Abzena — Continuing to secure deals that validate model

Abzena — Continuing to secure deals that validate model

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.

Abzena

Continuing to secure deals that validate model

Licence agreement

Pharma & biotech

19 July 2017

Price

51.50p

Market cap

£110m

US£1.24/£

Net cash (£m) at 31 March 2017
(pro forma adjusted for the fund-raise)

28.0

Shares in issue

213.6m

Free float

39%

Code

ABZA

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

24.1

58.5

25.6

Rel (local)

25.3

53.7

12.5

52-week high/low

56.0p

32.2p

Business description

Abzena is a UK group that offers a range of services and technologies for biopharmaceutical development including immunogenicity tests, protein engineering, bioconjugation, polymer/synthetic chemistry, biomanufacturing and ADC chemistry.

Next events

Further Abzena inside products into the clinic

2017

Phase III andecaliximab (formerly GS-5745) futility analysis in gastric cancer

H217

Interim results

Q417

Analyst

Dr Linda Pomeroy

+44 (0)20 3077 5738

Abzena is a research client of Edison Investment Research Limited

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.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

9.9

(7.4)

(5.86)

0.0

N/A

N/A

03/17

18.7

(8.3)

(5.82)

0.0

N/A

N/A

03/18e

29.7

(10.1)

(4.52)

0.0

N/A

N/A

03/19e

41.1

(2.6)

(1.04)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Licence agreement using Abzena technology

Abzena has announced a licensing deal with Telix Pharmaceuticals, a biopharmaceutical company specialising in the development and commercialisation of radiopharmaceuticals for diagnostic (imaging) and therapeutic use. The agreement grants Telix an exclusive worldwide, royalty bearing, sub-licensable licence to its prostate-specific membrane antigen (PSMA) antibodies (created using Abzena’s Composite Human Antibody technology) in radio-immunoconjugation. The agreement, according to the company, has the potential to deliver $65m in licence fees and milestone payments if successfully developed.

Continuing deal momentum

Abzena’s deal momentum is growing. To date, the company has announced three significant ADC deals (two this year) and now another Composite Human Antibody deal (the previous deal was with Trieza in December 2016), which includes potential milestones as well as royalties. Also of note, all the deals this year have included the addition of a service agreement. This is an important validation of Abzena’s integrated model and underpins its strategy (to leverage a broader service, while maintaining potential upside through Abzena inside). For a more detailed overview please see our May 2017 outlook note.

Valuation: Increased to £160m or 75p per share

In light of the recent deals including service contracts, we have reviewed our valuation. We expect these deals to offer benefits of scale to the service business and have therefore increased our service division valuation to an rNPV of £70m (vs £43m). Our overall rNPV is now £160m (from £134m) or 75p per share (vs 63p). We do not currently include the Telix Pharma deal in our valuation as it is preclinical; however, it is important to note that this deal was agreed based on Abzena’s track record of its antibody technology entering the clinic, which is a positive indicator of the potential of this deal momentum to continue.

Exhibit 1: Financial summary

£'000s

2015

2016

2017

2018e

2019e

2020e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

Revenue

 

 

5,667

9,854

18,654

29,667

41,140

55,443

of which: Biology

4,158

5,299

5,719

8,237

9,061

11,132

Manufacturing

594

2,096

5,316

11,789

19,571

27,992

Chemistry

657

2,174

6,961

8,891

10,669

11,942

Total Service revenues

5,409

9,569

17,996

28,917

39,301

51,066

Licenses/milestones/royalties

258

285

658

750

1,839

4,377

Cost of Sales

(2,532)

(5,319)

(10,547)

(17,350)

(20,830)

(25,533)

Gross Profit

3,135

4,535

8,107

12,317

20,310

29,910

R&D expenses

(2,989)

(4,216)

(3,849)

(3,984)

(4,183)

(4,392)

SG&A expenses

(5,634)

(9,047)

(14,611)

(19,492)

(19,784)

(22,950)

EBITDA

 

 

(4,510)

(6,817)

(7,450)

(7,208)

127

6,345

Operating Profit (before GW and except)

 

(4,795)

(7,618)

(8,607)

(10,093)

(2,650)

3,523

Intangible Amortisation

(504)

(588)

(723)

(666)

(607)

(554)

Depreciation

(285)

(801)

(1,157)

(2,885)

(2,777)

(2,822)

Exceptionals

0

(2,542)

0

0

0

0

Other

0

(155)

(412)

(400)

(400)

(400)

Operating Profit

(5,299)

(10,903)

(9,742)

(11,159)

(3,657)

2,568

Other

0

0

0

0

0

0

Net Interest

79

244

277

9

52

27

Profit Before Tax (norm)

 

 

(4,716)

(7,374)

(8,330)

(10,084)

(2,598)

3,549

Profit Before Tax (reported)

 

 

(5,220)

(10,659)

(9,465)

(11,150)

(3,605)

2,595

Tax

498

961

347

431

384

486

Profit After Tax (norm)

(4,218)

(6,413)

(7,983)

(9,653)

(2,214)

4,035

Profit After Tax (reported)

(4,722)

(9,698)

(9,118)

(10,719)

(3,221)

3,081

Average Number of Shares Outstanding (m)

71.6

109.4

137.2

213.6

213.6

213.6

EPS - normalised (p)

 

 

(5.89)

(5.86)

(5.82)

(4.52)

(1.04)

1.89

EPS - reported (p)

 

 

(6.59)

(8.86)

(6.65)

(5.02)

(1.51)

1.44

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

10,432

27,347

33,494

40,951

40,575

39,207

Intangible Assets

8,942

23,177

25,882

25,224

24,625

24,080

Tangible Assets

1,490

4,170

7,612

15,727

15,950

15,127

Other

0

0

0

0

0

0

Current Assets

 

 

20,924

22,108

11,267

17,338

14,840

19,636

Stocks

817

1,379

1,876

1,876

1,876

1,876

Debtors

3,161

5,436

4,982

4,982

4,982

4,982

Cash

15,799

13,724

4,135

10,480

7,982

12,778

Other

1,147

1,569

274

0

0

0

Current Liabilities

 

 

(2,354)

(5,850)

(6,319)

(6,319)

(6,319)

(6,319)

Creditors

(2,354)

(5,488)

(6,032)

(6,032)

(6,032)

(6,032)

Short term borrowings

0

0

0

0

0

0

Short term leases

0

0

(169)

(169)

(169)

(169)

Other

0

(362)

(118)

(118)

(118)

(118)

Long Term Liabilities

 

 

(1,153)

(2,549)

(2,508)

(2,455)

(2,402)

(2,349)

Long term borrowings

0

0

0

0

0

0

Long term leases

0

0

(494)

(441)

(388)

(335)

Other long term liabilities

(1,153)

(2,549)

(2,014)

(2,014)

(2,014)

(2,014)

Net Assets

 

 

27,849

41,056

35,934

49,515

46,694

50,175

CASH FLOW

Operating Cash Flow

 

 

(4,938)

(11,330)

(8,100)

(7,429)

(137)

6,106

Net Interest

79

244

277

115

158

133

Tax

(133)

371

1,665

705

384

486

Capex

(1,082)

(2,047)

(3,320)

(11,008)

(3,008)

(2,008)

Acquisitions/disposals

0

(9,357)

0

0

0

0

Financing

19,037

20,013

(89)

23,900

0

0

Dividends

0

0

0

0

0

0

Other

79

31

(22)

62

105

80

Net Cash Flow

13,042

(2,075)

(9,589)

6,345

(2,498)

4,796

Opening net debt/(cash)

 

 

(2,757)

(15,799)

(13,724)

(4,135)

(10,480)

(7,982)

HP finance leases initiated

0

0

0

0

0

0

Other

0

0

0

0

0

0

Closing net debt/(cash)

 

 

(15,799)

(13,724)

(4,135)

(10,480)

(7,982)

(12,778)

Source: Abzena accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Abzena and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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US

Sydney +61 (0)2 8249 8342

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Abzena and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

MIC — Refocusing in progress

mic is still in the midst of a major and, to some extent, painful refocusing process. It is to be hoped that the major unpleasant surprises are behind us but we are still some way short of having a firm basis for valuation. All of mic’s operating investments are at an early stage of development. Of three major high-potential business units only one has generated material revenue.

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