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Companies >
UK >
Biotechnology >
Ergomed >
Research >
Services businesses showing promise

  • 31 Oct 2018

Services businesses showing promise


Ergomed | ERGO | 358 -53.7 (-4.0%) | Mkt Cap: 169.2m


  • Equity Development
    • Elizabeth Klein

    • 3 pages

Biotechnology image



 
Biotechnology image



Ergomed’s strategy is to become a global leader by 2020 in Pharmacovigilance and Services for orphan drug development. The reliance on the risk/reward profile of development deals is being dissipated by improvements seen in the Services businesses and better cost controls. Following this period of transition, a better, more forecastable, cash-generating story will support the valuation expectations for the company. Our valuation is upgraded to 242p / share for the Services businesses, with a further 120p for the Development portion of Ergomed.


At the interim results, both the CEO and CFO highlighted the continuing emphasis on the Services business. This focus was demonstrated a few weeks later with the appointment of Michael Spiteri to the Board to help drive the company’s digitisation strategy, while Andrew Mackie stepped down as Chief Business Officer and Board member at the same time. Andrew had focused on the Development Partnerships. 


With the addition of the experienced Stuart Jackson as the CFO, the Board is now better structured to grow the strategically important Services offering on an international stage. 


At the release of their final results six months ago, the CEO touched on the opportunity presented to Ergomed by developing an automated digital offering to drive efficiency and accuracy across Pharmacovigilance, and the other Services business. This trend is expected to continue to play out in the Services offering as the pharmaceutical industry undergoes a significant technological leap.


Management clearly outlined the ambitions for the business at the interim results, and at the same time showed how to ensure that the business continued to function most efficiently in the short term. 


To that end, the team has been focusing on delivering £4m in annualised cost savings through terminating or renegotiation of vendor contracts and reducing (non-billable) headcount by 10%. The benefit will be seen best next year. 


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