Allergy Therapeutics (AGY) will start PQ Grass US approval studies in Q315. The convenience of the ultra-short course vaccine and US physician preference for subcutaneous immunotherapy (SCIT) could lead PQ to gain a large share of the c $2bn allergy immunotherapy (AIT) market given that it could be the first licensed seasonal SCIT. The acquisition of Alerpharma reinforces AGY’s position in the c €72m Spanish AIT market and enlarges its manufacturing capability. Our DCF valuation increases to £260m.
US market dynamics could be in favour of PQ immunotherapy products given the convenience of the ultra-short course vaccine, physicians’ preference for aluminium-free vaccines, supported by the strong safety and efficacy profile established in Europe. AGY has funding in place for approval studies following the £20.8m gross placing of 94.1m shares at 22.1p, which could lead to launch in 2019. PQ Ragweed and PQ Tree are the next products in line, leading us to a total peak sales estimate over $1bn in the evolving AIT market.
In June, AGY acquired Spanish immunotherapy company Alerpharma for an initial consideration of €3.8m and a c €2m potential earn out, creating critical mass and cross-selling opportunities with its Spanish subsidiary. The rationale for the acquisition is to reinforce the company’s position in the c €72m Spanish allergy immunotherapy market and to gain market share from the current 3% position.
In H115, euro weakness masked an 11% rise in CER sales (4% reported) vs H114; as a result, we have dropped our £ FY15 sales forecast from £44.7m to £42.2m. We forecast that the Alerpharma acquisition will add £1.5m revenue in FY16 and c£3m in 2017 and that it will become accretive to the core European operations in FY17. We have added £20m of US development cost to our model from FY16 to finance US development of PQ Grass up to launch, which is anticipated in 2019
Adding US value across the three PQ indications to a European base valuation of £88m results in a valuation of £260m or 48p per share compared to a previous EU valuation range of £96-129m plus indicative US value up to £46m for PQ Grass and Ragweed. Potential catalysts include further news on the commercial or development strategy.