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Edison Investment Research is terminating coverage on Abzena (ABZA). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.
Abzena
Abzena (ABZA LN) Telix Pharma deals highlight an increasingly integrated offering | Best Ideas 2018 - H1 Review 9% outperformance for our picks YTD | Carclo (CAR LN) Non-binding proposal from consort | ECO Animal Health Group (EAH LN) Another good year: EBITDA and dividend ahead of estimates | Ergomed (ERGO LN) CFO appointed | First Derivatives (FDP LN) Acquisition of remaining minority stake in Kx Systems | Sigma Capital Group (SGM LN) Site delays could impact short term, 6% reduction to FY18e PBT | St Ives (SIV LN) Change complete – focus moves to growth | StatPro Group (SOG LN) Acquisition of regulatory risk services bureau | The PRS REIT (PRSR LN) Hits target yield, sees some construction delays
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Following a stronger H2 and Abzena’s FY18 results, we have made major changes to our model across both the services business and the Abzena Inside royalty portfolio. The FY18 reported revenues of £22.0m were ahead of our forecast and up c 18% over FY17. This was driven by 60% growth in bio-manufacturing where fortunately, most of the investment in capacity was directed in FY18. Last week’s announcement of a proposed royalty monetisation will help to address the FY19 working capital requirement.
1Spatial (SPA LN) Capital markets day highlights growth potential | Abzena (ABZA LN) Monetising the Abzena Inside portfolio | Consort Medical (CSRT LN) Prelims in line – another setback with Mylan | Gym Group (GYM LN) Positive corporate and premium pricing newsflow | N Brown Group (BWNG LN) In line update but number of moving parts might leave investors cold | Rathbone Brothers (RAT LN) Acquisition of Speirs & Jeffrey, no EPS accretion until FY20e | RhythmOne (RTHM LN) FY18 results show execution, EBITDA to almost quadruple in FY19 | Speedy Hire (SDY LN) Recovery delivered; Returns improving
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Abzena (ABZA LN) Forecast update | Carclo (CAR LN) Review completed, reassuring outlook | Driver Group (DRV LN) Continued earnings momentum | Fulcrum Utility Services Limited (FCRM LN) In line results; Positive outlook supported by strong order book growth | Gooch & Housego (GHH LN) Good H1 18, well set for H2 and beyond | Harwood Wealth (HW/ LN) 9 H1 acquisitions adding £310m AuI, forecasts unch | Renold (RNO LN) Cautiously optimistic | Vp (VP/ LN) A year of significant growth and strategic progress | WYG (WYG LN) Signs of stability in H218; FY19 guidance maintained
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Abzena (ABZA LN) Cost reductions drive EBITDA forecast upgrade | Amino Technologies (AMO LN) Contract win with Kabelnoord | IQE (IQE LN) Solid start to 2018 | Mattioli Woods (MTW LN) Ceasing DB transfer advice, trading in line with expectations
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Abzena (ABZA LN) Trading update confirms performance in line & cost reductions in FY’19e | Carr’s Group (CARR LN) Improving momentum: FY results to be slightly better than expected | Itaconix (ITX LN) Q1 revenue growth and progress in core markets | PureTech (PRTC LN) FY results in line, positive H2 outlook | Research Highlights Over the last 12 months
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Abzena (ABZA LN) Halozyme terminates agreement, no impact on outlook or valuation | Applied Graphene Materials (AGM LN) Signs of increasing commercial momentum | EKF Diagnostics (EKF LN) FDA 501k/CLIA Waiver for DiaSpect Tm | Elektron Technology (EKT LN) Growth milestone for Checkit | LiDCO Group (LID LN) Disruptive model gaining traction | The PRS REIT (PRSR LN) Q3: Maintained trajectory, new construction partner
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Pharmaceutical Services is a vast and varied landscape, reflecting the complexities in the discovery, development, manufacturing and monitoring of drugs and devices, all within a stringent regulatory environment. The overall growth prospects are highly favourable: drug development activity globally is on the up, led by smaller companies, which is driving demand for outsourced services. In this report we provide a breakdown of the sector into its main activity segments, and identify biologics, increasing service specialisation and consolidation as important value drivers. Finally, we present 15 companies (9 of which are publicly listed) that, in our view, are well placed to benefit from the sector’s secular growth trends.
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Following the business update on 5th January, we have updated forecasts to reflect the impact of ongoing and planned facility upgrades in the US and UK. Although we downgrade near-term EBITDA estimates, we forecast significant operational efficiency gains over the medium term. We believe the current discount to peers is unwarranted, and reiterate our positive stance.
Abzena (ABZA LN) Facility upgrade supports competitive advantage | Avon Rubber (AVON LN) Good update - move to Hold after share price rise | Eckoh (ECK LN) Positive UK update – contract wins | Gresham Technologies (GHT LN) CFO Appointment | Murgitroyd Group (MUR LN) Interims in line, dividend hike a positive surprise
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Today’s update on Abzena’s new facilities in Cambridge and San Diego is in line with expectations. We continue to expect strong growth in non-licensing revenue (30% CAGR FY2017-20), propelled in particular by rapid expected growth in manufacturing-related income, coupled with increased operational efficiency as a result of the increasingly integrated nature of Abzena’s services and manufacturing offering. We reiterate our positive stance.
In its interim results for the year-ending March 2018, Abzena started to move out from under the shadow of September’s disappointing trading update. Investors should be relieved that Abzena continues to demonstrate a growing service business even against the backdrop of an investment programme aimed at increasing capacity. Group revenues were up 7.6% year-on-year for the first half, while the Abzena Inside portfolio continues to expand and products within it advance.
Abzena’s interim results highlight continued investment across its increasingly integrated Services offering. Performance for the full year is expected to be H2 weighted, with a stronger H2 propelled in particular by recent chemistry research services contract wins and a revitalised biology research services offering. The installation of bioreactors in San Diego is on track, with the first (500l), bioreactor due for installation this month and a second (2,000l) to follow in Q1. Meanwhile, the lease for a new 50,000 sqf facility in San Diego has been negotiated, to co-locate the Group’s manufacturing services. Although costs for the current year are expected to be slightly higher than previously anticipated, we continue to expect the investment in Bristol (a new conjugation suite is expected to become operational in Q1) and San Diego to drive accelerated growth from FY2019.
The Master Services Agreement with a US biotech, worth in excess of $5m, highlights the integrated nature of Abzena’s offering across chemistry services, cell line development and GMP manufacturing. We continue to expect strong growth in non-licensing revenue (30% CAGR FY2017-20), propelled in particular by rapid expected growth in manufacturing-related income following the installation of stirred-tank bioreactors (due to become operational in early 2018). Interim results are due tomorrow 12th December. We reiterate our positive stance.
The AIM Healthcare index has shown positive returns in all but three out of the past 11 years (2007, 2008 and 2011), growing at a CAGR of 7.6% over the period. This compares with a CAGR of -0.3% for the broader FT AIM All Share, +0.6% for the AIM 100 and +3.5% for its more senior FT All Share Health index. Sector growth and relative performance to the AIM All Share index has accelerated over the past five years; the sector having risen 19.19% CAGR since 1 Jan 2012. This compares with 6.8% growth in the AIM All Share and 6.1% in the FT All Share. This outperformance can be attributed to the increasing success amongst the Healthcare constituents which have progressed their business plans to a point where substantial value has been/is being created and where many companies have successfully scaled their businesses to sustain future growth. We highlight four companies that have different business models but exemplify the opportunities that are increasingly becoming evident within the sector.
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Following the trading update on 14th Sept we have reduced our Immunology and Bio-manufacturing forecasts. However, we remain optimistic as the Immunology offering is being revitalised with new assays and the first stirred-tank bioreactors are on track to become operational in Q1 2018, driving expected margin enhancement.
Abzena’s (ABZA) recent trading update indicated slower than expected revenues in H1 FY18. The primary reasons for this slower than expected start to the year include lower volumes in certain business areas as well as project delays causing revenues to be recognised in H218 and FY19. Our FY18 sales forecast of £30.2m is lowered to £24.7m with adj. LBT and adj. LPS also increasing from £9.3m and 4.2p to £13.0m and 5.9p, respectively. The long-term investment case for ABZA, however, remains intact. Forecasts are inherently sensitive to project timings with management perhaps having been too optimistic in scheduling new project starts with the existing capacity. As new equipment is brought online, these challenges should ease. We reinstate our Buy recommendation but lower our target price from 80p to 70p to reflect the near-term impact on forecasts.
Abzena announced a disappointing business update, indicating revenues for each of its service lines have been below expectations. This has an impact on H118 revenues, which the company now expects to be broadly in line with H117. Abzena has, however, indicated that there is good order cover and high engagement for new business and therefore expects H2 to be significantly stronger. We have reduced our forecasts and valuation to £110m (vs £160m) or 52p/share (vs 75p) following a review. A solid update at the interims (in November) is important in order to give confidence in its growth strategy and route to profitability.
In the September edition of the Hardman Monthly Newsletter, Dr Martin Hall - based partly on his personal experiences as a long-standing investment analyst - addresses various accounting issues that are highly relevant to today's investors. In particular, he concludes that measuring company cash flow - and especially projecting future cash flows - is pivotal to undertaking rigorous financial analysis, irrespective of how individual companies may present it.
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Abzena has been notified of a complaint filed with the Superior Court of the State of California, in respect of claims relating to an issue that arose prior to Abzena’s acquisition of PacificGMP in 2015. The claim (which was referenced in the Circular on 5th April 2017) is minor in nature, and Abzena does not currently expect the potential liability incl. costs to exceed the $1.5m currently held in escrow. We are not making any changes to our forecasts at this time.
Topic of the quarter: Many recent news articles have highlighted the growing opiate addiction rates across the world, particularly in the US where new president Donald Trump has declared a national emergency with regard to prescription drug abuse. We look at the underlying trends in this growing space and potential opportunities for investors in the coming years both here in the UK and in the US.
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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.
The licensing agreement with Telix Pharmaceuticals to develop products for the imaging and treatment of prostate cancer is great news and illustrates the commercial potential of Abzena’s Composite Human Antibody™ technology. Under the terms of the agreement, Abzena could receive in excess of $65m in licence fees and milestone payments as well as potential royalties on product sales. A separate services agreement has also been established, validating the group’s combined services and licence fee model. We re-iterate our positive stance.
The licensing agreement with OBI Pharma demonstrates the value and market-leading nature of Abzena’s ThioBridge™ technology. Abzena is eligible for up to £128m of milestone payments in addition to a royalty on potential sales. A master services agreement for process development and GMP manufacturing has also been established, validating the group’s rationale for investing in the expansion of its bio-manufacturing capability following the successful capital raise in April. We reiterate our positive stance and intrinsic value of 91p/share, which could increase substantially as the partnered pipeline of Abzena inside programmes progress through clinical trials.
Abzena has announced another licensing deal for its proprietary site-specific ThioBridge antibody drug conjugate (ADC) linker technology. This time it is with a Taiwanese biopharmaceutical company (OBI Pharma). The agreement enables the development of OBI Pharma’s proprietary ADC, OBI-999. The deal also allows OBI to develop further ADCs as potential treatments for cancer and includes a master services and clinical supply agreement. This again provides important validation of Abzena’s ADC technology and hybrid business model. Our rNPV valuation increases slightly to £134m (vs £132m) following inclusion of one ADC being developed through this deal and we note there is potential for more.
As we approach 3rd January 2018 and the coming into force of the MiFID II legislation which changes the landscape for research, we are beginning to see some of the practical implications and complications. Brokers are in the early stages of working out how to structure charging for research, asset managers have already begun cutting their brokers’ lists and a model code of conduct for Research Payment Accounts for institutions has been published.
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We have not made any material changes to estimates following in-line FY2017 results, released on 13th June. Our revised, 12-year DCF-based valuation implies an intrinsic value of 91p/share (from 84p), representing significant upside from the current share price. Our positive stance is further supported by a market capacity shortage in bioproduction and a high level of M&A activity in the CDMO space.
Abzena reported solid FY17 results with underlying revenue growth of 41% (to £18.7m). In FY17, Abzena continued to focus on the integration of its service offering across its three sites (US and UK), which has been expanded by its recent placing of £25m gross (issuing 75.8m new shares at 33p). We expect this to enable strong growth and take Abzena to profitability in FY20, which will be a significant milestone for the company. We maintain our valuation at £132m, 62p per share, but note potential upside as it demonstrates growth and as Abzena inside products progress.
Abzena (ABZA) has released FY17 results in line with our expectations, with sales of £18.7m, adj. LBT of £9.1m and adj. LPS of 6.4p. A recent fundraise of £23.9m (post period end) allows for increased manufacturing capacity and accelerates growth, with our forecasts assuming £15m capex in FY18-20. Increasing capacity in the San Diego manufacturing site in particular is the key focus for FY18 (73% capex) going forward. Big pharma continues to outsource its biopharmaceutical needs, with ABZA now able to meet customer demands for higher value projects. Previously upgraded forecasts (28/4/17) continue to indicate ABZA becoming profitable at the EBITDA level in FY19, supported by growing levels of repeat business. We retain our 80p price target and Buy recommendation.
FY results are in line with expectations, highlighting the continued expansion and integration of Abzena’s Services and GMP Manufacturing offering across the company’s 3 sites in the US and UK. Following the £23.9m (net) fundraise in April the company is well funded to pursue its Investment and Growth plan, targeting a 40% 3-year CAGR in revenue and an accelerated transition to profitability. We note that contracted revenue for the current year already exceeds 50% of FY2017 revenue, supported by increasing cross-selling. We reiterate our highly positive stance on Abzena.
Significant uptick in R&D output. After a very disappointing 2016, as measured by the number of new drugs approved by the FDA (23), we have seen 22 new product approvals year-to-date. We now expect the 2017 output to be above the 16-year median of 22 NDAs (New Drug Application) and 5 BLAs (Biologic Licence Application). As previously commented on, BLAs are expected to represent an increasing proportion of overall approvals. The most notable approval in the past quarter was AstraZeneca’s Imfinzi (durvalumab), not because of its use in metastatic bladder cancer but for its potential use as a first-line therapy in surgically unresectable Non-Small Cell Lung Cancer (NSCLC) following an interim analysis of a Phase III trial (PACIFIC), which showed a statistically significant increase in progression-free survival.
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Abzena (ABZA): TNT009 bought by Bioverativ for $400m (BUY) | Europa Oil & Gas* (EOG): Placing and open offer (CORP) | STM* (STM): A strong base with optionality (CORP) | Trakm8* (TRAK): Telematics contract win underpins FY 2018 (CORP) | Lombard Risk Management* (LRM): Lombard delivers the promised growth (CORP) | Mortgage Advice Bureau (MAB1): In-line trading update (HOLD) | Ideagen* (IGP): New hires demonstrating the sales focus (CORP)
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We remain comfortable with our original investment thesis based on the underlying performance of the business. We continue to believe the growth potential is significant from here across all divisions, especially in Europe in future years. We continue to see BCA as attractive critical infrastructure as it has now touched over 3.5m vehicles in the UK supply chain alone, and would expect to see continued growth under most post Brexit scenarios. With an attractive dividend yield of 4% from 2018 we would expect the shares to perform well given the unique structural growth opportunities ahead.
Abzena recently announced a placing of £25m gross (issuing 75.8m new shares at 33p) to expand its service offering, capacity and capabilities. Importantly, we expect this fund-raising to take Abzena to profitability, which will be a significant milestone for the company. We have increased our valuation to £132m (vs £105m), primarily due to the increase in forecast service revenues, improved gross margin and cash position.
Earlier this month, Abzena (ABZA) announced a successful £25m fundraise placing 75.8m new shares at 33p with both new and existing institutional shareholders. ABZA can now expand its manufacturing project capacity to meet the significant demand seen for its high quality biopharmaceutical service offering. We believe that FY18 capex across all three sites will increase both sales and margins going forward, allowing ABZA to realise profitability sooner by delivering higher value projects. Biopharmaceutical outsourcing growth drivers remain strong, leading us to update our FY18 forecasts, reiterate our Buy recommendation and adjust our target price to 80p post fundraise.
The proposed £25m (gross) capital raise will fund a number of potentially transformational growth initiatives, including a significant increase in manufacturing capability at the San Diego facility, and accelerate Abzena’s progress towards sustainable profitability. We continue to view Abzena as an emerging leader in the biopharmaceuticals services space, and reiterate a highly positive stance.
Abzena has announced a placing of £25m gross (issuing 75.8m new shares at 33p) to expand its service offering, capacity and capabilities. This was achieved through an accelerated book build process and should become effective on 24 April following a shareholder resolution. We expect the expansion of its service offering and capacity to move Abzena significantly forward towards profitability. We place our FY18 financial forecasts onwards and valuation under review to assess the full impact, but see this as a significant and positive step.
After much heralding, MIFID II is finally beginning to have an impact on the business of investment research, though its true ramifications might take years to be seen. The role of analyst research is widely misunderstood. It is not all about the conclusion: the rating and price target. The real content of research is about what is discounted in the current share price and what assumptions would produce different outcomes.
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Abzena has announced the progression of one of the Abzena <i>inside</i> Composite Human Antibody products into a Phase II clinical trial. The product is being developed by a major US pharmaceutical company for the treatment of neurodegenerative conditions. We have increased our valuation to £105m (vs £102m) as a result of an increase of the Abzena <i>inside</i> product’s assigned probability (to 35% from 15%).
Most major pharmaceutical companies have reported results for 2016 during the last few weeks, providing the opportunity to update our industry statistics. For an industry that requires a long investment cycle, decisions made many years ago have consequences on current financial performance. Being able to look at performance over 20 years highlights how strategic decisions have panned out.
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Abzena (ABZA) recently released a 2016 trading update in which they confirm that whilst revenues are in line with management’s expectations, US costs are slightly higher than anticipated, partly due to FX. As a result, we are updating our FY17 figures to incorporate an additional £2m of costs whilst keeping our FY18 growth estimates the same. Higher UK demand (across all divisions) has offset reduced US revenues with manufacturing capacity in San Diego now reported as fully operational. With increased manufacturing capacity and broadened service offering to customers, we believe that Abzena remains well-positioned to deliver on growth in the coming years. Innovative R&D and high levels of repeat business should allow for longer contracts with customers, which include nearly all of the top 25 biopharmaceutical companies in the world. Despite updates to our forecasts, we maintain our 100p target price, given the value attributed to new Abzena inside products moving into Phase I/II, and retain a Buy recommendation.
Abzena announced a solid business update including a 12th Abzena inside product entering the clinic. FY17 revenue is in line with expectations; however, costs are higher due to investment in increasing its US capacity being affected by a strong $/£ rate. Due to a revision of FY17 costs and using a FY17e cash position, our valuation decreases to £102m (74p per share), with upside expected as the increased investment delivers.
Abzena’s trading and business update highlights strong contract bookings and expected FY 2017 revenue in line with the Board’s previous expectations, whilst US expenditure is expected to be higher than previously anticipated as a result of increased investment in capacity expansion. Importantly, cash at year-end is anticipated to be in line with previous expectations. The Abzena inside portfolio continues to expand, with a further programme having entered clinical trials bringing the total number of clinical-stage programmes to 12, all entirely funded by partners. We will review our current-year forecasts, but retain a positive fundamental stance.
Abzena has recently achieved a significant licensing deal for its proprietary site-specific ThioBridge antibody drug conjugate (ADC) linker technology with a San Diego-based biopharmaceutical company. The agreement covers the use of ThioBridge in up to 10 ADCs across a wide range of indications and a service agreement. This provides important validation of Abzena’s proprietary ADC technology and hybrid business model. Our rNPV valuation increases to £117m following inclusion of the 10 ADCs now being developed through this deal.
The Dow Jones Index has just breached the 20,000 mark, the first time in its 131- year history that it has done so, whilst the FTSE-100 Index has also been at record levels in recent weeks. The election of the controversial Donald Trump as the new US President, and more specifically the impact of his planned expansionist economic policies, have boosted stock markets, both in the US and in the UK.
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Abzena is an integrated group offering a broad range of services and technologies to improve the chances of discovering and developing effective biopharmaceutical drugs. With strong footprints in both the US and UK, the company provides a feefor-service offering with the additional opportunity to embed its technology – ‘Abzena Inside’ – into commercial products, on which it will derive a long-term royalty stream. Abzena has signed a licensing deal with a US biopharmaceutical company for the use of its ThioBridge technology. This deal has a potential value exceeding $300m and has significantly boosted market confidence in the company
Abzena has achieved a significant licensing deal for its proprietary site-specific ThioBridge antibody drug conjugate (ADC) linker technology with a San Diego-based biopharmaceutical company. The agreement covers the use of ThioBridge in up to 10 ADCs across a wide range of indications. The agreement also includes a master services agreement, which enables access to Abzena’s chemistry services. This provides important validation of both its proprietary ADC technology and its hybrid business model. Our valuation is under review, but we expect upside on the basis of this positive newsflow.
Despite all the hullaballoo of the Brexit vote and the subsequent election of Donald Trump as the next US President, the UK stock market prospered last year, especially in the latter few months of 2016. The combination of a depreciating currency – making $ earnings more valuable in relative terms - and the Trump emphasis on infrastructure expenditure drove the stock market higher
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Recent newsflow includes solid interim results, which demonstrated value in Abzena’s integrated service proposition and hybrid business model, positive updates on a couple of Abzena inside products and a licensing agreement to commercialise a legacy asset to Trieza Therapeutics. We maintain our valuation at £112m, but expect upside as it progresses.
Abzena is an integrated group offering a broad range of services and technologies to improve the chances of discovering and developing effective biopharmaceutical drugs. With strong footprints in both the US and UK, the company provides a fee-for-service offering with the aim of embedding its technology – ‘Abzena Inside’ – into commercial products, on which it will derive a long-term royalty stream. Abzena’s integrated services can now be used from the early stages of drug discovery right through to manufacturing for Phase II clinical trials, making the company an attractive development partner.
Abzena announced strong H117 results with overall underlying revenue growth of 46%. This growth resulted from an increase in new customers and expansion of the services provided to existing customers, which starts to demonstrate the value in its integrated service offering. Despite this we have reduced our valuation to £112m, primarily as a result of the discontinuation of simtuzumab (Abzena inside product). However, we note the potential for upside as the company continues to grow its integrated service business and as other Abzena inside products progress.
The strong revenue momentum reported with FY2016 results has continued into H1 2017, with revenue +156% YoY (+46% underlying) and growth across all areas on the business supported by cross-selling of Abzena’s expanded services offering. Several Abzena inside programmes are making strong progress in clinical trials with leading partners, notably GS-5745 (Gilead), OPN-305 (Opsona) and VPI-2690B (Vascular Pharma). We retain a positive stance with an intrinsic value of 93p/share (from 100p).
Abzena (ABZA): Interim results indicate happy customers (BUY) | Horizonte Minerals* (HZM): Fund raise completed (CORP) | SacOil* (SAC): Half-year trading statement (CORP) | Revolution Bars (RBG): New openings (BUY) | Amino Technologies* (AMO): Multi operator FUSION roll out (CORP)
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The prospect of Hilary Clinton creating an oversight panel with the power to impose a set of harsh enforcement rules to control aggressive pricing of pharmaceuticals in the US fell away with the election of Trump, leading to a 16% bounce in the NASDAQ Biotech index and an 8% increase in the US Pharma & Biotech index, some of which has already been given back.
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The interim safety and efficacy data on OPN-305 (an Abzena inside programme in development by Opsona Therapeutics) in myelodysplastic syndrome is highly encouraging for the programme’s commercial potential, and provides further validation of Abzena’s Composite Human Antibody™ technology for safer antibodies. We are looking forward to the results from higher-dose cohorts in due course. We reiterate our positive stance on Abzena.
Abzena is a business that offers its services and expertise to pharmaceutical companies looking to develop the next generation of biologics with greater efficacy and lower side effects. At its core, Abzena is a stable, growing protein research and development services business which has recently expanded its service suite through acquisitions, giving the company GMP manufacturing capabilities. Considerable upside lies in the form of over 40 licence agreements with companies that have Abzena’s technology embedded within their early-stage drug candidates (termed Abzena inside), of which 11 are currently in clinical trials. High levels of repeatable contract work give Abzena good revenue visibility. We initiate coverage with a Buy recommendation and 100p price target (risk adj. DCF), indicating over 200% upside.
Abzena (ABZA): Undeservingly undervalued (BUY) |Connect (CNCT): 6.9x P/E, 7.2% dividend yield (BUY) |Gem Diamonds (GEMD): Q3 operating results (BUY)
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Share prices are built on expectations - expectations about all sorts of things, such as a company’s future sales growth, the trend in margins and the profits it can return. Understanding those expectations and how they move is critical to share price formation. Listing rules require quoted companies to update investors on progress relative to expectations. What managements often fail to understand is that many of their key investors do not have access to brokers’ research and, thus, cannot put management statements into context. It is these very investors that can cause shock movements in share prices on announcements in limited trading.
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Many commentators realise that the traditional institutional broking model is no longer sustainable. However, the reduction in the quantity of non-corporate coverage that has already occurred, even before MiFID2 comes into effect, will still come as a shock. The evidence shows that there is no commercial sense in brokers covering non-corporate companies with less that £200,000 daily turnover in their shares.
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Abzena is an integrated group offering a broad range of services and technologies to improve the chances of discovering and developing effective biopharmaceutical drugs. With strong footprints in both the US and UK, the company provides a feefor-service offering with the aim of embedding its technology – ‘Abzena Inside’ – into commercial products on which it will derive a long-term royalty stream. To date, from 40 technology agreements, partners have initiated clinical development with 12 ‘Abzena Inside’ products. The service business easily covers the current valuation suggesting that the significant royalty stream is in the price for nothing.
Abzena’s AGM update highlights continued strong progress since the interim stage, with the recent US acquisitions (now integrated under the Abzena brand) driving strong growth in cell line and bio-conjugation revenue. In addition, the clinical-stage Abzena inside portfolio has expanded to 12 programmes. Several of these are making strong progress towards commercialisation with leading partners, notably GS-5745 (partnered with Gilead Sciences) in gastric cancer for which interim Phase III data is expected in early 2017. We retain a positive stance with an unchanged intrinsic value of 107p.
Abzena has announced the formation of a JV company, Denceptor Therapeutics, and an agreement with Faron to manufacture Clevegen (an Abzena inside product). Both deals validate the rationale behind expanding the company last year to provide a broader range of services. Meanwhile, Annexon Biosciences has recently raised funds and indicated it will be taking ANX-005 (another Abzena inside product) forward. We have increased our valuation to £143m (vs £133m) to reflect FX changes.
FY16 results were strong, with 28% like-for-like total revenue growth reported (74% growth including the £2.7m contribution from its acquisitions late 2015). It has been a pivotal year for Abzena as it has expanded its business to provide a broad range of services from antibody discovery through to GMP manufacturing for Phase I/II trials. Alongside this, its clinical Abzena inside pipeline continues to grow, with 11 products now in the clinic and progressing toward commercialisation, most notably GS-5745 in gastric cancer. We have increased our valuation to £133m (from £130m) but expect upside to this as the portfolio progresses and further licensing deals are announced.
Today’s FY results showed strong continued growth (revenue +74% YoY, +28% like-forlike), with a £2.7m revenue contribution in c. 3 months from the US acquisitions in late 2015. Contract bookings for FY2017 already exceed £9m and several licensed ABZENA Inside programmes are making strong progress towards commercialisation with leading partners, notably GS-5745 (Gilead Sciences) in gastric cancer. We retain a positive stance with an unchanged intrinsic value of 107p/share.
Abzena (ABZA LN) FY results in line, outlook strong | Eckoh (ECK LN) Breakthrough year in the US | Findel (FDL LN) In line results and positive momentum in EGL | Halma (HLMA LN) Results in line; outlook positive | Trifast (TRI LN) Strong FY16 growth, good prospects for FY17
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Abzena’s comprehensive business update highlights solid progress in H2 with strong service contract bookings and excellent development progress in the licensed portfolio of ‘Abzena inside’ programmes (which has expanded further to 11 programmes with leading partners). The integration of PacificGMP and TCRS is progressing well, and the expanded offering has been met with a positive response by Abzena’s customers. Abzena’s marketing alliance with antibody discovery specialist FairJourney Biologics (announced today) represents a further broadening of the Group’s already extensive capability in the biologics field. We retain a positive stance.
Abzena (ABZA LN) Business update highlights strong H2 progress | ATTRAQT Group (ATQT LN) Strong delivery; Investing for further growth | Euromoney Institutional Investor (ERM LN) Investor day | Hill & Smith Holdings (HILS LN) Excellent results; strong upgrades | John Menzies (MNZS LN) Forecasts retained; period of stability required | Lookers (LOOK LN) Another year of progress, forecasts well underpinned | Restaurant Group (RTN LN) Trading remains challenging – we move back to Sell | Servelec Group (SERV LN) Prelims in line, acquisition-led upgrades
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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.
The licensing agreement with a large US biotech is excellent news and illustrates the commercial potential of Abzena’s ThioBridgeTM platform for the design of better antibody-drug conjugate (ADC) drugs. Under the terms of the agreement, Abzena will receive an upfront payment, further milestones of up to $150m and a royalty on potential sales. We re-iterate our positive stance.
The news that Gilead had stopped its Phase II trial of simtuzumab (an antibody developed using Abzena’s Composite Human AntibodyTM technology) in lung fibrosis was slightly disappointing, but encouragingly Phase II trials continue in both liver fibrosis and PSC. We continue to expect significant newsflow from Abzena’s portfolio of licensed Abzena inside programmes over the coming year, including Phase II start for GS-5745 (by Gilead) in Rheumatoid Arthritis, potential Phase II data on simtuzumab (by Gilead) in liver fibrosis and Phase I/II data on OPN-305 (by Opsona Therapeutics) in MDS. Meanwhile, the company’s service and manufacturing offering, which was recently expanded with the acquisitions of PacificGMP and TCRS, is progressing well. We retain a positive stance.
Abzena (ABZA LN) Update on simtuzumab by Gilead | Mobile Streams (MOS LN) PESO decline
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Abzena’s acquisition of PacificGMP in September for £5.5m and recent purchase of TCRS for £10m significantly enhances its technology and services offering, particularly GMP manufacturing capacity. The deals are immediately accretive to the group on an EBITDA basis, with full impact on revenues and EBIT margins expected in FY17. To fund the TCRS acquisition, the company completed a £20m (net) share placement. The Abzena inside antibody clinical pipeline has increased to 10, with two new products in Phase I studies. Our fair value increases from £105m to £130m, although due to the increased share count (+38.6m shares for placing and TCRS deal) our per share value is lowered from 108p to 95p.
Abzena has announced the proposed acquisition of The Chemistry Research Solution LLC (TCRS), a profitable ADC chemistry services business based in Pennsylvania, and a net £20m equity capital raise to fund the acquisition, manufacturing related CapEx and further investment in ABZENA inside product development. In our view, TCRS represents an excellent fit with Abzena’s existing offering, complements the recent acquisition of PacificGMP, and creates significant cross-selling opportunities. The company has also released H1 results, highlighting strong growth in Services revenue. Subject to completion, our valuation implies an intrinsic value of 114p (from 98p).
The acquisition of Adheron Therapeutics by Roche (announced last Friday) for its SDP051 programme, a therapeutic antibody created using Abzena’s Composite Human AntibodyTM platform, provides further validation of Abzena’s technology offering. A total of 10 Composite Human AntibodiesTM are currently in clinical trials with partners (including Gilead Sciences and now Roche). The high acquisition price (up to $580m) for Adheron, a single-asset company, also supports a significant sales potential of the biologic, which is currently not included in our Abzena forecasts or valuation. We reiterate our Buy recommendation and 98p target price.
Abzena (ABZA LN) Roche’s acquisition of Adheron adds validation | Avon Rubber (AVON LN) A positive week, but share price now up with events | Minds + Machines Group (MMX LN) Positive update on Portfolio and Renewals | Mobile Streams (MOS LN) Final results | Vernalis (VER LN) Tuzistra™ rollout gaining pace: remains a Buy
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Roche is to acquire Adheron Therapeutics for $105m upfront (+ $475m in milestones). The Swiss pharma giant will therefore be responsible for further developing Adheron’s Phase I asset SDP051, an anti-cadherin-11 monoclonal antibody that was fully humanised using Abzena's Composite Human Antibody technology. SDP051 has the potential to treat inflammatory/autoimmune diseases, such as rheumatoid arthritis and fibrotic disease (eg NASH), large target markets. We estimate that Abzena will receive a small royalty (~1%) on successful commercialisation of SDP051, and view the Roche deal as validation of the product/technology combination and commercial opportunity
Today’s business update highlights strong momentum in Abzena’s services and technology licensing offering. Services revenue for the six months to end-September are expected to be significantly higher than last year (H1 2015a: £2.3m) and two further antibodies from the company’s Composite Human Antibody platform have entered clinical trials (entirely funded by partners). The company continues to experience strong growth in demand, with a high level of repeat business. We maintain our Buy recommendation.
Abzena (ABZA LN) AGM update: strong momentum in services revenue and licensing | Carador Income Fund (CIFU LN) August lull proves a tough month for US CLO equity | Digital Globe Services (DGS LN) Strong recovery; dividend + buyback | IQE (IQE LN) Progress continues | Summit Therapeutics (SUMM LN) Positive pre-clinical data on SMT19969
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Abzena’s £4.98m cash acquisition of PacificGMP is a logical and positive move as the group seeks to enhance its downstream biomanufacturing capabilities and build out its US operations. With PacificGMP generating FY15 revenues of $3m (£1.9m), the deal is priced at just 2.6x sales and is expected to be immediately accretive to earnings (before amortisation of acquired intangible assets). We place our financial forecasts and valuation under review to assess the full impact of the deal, but see PacificGMP adding significantly to Abzena’s value proposition for its partners.
We believe that the acquisition of PacificGMP (for 2.8x EV/Sales) represents a positive move by Abzena. In our view, the addition of biopharmaceutical manufacturing capability expertise significantly strengthens the offering for the company’s customers on both sides of the Atlantic. In addition, the expected cross-selling of Abzena’s biologics development expertise to PacificGMP’s current (mainly US-based) customers represents an exciting opportunity. We re-iterate our Buy recommendation.
We raise our Abzena valuation to £105m (108p/share) following partner Gilead’s plans to accelerate the development of antibody GS-5745, with Phase III (gastric cancer) and Phase II/III (ulcerative colitis) studies to start in H215. Eight antibodies are currently in clinical development using Abzena’s technology, and more are expected to enter the clinic in the next 12-24 months. Abzena could receive small royalties on these products (and others such as antibody-drug conjugates, ADCs), which offer the prospect of substantial future revenues.
Abzena’s maiden FY results are in line with our expectations and highlight the strong progress made by the Group over the past 12 months. The company’s service offering has continued to see high levels of demand and repeat business, and helped drive a significant expansion of the number of licensing and licensing option agreements (currently >30 in total). Encouragingly, the late-stage programmes on which Abzena is eligible for royalties have progressed well, in particular GS-5745 (partnered with Gilead Sciences and expected to enter Phase III trials later this year). A further licensing agreement (with Annexon Biosciences) has been announced this morning. We reiterate our Buy.
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