Abzena — Update 14 September 2016

Abzena — Update 14 September 2016

Abzena

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Abzena

Strong start to H117

Business update

Pharma & biotech

14 September 2016

Price

45.00p

Market cap

£62m

$1.31/£

Net cash (£m) at 31 March 2016

13.7

Shares in issue

137.1m

Free float

39%

Code

ABZA

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.7

(4.3)

(34.8)

Rel (local)

8.1

(12.6)

(39.6)

52-week high/low

71.50p

39.50p

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 (PacificGMP) and ADC chemistry (TCRS).

Next events

Further Abzena inside products into the clinic

2016

Roche update SDP051

H216

Initiation of Phase II studies GS-5745 (COPD, RA and CF)

H216

Analyst

Dr Linda Pomeroy

+44 (0)20 3077 5738

Abzena is a research client of Edison Investment Research Limited

Abzena announced a strong business update including a twelfth Abzena inside product entering Phase I clinical development and positive momentum in trading. This continues to underpin the rationale behind expanding the company to provide a broader range of services. We now use an estimated H117 cash position, which decreases the valuation slightly to £140m, offset slightly by the twelfth Abzena inside product.

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

(6.8)

(4.32)

0.0

N/A

N/A

03/18e

25.0

(4.2)

(2.63)

0.0

N/A

N/A

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

Strong start to FY17 in services business

Abzena announced (13 September) that trading was strong at the start of H117, with growth in revenues from cell line development and bioconjugation projects. It also indicated a strong order book, which gives us confidence in our forecasts. In addition, Abzena has been investing to increase capacity at its US manufacturing sites, with completion expected end 2016, and announced the first product (Faron Pharmaceuticals’ Clevegen) to have been humanised by Abzena’s technology, which it will also manufacture for clinical development.

Abzena inside portfolio continues to progress

The number of Abzena inside products continues to increase with the announcement of the twelfth product to enter Phase I clinical development for a private US biotech company, up from 10 in September 2015.

Hybrid business model shows growing promise

Abzena’s broader service offering is gaining traction and the company indicated that it is expanding relationships alongside increasing return custom. In addition, the number of Abzena inside products in clinical development continues to progress increasing the risk-free potential upside for investors.

Valuation: Slight reduction due to updated cash

We have slightly decreased our valuation to £140m (vs £143m) or 102p per share (vs 104p). This is primarily due to updating our estimated H117 cash position of £9.6m (vs £13.7m). We have also included the twelfth Abzena inside product entering Phase I clinical development, which adds $1.7m to our rNPV. We assume similar parameters to previous Abzena inside products in Phase I: peak sales of $750m, 1% royalty, launch in 2023 and a 15% probability of success. Abzena continues to demonstrate the potential in its integrated service offering and we expect potential uplifts to valuation as its Abzena inside products progress towards commercialisation, most notably GS-5745 in gastric cancer (Phase III).

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: Immunology

2,196

2,940

3,978

5,569

6,015

Protein engineering

932

1,218

1,321

1,849

1,960

Bioconjugation

165

657

1,376

1,926

2,023

Cell line development

419

594

525

735

772

Biomanufacturing (PacificGMP)

1,571

3,928

5,891

TCRS

798

4,469

7,597

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)

(11,234)

(13,342)

Gross Profit

3,564

3,135

4,535

7,843

11,666

R&D expenses

(2,601)

(2,989)

(4,216)

(3,794)

(3,984)

SG&A expenses

(4,787)

(5,634)

(9,047)

(11,761)

(12,643)

EBITDA

 

 

(3,116)

(4,510)

(6,972)

(5,423)

(2,853)

Operating Profit (before GW and except)

 

(3,394)

(4,795)

(7,773)

(6,882)

(4,195)

Intangible Amortisation

(304)

(504)

(588)

(731)

(666)

Depreciation

(278)

(285)

(801)

(1,460)

(1,342)

Exceptionals

(426)

0

(2,542)

0

0

Operating Profit

(4,124)

(5,299)

(10,903)

(7,613)

(4,861)

Other

0

0

0

0

0

Net Interest

27

79

244

50

8

Profit Before Tax (norm)

 

 

(3,367)

(4,716)

(7,529)

(6,833)

(4,187)

Profit Before Tax (FRS 3)

 

 

(4,097)

(5,220)

(10,659)

(7,563)

(4,853)

Tax

548

498

961

908

582

Profit After Tax (norm)

(2,819)

(4,218)

(6,568)

(5,925)

(3,605)

Profit After Tax (FRS 3)

(3,549)

(4,722)

(9,698)

(6,656)

(4,271)

Average Number of Shares Outstanding (m)

1.4

71.6

109.4

137.0

137.0

EPS - normalised (p)

 

 

N/A

(5.89)

(6.00)

(4.32)

(2.63)

EPS - FRS 3 (p)

 

 

N/A

(6.59)

(8.86)

(4.86)

(3.12)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

10,139

10,432

27,347

29,171

29,678

Intangible Assets

9,446

8,942

23,177

22,461

21,809

Tangible Assets

693

1,490

4,170

6,711

7,868

Other

0

0

0

0

0

Current Assets

 

 

5,856

20,924

22,108

13,178

8,562

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

5,456

1,165

Other

541

1,147

1,569

908

582

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)

(2,549)

Long term borrowings

0

0

0

0

0

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

33,951

29,841

CASH FLOW

Operating Cash Flow

 

 

(4,328)

(4,859)

(10,870)

(5,304)

(2,731)

Net Interest

0

0

0

0

0

Tax

251

(133)

371

961

908

Capex

(264)

(1,082)

(2,047)

(4,014)

(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

47

Net Cash Flow

190

13,042

(2,075)

(8,268)

(4,291)

Opening net debt/(cash)

 

 

(2,754)

(2,757)

(15,799)

(13,724)

(5,456)

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)

(5,456)

(1,165)

Source: Abzena and Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 2016 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 2016. “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.

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US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

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Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 2016 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 2016. “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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Focusrite — Update 14 September 2016

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