Newsflash for the Snoozers - Part 10

Monday, 11th April 2016 10:27 - by Moosh

Cyprotex (CRX) has recently launched an advanced 3D liver model (31 March 2016) which is suited to identify hepatotoxic potential of test compounds.

 While this is important for toxicological identification purposes, it has been suggested that the pharmaceutical market will soon transfer much of their current 2D tests to 3D models in the future.

3D skin models are currently used as the standard in the cosmetics industry to assess skin irritation, so the availability of a 3D liver model from CRX looks like the company has already prepared for a change in the testing standards within the pharmaceutical industry in the long term and has spent the last 12 months honing its expertise in order to be market-ready.

This demonstrates that CRX has excellent foresight regarding future changes in the markets it targets and has the capability to respond to these changes positively in a timely manner, in order to make the most of them to bring true value to its shareholders.

Regarding the final results (1 April 2016), you have to delve a bit deeper and assess the fundamentals on the underlying results – these being:

-          Revenue growth up 34% to £15.61m

-          Gross margins increased to 77% (versus 75% in 2014)

-          Underlying EBITDA of £3.4m (versus £0.61m in 2014)

-          Cash generation of £3.48m (versus £1.32m cash used in 2014)

-          Cash level at year end ~£5.4m (versus £2.9m in 2014)

-          243 new customers in 2015 (versus 171 in 2014)

-          488 total customers in 2015 (versus 407 in 2014)

Given these underlying figures, it looks like the company has done a magnificent job of strengthening its operations in order to continually gain positives on many fronts. It is no surprise then that the company has now decided to enter a period of strategic review (1 April 2016), which may result in the company being taken over!

Let me now refer you to my Price Tag blog from 2013 in which I mentioned potential takeover prices for biopharmaceutical companies. In that post I also stated the following:

-          CRX paid ~2.5 times the annual revenue for Apredica

-          Techne paid ~3.5 times the annual revenue (or 11 times the EBITDA) for Bionostics

So from this, CRX knows full well how much their company is worth – let’s assume the average of the two multiples for annual revenue above to give a guide takeover price of 3 times the annual revenue. CRX had £15.61m annual revenue – tripling this and dividing over 22.47m shares gives ~200p per share, with the current price being 97.5p (mid-price, market close 8 April 2016).

If you want to work on the 11 times EBITDA basis, then 11 times £3.4m and division over 22.47m shares gives ~166p per share. As a shareholder in CRX, I would be happy with anything in the 150-200p range and given that the long term future for CRX is looking good now, I believe that any purchaser of CRX would be grabbing an absolute bargain even if they paid 200p for CRX tomorrow.

One further point to make is my previous mention of Bionostics – before the company was taken over, Oryx International Growth fund (OIG) had a sizeable interest in it. As it happens, Oryx International Growth fund also has a sizeable stake in CRX, currently, and one of its main members – Christopher Mills, also sits on the board of CRX. Therefore I suspect that (OIG) would also be happy to get a buyer for CRX which fits the 166-200p range since this is the sort of thing it has been involved with in the past.

It’s a very compelling situation to be in right now and I’m certainly looking forward to the next few months on planet CRX!

Related Article:

Price Tag www.lse.co.uk/blogs/member/moosh-blog/38hd9p/

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.