |
274 |
562 |
220 |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
3,030 |
(1,078) |
2,810 |
3,532 |
3,038 |
(15,538) |
Profit Before Tax (reported) |
|
|
1,968 |
(1,697) |
989 |
1,609 |
2,566 |
(17,613) |
Reported tax |
0 |
0 |
54 |
54 |
54 |
159 |
||
Profit After Tax (norm) |
3,030 |
(1,078) |
2,810 |
3,532 |
3,038 |
(15,538) |
||
Profit After Tax (reported) |
1,968 |
(1,697) |
1,043 |
1,663 |
2,620 |
(17,454) |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
3,030 |
(1,078) |
2,810 |
3,532 |
3,038 |
(15,538) |
||
Net income (reported) |
1,968 |
(1,697) |
1,043 |
1,663 |
2,620 |
(17,454) |
||
Basic average number of shares outstanding (m) |
212 |
212 |
224 |
302 |
303 |
341 |
||
EPS – basic normalised (p) |
|
|
1.43 |
(0.51) |
1.26 |
1.17 |
1.00 |
(4.55) |
EPS – diluted normalised (p) |
|
|
1.43 |
(0.51) |
1.21 |
1.13 |
1.00 |
(4.55) |
EPS – basic reported (p) |
|
|
0.93 |
(0.80) |
0.47 |
0.55 |
0.86 |
(5.11) |
Dividend (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
(29.7) |
245.5 |
279.5 |
53.1 |
4.7 |
19.4 |
||
Gross Margin (%) |
98.0 |
95.5 |
98.6 |
100.0 |
100.0 |
100.0 |
||
Normalised Operating Margin |
578.1 |
-82.0 |
39.4 |
32.0 |
23.2 |
-123.6 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
27,121 |
50,103 |
63,693 |
77,428 |
98,724 |
124,899 |
Intangible Assets |
2,455 |
11,815 |
11,514 |
11,213 |
10,912 |
36,705 |
||
Tangible Assets |
49 |
145 |
151 |
145 |
153 |
125 |
||
Right of use assets |
0 |
0 |
0 |
0 |
0 |
598 |
||
Investments & other |
24,617 |
38,143 |
52,028 |
66,070 |
87,659 |
87,471 |
||
Current Assets |
|
|
54,349 |
31,730 |
64,576 |
53,965 |
31,180 |
31,951 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
716 |
798 |
747 |
1,057 |
782 |
1,298 |
||
Cash & cash equivalents |
23,633 |
20,932 |
28,829 |
42,908 |
25,210 |
24,438 |
||
Short term liquidity investments |
30,000 |
10,000 |
35,000 |
10,000 |
5,188 |
6,215 |
||
Current Liabilities |
|
|
(631) |
(1,521) |
(6,698) |
(7,760) |
(3,730) |
(6,659) |
Creditors |
(631) |
(1,521) |
(6,698) |
(7,760) |
(3,730) |
(4,805) |
||
Tax and social security |
0 |
0 |
0 |
0 |
0 |
0 |
||
Lease liabilities |
0 |
0 |
0 |
0 |
0 |
(118) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other (incl deferred consideration) |
0 |
0 |
0 |
0 |
0 |
(1,736) |
||
Long Term Liabilities |
|
|
0 |
(271) |
(217) |
(163) |
(109) |
(8,731) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Lease liabilities |
0 |
0 |
0 |
0 |
0 |
(473) |
||
Other long term liabilities |
0 |
(271) |
(217) |
(163) |
(109) |
(8,258) |
||
Net Assets |
|
|
80,839 |
80,041 |
121,354 |
123,470 |
126,065 |
141,460 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
80,839 |
80,041 |
121,354 |
123,470 |
126,065 |
141,460 |
NAV per share (p) |
38.13 |
37.46 |
40.37 |
40.71 |
41.56 |
32.14 |
||
CASH FLOW |
||||||||
Op Cash Flow before WC and tax |
2,943 |
(1,406) |
2,700 |
3,339 |
2,560 |
(15,685) |
||
Working capital |
(20) |
650 |
5,250 |
(87) |
(3,724) |
533 |
||
Exceptional & other |
(4,952) |
(1,268) |
(5,107) |
(3,694) |
(3,916) |
15,149 |
||
Depreciation of right-of-use assets |
0 |
0 |
0 |
0 |
0 |
139 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net operating cash flow |
|
|
(2,029) |
(2,024) |
2,843 |
(442) |
(5,080) |
136 |
Capex |
(27) |
(113) |
(82) |
(75) |
(92) |
(45) |
||
Acquisitions/disposals |
(11,563) |
(20,939) |
(8,779) |
(10,664) |
(17,673) |
(28,056) |
||
Net interest |
22 |
397 |
165 |
260 |
531 |
245 |
||
Equity financing |
67,230 |
(22) |
38,750 |
0 |
(196) |
30,000 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(30,000) |
20,000 |
(25,000) |
25,000 |
4,812 |
(3,052) |
||
Net Cash Flow |
23,633 |
(2,701) |
7,897 |
14,079 |
(17,698) |
(772) |
||
Opening net debt/(cash) |
|
|
(39) |
(23,633) |
(20,932) |
(28,829) |
(42,908) |
(25,210) |
FX |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
(39) |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(23,633) |
(20,932) |
(28,829) |
(42,908) |
(25,210) |
(24,438) |
Closing net debt/ (cash) inc short-term liquidity investments (not EIS) |
(53,633) |
(30,932) |
(59,601) |
(49,435) |
(29,769) |
(30,186) |
||
Source: Mercia Asset Management accounts
|
|
Research: Investment Companies
Fidelity Special Values (FSV) employs a value-based, contrarian investment style aiming to achieve long-term capital growth primarily through investment in UK companies, which the managers believe are undervalued or where potential has not been recognised by the market. FSV has endured a challenging period of underperformance. However, lead manager Alex Wright and co-manager Jonathan Winton believe the Q120 market sell-off created many investment opportunities, which they have sought to exploit. In their view, UK value stocks, and FSV in particular, now offer great value, which is further amplified by the trust’s current discount making for a good valuation starting point for investment. The managers see significant scope for the trust to outperform not only growth strategies and UK equities in general, but also other asset classes.