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Nothing in the annual report warrants a decline today. If anything, it's positive. If you don't have the time to read the whole report, I've summarised the key points here.
This is not new news. Was well flagged previously by company and in Myles's research. I would highlight these are potential milestone payments and not guaranteed. I've summarised what I think is the "new" key points in an earlier message.
OK had a first look through the entire annual results on the Avacta website and my key findings that I think are somewhat new/give further info are:
1) There will also be a long-term need for antigen testing as the disease will remain in some societies for many years.
2) The Group has established two commercial partnerships and is in discussion with several others to establish multiple routes to market for the Affimer reagents. This will minimise risk and time to market and maximise the commercial opportunity.
3) Regarding Cytiva: Avacta aims to have a working laboratory test before the end of May.
4) Outlook: The Group continues to develop its therapeutic and diagnostic platform technologies. This is expected to generate significant revenues for the Group over the coming years, aiding both profitability and cash flows.
5) Short delay in starting the AVA6000 phase I study. We expect to obtain regulatory approval for the AVA6000 clinical trial from the MHRA in Q3 and dose first patients late in the year or, more likely, early in 2021.
6) Diagnostics division gross profit margin was 60% in FY2019 (£345k revenues, £207k gross profit)
RISKS: Mentions company has cash to meet all company obligations til end 2021. Brexit: no significant impact.
Annual results for FY2019 themselves won't matter as they are backward looking, but there will be forward looking statements/guidance. If not on the results themselves, definitely at the analyst Q&A at 9:30am. Of course I'm sure a lot of us will dial into the investor Q&A later in the day too.
For sure tomorrow will be an interesting day and today's price action suggests everyone is sitting on the sidelines waiting for it. I'm keeping an eye on DHR SP tonight... might give a clue.
Definitely happening is the Annual results tomorrow morning first thing. Hopefully there will be some sort of trading update/future expectations as is usually the case.
Surely there will be an RNS first thing tomorrow. They are announcing results first thing so likely some information about current and further trading update. I think keep an eye out for any announcement from Danaher/Cytiva this evening. I understand they have an AGM(?) tonight 8pm?
PI's unlikely to get any of the placing shares. The two book runners would have chosen the investors during the book build. Likely these will be institutional investors, but some hedge funds with good relationships would have got a slice too.
Shares don't come on to the market til end of month so won't see selling pressure (if any - none for AVCT if you check there) for the short term IMO.
Agreed - usually new placings are done after market close (likely last night) and there's no reason why the RNS shouldn't have been out first thing 7am. Not sure if there's precedent for this in AIM, but for the major markets - thats how I understand it.
Hopefully you will hold on to the shares for the long term. I really see a lot more potential after going through the placing RNS details.
Agreed here AP-Invest.
The company needs money to pay for the initial manufacturing with Cytiva. Cytiva won't make it for free, and buyers of the tests, won't pay it all upfront - especially atm without CE mark or approvals. Think of it as the initial seed money to get the whole manufacturing process started. Once they begin selling, the cash flow will be self sustaining through the whole manufacturing/sales process and should grow.
I think GDR chose the capital raise amount very carefully and I think could have raised much much more money easily but I think they raised the minimum needed to begin mass scaling of production. £8m of cash now should be enough to fund manufacture ~2.5m tests (assuming cost price £3.2 - basically negative of 60% profit margin) in 10 days, that will when sold bring in £20m cash.. then repeat etc etc. The bottleneck will be the manufacturing as NCYT's 8m capacity they have mentioned is not enough and NCYT are looking to ramp further. AVCT also mention demand for tests is going to be here for a long time.
GLA, and DYOR.
It's very positive for GDR, and all testing shares. Confirms the profitability of these Covid tests when most of us were using broad guesstimates on potential earnings.
The placing itself like others have mentioned was planned well in advance and means the company is now better funded. This should mean a better position when negotiating contracts/pricing etc.
Novacyt is also mentioned in the RNS.. mentioning NCYT's is also an open platform test.
==== RNS ===
genedrive is developing the Genedrive® 96-SARS-CoV-2, which is an open platform laboratory based test. The Genedrive® 96-SARS-CoV-2 is a one-step "ready to go" polymerase chain reaction (RT-PCR) test. It is a high volume laboratory assay compatible with multiple third party platforms and is expected to be able to perform 96 tests in under two hours. The Genedrive 96 SARS-CoV2-test is a final format test, meaning that it only requires the addition of patient sample, and no other user preparation is required. The test can be transported globally without the need for refrigeration, which will support global product distribution and use in a variety of different environments. Other open platform laboratory based tests include the Novacyt COVID19 test and the Altona RealStar SARS-CoV-2 RT-PCR Kit.
Not sure if this is well known, but reading through the RNS and came across this nugget. £8-£10 price per test, 60% margins.. So if they sell all 7m+ tests they manufacture a month, thats around £30m profit every month. Pretty much on par with NCYT's current max production, but at 1/3 their market cap.
========================================= PLACING RNS =========================================
The Company anticipates launching the Genedrive® 96-SARS-CoV-2 in May 2020 at an estimated price of £8-10 per test. The Company will address the market on a non-exclusive basis with sales through an appropriate mix of distributors and direct to customers. The Directors believe that based on its sales volume forecasts and estimates of selling prices in the market, the Company will be able to achieve attractive gross margins of at least 60%, noting genedrive does not fully absorb labour costs into its margins.
Molecular Partners is a competitor with similar technology that are developing an antiviral. I think it still needs a drug to be found that's effective against the virus, but can see Affimers being effective also here too.
Molecular Partners Initiates Anti-COVID-19 Therapeutic Program Leveraging Multi-Target Binding of DARPin® Proteins to Neutralize SARS-CoV-2 Virus
Zurich-Schlieren, Switzerland, April 20, 2020. Molecular Partners AG (SIX: MOLN), a clinical-stage biotech company that is developing a new class of custom-built protein therapeutics known as DARPin® therapeutics, has identified multiple potent monospecific DARPin® proteins which neutralize samples of the SARS-CoV-2 virus. The company has engineered these proteins into trispecific antiviral candidates that target three parts of the viral “spike” protein, which is essential for viral entry into human cells. Multispecific inhibition represents a differentiated approach to treating COVID-19, offering potentially greater therapeutic efficacy and reduced potential for the development of viral drug resistance.
“In this period of unprecedented global need, we believe it is imperative that we investigate the potential of our DARPin® platform against COVID-19. Among the many efforts underway, a DARPin® therapeutic that can neutralize multiple sites of the viral spike protein in a single drug could be an important tool in our fight against the virus,” said Patrick Amstutz, Ph.D., Chief Executive Officer of Molecular Partners. “I am truly encouraged by the spirit of collaboration across academia and industry in response to this challenging time. We have progressed to hit candidate selection in a month, and expect to further leverage the rapid, high-yield nature of DARPin® protein manufacturing to chart a rapid path to human trials.”
Good morning fellow shareholders,
The weekend has given me a bit of time to dig a bit deeper into Avacta to see where the value of the business can get to, and I spent a some time yesterday reading up presentations, broker research reports, and has led me to check out the competition for Avacta's Affimer platform. There seems to be 3 others that have a similar mimetic platforms and all currently valued between £100m to £400m. Interestingly they are all further down the line in terms of clinical trials versus Avacta, which pre-COVID was around £50m MC, hence reasonably valued at that time. I think it bodes well, and provides some sort of upside/support to the underlying value of the Affimer platform, especially now via COVID it will garner much more limelight and with their Doxorubicin clinical trials expected to start later this year. Reading the company presentations, I have high expectations that it should do well in the Phase 1 stage which will confirm the effectiveness of the Affimer platform. I can see the underlying business being rerated to £200m+ (hence provides downside protection from the current MC here) which would be more inline with the competition with similar/further candidates in trials. Looking further, I can't see a multi-billion valuation here without a takeover, there's lots of expectations of a deal so good to bear in mind that Ablynx reached a £1bn market cap before the big boys started a bidding war. If we reach that point, I think most of us will be more than pleased anyhow.
COMPETITORS:
Molecular Partners (MOLN - Swiss listed) - MC £380m (+75% since March, developing COVID antiviral) - 5 candidates in clinical trials with Allergan, Amgen
Pieris Pharma (PIRS - NASDAQ) - MC £97m (+45%, no COVID related plans) - 2 clinical trials, of which one is with AstraZeneca
Bicycle Therapeutics (BCYC - NASDAQ) - MC £183m (+21%, no COVID related plans) - 1 clinical trial with Cancer Research UK
This is a NCYT board, but since you bring it up, AVCT is of course a much more riskier proposition, but reading the research suggests the potential upside is far greater as they are a cancer therapeutics company which has a current COVID play angle too (which could be significant), and despite the risks I think the risk-reward is still there. I have a small position in this, but my main investment remains here.
NCYT on the other hand are predominately a diagnostics company and given the shares have moved up 20x since Jan, I think further upside really needs to see either a further increase in production and/or licensing deals. Sales RNS no longer provide sustained support as the market already expects 8m test sales a month anyway. I like NCYT for all the reasons thats well known here. Clarity of business, best in class product, breadth of sales channels.. Just waiting for further news of new tie-ups and we can see another sustainable re-rate higher. Hopefully more details are given when they announce their FY results and investor Q&A session.
To be conservative I wouldn't apply any multiple to revenues or earnings given the uncertainty of how long the need for testing will be. I think it's better just working out the monthly cash income as we have more clear knowledge on that.
As a rough estimate, each month at full capacity the income should be around 8m tests x £8 per test x 50% margin = £32m, which is around 47p per share. So the current share price of £3.80 suggests around 8 months of income based on those assumptions. I admit this is probably the lowest possible valuation methodology, but there is still risk even here. How can be be sure test prices won't fall, or margins won't compress further?
"Applied x2 and x3 revenue multiplier"
Why would you do this when we have no idea how long testing will be needed for? This could apply to companies with 'sustainable long term revenues', but I don't think it should apply for NCYT just yet. Better to look at near term earnings.
I've done a reverse calculation based off net profits and DCF to get an idea of what the market is pricing in at the current share price - to me, its saying NCYT will be Abe to sell 100% their tests until end of 2020.
My assumptions:
1) 4m production up to 8m by June (and no further increase)
2) They sell EVERY test they make
3) £8 a test declining 5% a month, down to minimum £5 by year end
4) 50% net profit margin
Note I've not included any further production increase (likely from last RNS), or any potential licensing income (this is most crucial to drive further re-rating).
I've been grappling with how the future looks with rapid testing but I'm not 100% convinced a rapid test will ultimately help stop transmission. For the airport example here.. Where exactly do you test passengers? When they are about to enter the terminal? departure gates? How do we know for sure they are not carriers? Or just been infected when they get to the main terminal hall - no test will show they carry the virus within minutes of infection. This argument can also be said for sporting events etc.
Our antigen test should be able to detect asymptomatic people, but surely it needs the virus to replicate enough so that a measurable amount is present in the saliva? So must be a good few days at least. In any case, its better than not having the test or using a 1hr PCR test that requires a huge amount of PPE/trained technicians.
not surprised as two RNS by NCYT has failed to drive the shares higher there. I think it makes sense for people Tak lock in their gains and get into treatments and potential drugs.
Clearly RI have been waiting for this RNS to sell up and move into other plays. The share price as I previously mentioned has baked in high expectations of strong sales for the majority of this year. The only thing that will drive a further re-rating will be announcement of new manufacturing partners, especially in the US.
If you look at the last few days, 'smaller' covid plays have been rising massively on little news while the more established names like NCYT and to an extent AVCT have not have much volatility. My opinion is that MMs have shifted their focus to 'churn' other names and short term RIs are following.
This is still my largest holding and will be holding for a while longer but talk of £60 share price is totally unrealistic.