Midatech closed its all-share acquisition of DARA BioSciences on 7 December (first announced in June), thereby acquiring a presence in the US oncology market via DARA’s 20-strong sales force and portfolio of marketed cancer support products. On 18 December, Midatech announced the acquisition of anti-emetic drug, Zuplenz (from Galena, for $3.75m), a strong fit with DARA’s existing anti-cancer support products. The new Midatech shares are listed as ADRs on NASDAQ on the back of its recent IPO in the US. Our valuation for Midatech, with our calculations now including DARA and Zuplenz, moves to $221.0m from $200.7m (or $13.29/ADR from $14.45/ADR due to greater share count).
Midatech acquired DARA through the issue of 5.42m of its own new shares, which valued DARA at approximately $21.7m (£14.4m) at the time of the announced acquisition, or a 51% premium over DARA’s value. We forecast sales for DARA in excess of $30m by 2021 and believe the DARA business could reach profitability in 2017 with the help of ~$500k in annual cost savings. That said, profitability could be reached earlier depending on the ramp-up of Zuplenz sales, which we forecast to peak at $10m in 2021-23.
Midatech’s core technology platforms offer potential to transform bioavailability and delivery of existing therapeutic agents. The gold nanoparticle platform underpins numerous clinical programs, led by transbuccal insulin delivery. The polymer microsphere technology tailors a drug’s release over extended periods. Applications that target larger markets will likely be out-licensed, while niche indications – especially those focused on oncology and neuroscience – will likely remain in house. The acquisitions of DARA and complementary product Zuplenz creates a speciality pharma company with a market presence for such future products.
Our valuation for Midatech increases to $221.0m from $200.7m previously (or $13.29/ADR) from $14.45/ADR, as we now incorporate the acquisitions of DARA and Zuplenz. Our valuation for DARA is based on forecast future operating cash flows (excluding potential payments on contingent value rights that are dependent on sales milestones, which exceed our relatively conservative projections). Additionally, we adjust our valuation for Midatech upward as our model has been rolled forward by six months and rebased to 2016.