Allergy Therapeutics delivered a solid 6% revenue growth for FY20 to £78.2m, from £73.7m, despite COVID-19 impacts taking a 2% toll. The well-established European commercial platform produced operating profit before R&D of £14.2m, from £11.3m, with R&D spend of £9.0m, from £13.2m. Pollinex Quattro Grass is set to start a pilot Phase III study before initiating full registration trials. The promising VLP-based peanut vaccine reported highly encouraging preclinical data which, if maintained, could be transformational for future prospects. The fruits of the development portfolio are expected to enable the market entry into the commercially attractive US. Cash resources of £37.0m are ample to fund near-term requirements. We initiate coverage with a £325m (51p a share) valuation.
FY20 results highlight the quality and resilience of the European business, marking over 20 years of sustained revenue growth. Sales were up 6.1% to £78.2m (+7% CER), against £73.7m FY19, with COVID-19 impacts costing around 2% of growth. Operating profit, ex R&D spend, grew by 2.6% to £14.2m (FY19 £11.3m), with margin of 18.2% (15.3%). R&D spend was £9.0m (£13.0m). Reported operating profit was £8.3m (£4.4m), helped by the final £3.2m Inflamax settlement (£6.0m). EPS was 1.09p (FY19: 0.55p).
The ultra-short Pollinex Quattro SCIT platform underpins future growth prospects in Europe and will enable entry into the commercially important US market. The grass pollen indication is set to begin a pilot Phase III study in 2021, ahead of the finalisation of the design of the pivotal Phase III registration trial. Success will pave the way for additional indications such as birch and ragweed being progressed. Regulatory approvals will allow greater marketing in Europe and form the basis for what could a sizeable business in the US.
Recently published preclinical data for the proposed peanut vaccine were highly encouraging. Preparations are underway to initiate Phase I studies, with resources being focussed on ensuring development progress is maintained. Eventual success could result in a clinically transformative product, with consequent commercial benefits. Management has also acquired rights to the VLP (virus-like particle) technology for indications beyond allergy.
We initiate coverage with a valuation of £325m, equivalent to 51p a share. This is based on a DCF of the commercial operations and an rNPV of the pipeline. The existing business is valued at £87m, 14p a share, and the R&D portfolio at £204m, 32p a share, with net cash as the residual.