Abzena — Update 9 February 2016

Abzena — Update 9 February 2016

Abzena

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Abzena

Validating ADC deal

Licensing deal

Pharma & biotech

10 February 2016

Price

49.5p

Market cap

£67m

Net cash (£m) at 30 September 2015 (excludes £20m raise)

7.4

Shares in issue

136.1m

Free float

39%

Code

ABZA

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(13.2)

(25.0)

(38.9)

Rel (local)

(8.1)

(16.2)

(27.5)

52-week high/low

86.5p

48.5p

Business description

Abzena is a UK group that offers a range of services and technologies for biopharmaceutical development. Antitope (immunogenicity tests, protein engineering), PolyTherics (bioconjugation, polymer/synthetic chemistry), PacificGMP (biomanufacturing) and TCRS (ADC chemistry) are the operating businesses units.

Next events

Further Abzena inside products into the clinic

H116

Potential Roche

H116

Potential Roche update on SDP051 clinical plans

H116

Simtuzumab Phase IIb data in PSC

Mid-2016

Analysts

Dr Linda Pomeroy

+44 (0)20 3077 5738

Christian Glennie

+44 (0)20 3077 5727

Abzena is a research client of Edison Investment Research Limited

Abzena has achieved a significant licensing deal for its site-specific ThioBridge antibody drug conjugate (ADC) linker technology with a large US biotech company. This provides important validation of the proprietary technology and the overall strategy. Our rNPV-based valuation of £130m is largely unchanged as underlying assumptions remain broadly similar.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

5.3

(3.4)

N/A

0.0

N/A

N/A

03/15

5.7

(4.7)

(5.89)

0.0

N/A

N/A

03/16e

9.1

(7.2)

(5.36)

0.0

N/A

N/A

03/17e

16.5

(3.5)

(2.19)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of intangibles, exceptional items

Significant licence deal with US biotech

Abzena has signed a significant licensing deal for its novel site specific ThioBridge technology, which links antibodies/proteins to cytotoxic agents. The partner is a publicly listed US biotech company that is developing and commercialising oncology therapies, including biological agents. The deal includes an initial licence fee and the potential to receive up to $150m ($50m per ADC product assumed) in development/commercial milestones if the partner successfully develops each of three ADC products; so far the research collaboration with this partner has screened multiple ADC candidates and one has been selected for further development. We anticipate the first ADC product to enter the clinic in 2017.

Greater economics

Whereas Abzena’s licensed portfolio of antibodies developed using its Composite Human Antibodies technology offers the prospect of small royalties (~1%) on sales, given the greater technological and IP input with ThioBridge we have always expected that Abzena secures greater economics from deals over its ADC products. This deal with $50m milestones per ADC supports this assumption, while we maintain our royalty estimate at low to mid-single digit royalties. We note that the recent acquisition of TCRS, a contract chemistry and bioconjugation business focused on ADCs, also offers the prospect of earning more downstream revenues (not currently included).

Valuation: Unchanged at £130m with upside potential

Our rNPV-based valuation is largely unchanged at £130m, or 96p/share (vs 95p), as we had already included three potential ADC products, although the deal gives us greater comfort with our assumptions. We estimate that ~$15-20m of the $50m total milestones per ADC would be triggered by development/regulatory progress, and include risk-adjusted estimates in our model. Recent news that partner Gilead Sciences has stopped its Phase II study of simtuzumab in idiopathic pulmonary fibrosis (IPF) due to a lack of efficacy is disappointing, although we note Phase II trials in non-alcoholic steatohepatitis (NASH) and primary sclerosing cholangitis (PSC) remain on track, as well as Gilead’s fresh plans to expand development of GS-5745 into cystic fibrosis and COPD, with Phase II studies to start in Q316.

Exhibit 1: Financial summary

£000s

2014

2015

2016e

2017e

2018e

Year-end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Revenue

 

 

5,261

5,667

9,071

16,530

22,467

of which: Immunology

2,196

2,940

4,238

4,662

5,035

Protein engineering

932

1,218

1,290

1,380

1,463

Bioconjugation

165

657

639

703

738

Cell line development

419

594

651

703

738

Biomanufacturing (PacificGMP)

1,091

3,382

5,073

TCRS

900

5,100

8,670

Total Service revenues

3,712

5,409

8,809

15,930

21,717

Licenses/milestones/royalties

1,549

258

262

600

750

Cost of Sales

(1,697)

(2,532)

(4,894)

(7,965)

(10,641)

Gross Profit

3,564

3,135

4,177

8,565

11,826

R&D expenses

(2,601)

(2,989)

(3,993)

(3,394)

(3,563)

SG&A expenses

(4,787)

(5,634)

(8,143)

(9,365)

(10,067)

EBITDA

 

 

(3,116)

(4,510)

(6,294)

(1,778)

1,524

Operating Profit (before GW and except)

 

(3,394)

(4,795)

(7,228)

(3,524)

(1,187)

Intangible Amortisation

(304)

(504)

(514)

(569)

(518)

Depreciation

(278)

(285)

(934)

(1,746)

(2,711)

Exceptionals

(426)

0

(2,000)

0

0

Operating Profit

(4,124)

(5,299)

(9,743)

(4,093)

(1,705)

Other

0

0

0

0

0

Net Interest

27

79

38

55

34

Profit Before Tax (norm)

 

 

(3,367)

(4,716)

(7,191)

(3,469)

(1,153)

Profit Before Tax (FRS 3)

 

 

(4,097)

(5,220)

(9,705)

(4,038)

(1,671)

Tax

548

498

927

485

201

Profit After Tax (norm)

(2,819)

(4,218)

(6,264)

(2,984)

(952)

Profit After Tax (FRS 3)

(3,549)

(4,722)

(8,778)

(3,554)

(1,470)

Average Number of Shares Outstanding (m)

1.4

71.6

116.8

136.1

136.1

EPS - normalised (p)

 

 

N/A

(5.89)

(5.36)

(2.19)

(0.70)

EPS - FRS 3 (p)

 

 

N/A

(6.59)

(7.52)

(2.61)

(1.08)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

10,139

10,432

25,770

26,954

26,225

Intangible Assets

9,446

8,942

22,595

22,025

21,507

Tangible Assets

693

1,490

3,175

4,929

4,718

Other

0

0

0

0

0

Current Assets

 

 

5,856

20,924

18,962

14,224

13,483

Stocks

295

817

933

933

933

Debtors

2,263

3,161

4,070

4,070

4,070

Cash

2,757

15,799

13,032

8,737

8,279

Other

541

1,147

927

485

201

Current Liabilities

 

 

(1,278)

(2,354)

(4,550)

(4,550)

(4,550)

Creditors

(1,160)

(2,354)

(3,976)

(3,976)

(3,976)

Short term borrowings

0

0

0

0

0

Short term leases

0

0

0

0

0

Other

(118)

0

(574)

(574)

(574)

Long Term Liabilities

 

 

(1,183)

(1,153)

(1,088)

(1,088)

(1,088)

Long term borrowings

0

0

0

0

0

Long term leases

0

0

0

0

0

Other long term liabilities

(1,183)

(1,153)

(1,088)

(1,088)

(1,088)

Net Assets

 

 

13,534

27,849

39,094

35,540

34,070

CASH FLOW

Operating Cash Flow

 

 

(4,328)

(4,859)

(9,541)

(1,808)

1,494

Net Interest

0

0

0

0

0

Tax

251

(133)

982

927

485

Capex

(264)

(1,082)

(2,558)

(3,500)

(2,500)

Acquisitions/disposals

(6,133)

0

(11,712)

0

0

Financing

10,670

19,037

20,000

0

0

Dividends

0

0

0

0

0

Other

(6)

79

63

85

64

Net Cash Flow

190

13,042

(2,767)

(4,296)

(457)

Opening net debt/(cash)

 

 

(2,754)

(2,757)

(15,799)

(13,032)

(8,737)

HP finance leases initiated

0

0

0

0

0

Other

(187)

0

0

0

0

Closing net debt/(cash)

 

 

(2,757)

(15,799)

(13,032)

(8,737)

(8,279)

Source: Company accounts, Edison Investment Research

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Germany

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United Kingdom

New York +1 646 653 7026

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US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

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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

BioLineRx — Update 8 February 2016

BioLineRx

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