Member Info for notaflipper

Article titled "UK life science companies show signs of health".
Sub-heading: Regional small-cap groups have struggled to deliver for investors

Companies covered: Genedrive, Shield Therapeutics and YourGene
Intro:
Northern England has long been a hotspot for life science companies. The region, with eight research intensive universities, is home to a £13.6bn industry and 21 per cent of the total UK life science sector workforce, according to the Northern Health Science Alliance. The workforce grew almost a tenth to 50,000 between 2012 and 2017. But investors have not always prospered, as some of the region’s listed companies have failed to match their early promise. Some are now showing signs of health.

Detail on YourGene:
The Manchester business, previously called Premaitha, offers a non-invasive way of checking whether children have the genes that cause Downs syndrome after just 10 weeks of pregnancy.Premaitha tried to sell the test with a genetic sequencing machine provided by Thermo Fisher. In 2015 Illumina, a rival maker, sued Premaitha for patent infringement. After a protracted legal battle Lyn Rees joined as boss in July last year and declared a ceasefire. He struck a deal to license Illumina technology, opening up 60 per cent of the global market. Thermo Fisher swapped £13m of debt for a 9 per cent stake in the business. Mr Rees’s company now pays Ilumina for each test. The pugnacious Welshman says the deal also opens up Illumina’s platforms to more tests from Yourgene.In April he bought fellow Manchester start-up Elucigene, which has a cystic fibrosis test. It paid £9.2m, funding through a £10m share issue at 10.25p. The stock has ticked up above 11p since.Yourgene has also moved into cancer testing in Taiwan and Mr Rees believes it can become a large provider of genetic screening and reproductive health services to a growing global middle class. An unaudited trading update for the year to March 31 showed revenues up 45 per cent to £8.9m from more than 30 countries. The adjusted pre-tax loss fell to £5.2m from £6.7m.Analysts forecast a profit in the second half of 2020 and a 19p share price.

“The handcuffs are off,” Mr Rees said.

https://www.ft.com/content/980c7460-7891-11e9-bbad-7c18c0ea0201

With Sales expected to be upwards of £16.1m in FY2020E and £20.8M in FY2021E - combined with break-even to be achieved this year - for this to have a market capitalisation sub £60m is a bit negative EV/sales ratio. Regretfully agree that it does provide new investors an entry point close to the placing price. Hopefully we should get a new research note from new brokers or Hardman which would provide an updated product pipeline overview, revised target price and upgraded sales forecast.

Limited patience and calm is needed now. All LTHs whether VIY or NIPT have gone through many torrid years of false back-room briefings over legal confidences etc. Now with a new CEO, new BoD and new operational team, expanded geographical footprint, expanded product offering..now is not the time to falter. The reason for the media silence I suspect is alluded with today's RNS which is that further background dealings are happening and I suspect we will be getting some more holdings RNS. After which we hope for the newsflow to begin and relate ensue as I'm too am getting impatient

Yep sorry should remember to have the coffee before posting. now will have to live with that
using cottoners better analysis i suspect steve myers formed two million of that

I concur NiptSteve, Cotttoner. Yes from the 1st April RNS his holding increased from 9.26% to 10.04% with 458,999,688 shares. Following the 26th April RNS this has increased to 574,418,577 but as a % share this has dropped due to the larger equity base. I suspect that these extra 115,418,889 were purchased at circa 10.25p as part of the subscription? If so it appears that he invested a further circa £11,260,379 which is a big vote of confidence and should be recognised as such. Hopefully we should
following the acquisition completion be getting further newsflow of plans as well as new broker report and target which should finally see us re-rated as this is now long overdue.

 

Although the appointment of Hayden Jeffries was announced with a RNS there has been a behind the scenes reorganisation of the management team in the last couple of months
https://www.yourgene-health.com/about/global-leadership-team
I would keep an eye to see where the roles that the new Elucigene colleagues land in particular the new 6 sales staff. I can only imagine that with APAC and EMEA roles fully covered there will be appointments further afield
Best of luck to all LTHs

Lynn Rees presentation at Global Group UK Investor Show at the Queen Elizabeth II Conference Centre on the 30th of March 2019. Good intro to company for newbies.
https://www.youtube.com/watch?v=mmgGOD1ZoL8&feature=youtu.be

Cheers for this. Apologies for some obvious typos in my earlier post. I would be surprised if we didn't get a RNS within the next 2 weeks with a revised broker report and some further news.

With the macro uncertainty being resolved and moving away from a hard Brexit scenario it would remove the need for an authorised agent or EU base to operate however it could be that now the Enlarged Group has less need for a distribution partner. What has not commented much on the acquisition is that the Enlarged Group would have a footprint in 57 territories (from 30), 6 more sales staff, an additional 150 new customers (laboratories) added to the Enlarged Group. So irrespective of whether further additional news comes on contracts/commercial progress I suspect this will be reflected in the revised broker forecasts which should hopefully have sales higher than £16m. What is interesting is that the £9.2 million offer (comprised of £6.3 million cash and £2.9 million equity), so the 30% equity offer reflects some confidence by Elucigene management.

Let's see what the next week brings. I'm hopeful with all the we should increasing and sustained volume with further announcements.

Sorry ran out of Characters...

Considering the test volumes will now be in excess of 100k an EV/sales multiple closer to 10x would be fairer. These figures are also conservative because we do not know Elucigene's sales forecasts or the new test volumes expected by new products this year.

I suspected that the TW's mood will be come better in the next week or so with a revised broker rating and research note which may be accompanied by further potentially further announcements. Thereafter a stage managed increase in target will predictably ensue.

Obviously there's a lot of information to take in so let's go through the deal the circa 20% share expansion and TW's valuation. If I am honest TW's reaction seems very stage managed. Having known the Trading Statement date he was probably aware hence making this his 'nap' tick for end of April. Otherwise him, and other backroom commentators, expectations of a spike would have optimistically been based on the TS alone.

Elucigene has launched 36 commercial products. Its main product categories cover Cystic Fibrosis Kits, Rapid Aneuploidy Analysis, Reproductive Health, Genetic Disease Diagnosis. The business was founded 20 years ago by pharmaceutical giant AstraZeneca and has changed hands several times since. In October 2013 the business was established as an independent company, when Scott Higgins, 55, and Mike Webb, 60, led a management buyout backed by Percipient Capital.Gross.

Elucigene had a turnover of £3.6m in FY2018 with a with a cost of sales of £500k. This means a Cash Generative business already of surplus £3.1m. Cash is £1.3m, gross and operating profits £0.6 million and net cash is £0.4 million . The company plans to expand internationally and sees South America and India as key markets for its growth. More importantly for YGEN holders it plans to expand into the US this year https://www.elucigene.com/elucigene-targets-us-for-next-stage-of-export-drive/

The Enlarged company though it will have 574,418,577 shares after and potentially a further 11,550,000 if TMO further subscribe will have also the following: Elucigene's product offering plus IONA test plus further product expansions - no long overdue to be announced - such as pre-implantation genetic screening (PGS), Rhesus disease screens, BRAC1 screen and Illumina's version of the IONA test. In total the product portfolio now will be close to 40.

The Enlarged company would have sales of £12.5 million in FY2018. Elucigene have no public sales forecasts so even if we assume they're flat at £3.6m the Enlarged Company will have improved sales forecasts of £16.1M in FY2020E and £20.8M in FY2021E. Break-even to be achieved this year.

On a fully diluted basis of 586m shares at 17p SP the market capitalisation would be £99.6m. With currently 459m at a proposed SP of 20p the market capitalisation would be £91.8m. TW HAS UPGRADED HIS VALUATION. To be fair to TW the reason his SP targets fail is there's not been much volume. Much of the share price movement has been driven by Steve Myers. With swing traders making up 2/3p movement. Hence the tedious trading pattern between 13.5 to 10.5p since February. On Friday we saw 6m shares traded this bodes well in addition to new investors and a 12 month lock-in period for new shares.

Even at 17p this would be very low. With sales of £16m in FY2020E the current sp on a fully diluted basis is £70m. This gives a 4.5 EV/sales multiple of 4.4. At 17p an EV of £99m would be 6.

Directors will after the purchase of a further 4,878,048 Subscription Shares own a total of 104,959,079
shares representing circa 18% of the total equity. This is quite reassuring when combined with TMOs holding. I suspect we'll see further news in the next few weeks.

Apologies I was quoting the Gross Profit is of £3.1m and the Cash is £1.3m - was doing it on the train is my only excuse - the net cash is £1.3m whhich should still ensure break-even can said to be achieved this financial year. Encouragingly there's£2.7m of total assets and not much underlying debt and only 6 staff. I also note this was originally founded by Astra Zeneca. As you say we'll see but we hope for there to be a near term bounce following this announcement.

I would venture that we should be expecting a revised broker rating shortly and potentially further RNS shortly which could explain the need to stagger the amount of information being fed into the market. I would be disappointed if Sales forecasts were not over £15m up from Finncapp's £13.5M in FY2020 compared to £8.9m in FY2019.

Okay, okay so you see the headline of the RNS and immediately worry about share dilution. It's inevitable but misses the point so let's go through the detail...

Elucigene had a turnover of £3.6m in FY2018 with a with a cost of sales of £500k. This means a Cash Generative business already of surplus £3.1m. Remember that YourGene's last Finncap report showed that for FY2019E cash is forecast to be £0.6m at year-end March 2020, £0.6m better than previously expected. In FY2021 the Cash Surplus on YourGene alone is forecast to be £2.4m. With improved sales forecasts of £13.5M in FY2020E and £17.2M in FY2021E. An immediate increase in the Enlarged Group's global footprint, with territories covered increasing from 30 to 57 and an additional 150 new customers (laboratories) added to the Enlarged Group. I think it best that shareholders look at https://www.elucigene.com/distributors/ to see the increased footprint in S. America, Australia and India that would be immediate.

Yourgene were already targeting additional genetic tests within reproductive health that are currently in development and include, for example, pre-implantation genetic screening (PGS), Rhesus disease screens and BRAC1 screens – all of which Yourgene should be able to sell into its existing and now enlarged network to support. They were already further targeting additional genetic tests in the oncology market. Elucigene has launched 36 commercial products and has a pipeline of new diagnostic solutions in development. Elucigene's current commercial products include (1) Cystic Fibrosis screening; (2) invasive rapid aneuploidy testing; (3) male infertility testing; and
(4) genetic disease testing.

Bill Chang and Lyn Rees have agreed to subscribe for 4,634,146 and 243,902 at £463k and £24k respectively with lock-up restrictions for a period of 12 months. There was £2.9 million equity as part of the acquisition which will be satisfied through the issue of 24,581,111 new Ordinary Shares to Elucigene shareholders at an issue price of 11.7 pence per new Ordinary Share. The potential issuance of up to 10,500,000 further new Ordinary Shares and grant New Options over up to 1,050,000 to Thermo Fisher thereafter would I expect be accompanied by further expansion news and would represent less than 2% of the enlarged shares in issue.

Commentators and back-room gossip has been promising for a re-rate for some time now here and would agree the Company needs to finally deliver this within the next month. That said the current negativity seems a bit overdone now given the company has a revised higher broker target that the sp goes in the opposite direction especially when the company outperforms both expected sales of Hardman and Finncap. So no litigation, reducing macro uncertainty, legal expenses all paid, debt all written off, 2 heavy-weight strategic partners, new products (e.g. Sage 32 plex) launched and new Illumina IONA NIPT test and reproductive/oncology on the way and the sp goes in the other direction. It is also seems a bit weird given that with current cash flow and operating efficiencies cash in bank (without further funding) is expected to be £0.6m in March 2020 with Sales targets increased from £11.9m to £13.5m. So a company set to become profitable and potentially cash-generative this fiscal year to be trading at circa 4.5 EV/sales multiple seems a bit low. Rather considering the test volumes it would suggest the stock should instead command a prospective EV/sales multiple of 5x-10x, suggesting an EV of £60m-£120m. Sadly some analysis and reports didn't get the air time they should have last week with some of the emotional posts and obvious shorters. Let’s hope we finally see the rerate promised to LTHs this next month. I personally would be surprised if TW and others had based their bullish comments on the trading statements alone.

We have made the following changes to our forecasts:
? Revenues are increased by £1.6m in FY 2020 and by £2.2m in FY 2022 to reflect:
? The clear commercial progress made by the CEO and new commercial team that has been in place since July 2018.
? The continued expansion into new territories, helped by the fact that the company has resolved all historical IP litigation issues with Illumina. Yourgene is pursuing an NGS platform-agnostic approach and confirmed that it is on track to launch the IONA® NIPT for use on Illumina NGS technology in early 2000.
? Growth in non-NIPT revenues, notably the oncology research services that are delivered out of its facility in Taipei. 40% of the revenue increase in FY 2022 (c.£0.8m) is due to this revenue component.
? Gross profit is reduced in FY 2020 and 2021, to take account of the expected increase in NIPT volumes, particularly in India, where Yourgene is offering a lower priced NIPT, which should be more than offset by volume increases. We estimate that gross margins were c.60% in H2 FY 2019. Whilst the recent launch of its Sage 32 plex test, which provides a higher throughput NIPT and analysis solution, will help offset the lower NIPT price as it provides a fourfold increase in sample throughput for the same amount of sequencing reagents, we do not expect it to fully offset the lower price.
? Expenses are increased by c.£0.31m to support the growth momentum and georgaphic expansion as Yourgene builds a presence in these markets through conferences, localised marketing, clinical education and increased travel.
? Adjusted EBITDA consequently rises by 68% (£0.4m) to £1.0m in FY 2020 and increases by 29% (£0.6m) to £2.5m in FY 2021.
? Adjusted pre-tax losses fall from £1.1m to £0.7m, implying that Yourgene becomes profitable in the second half of the year. We increase adjusted pre-tax profit to £1.1m in FY 2021, up from £0.2m.
? We are forecasting 0.2p of adjusted EPS in FY 2021.
? Cash is forecast to be £0.6m at year-end March 2020, £0.6m better than previously expected.

Revenues now expected to be 13.5m in FY2020E vs old forecast of 11.9 and 17.2m in FY2021 vs 15m previous forecast. Seems the Brexit planning had an impairment of £400k on cash in bank however operational break-even achieved and cash in back in FY2020E expected to be £600k. However caveats on forecasts as above. Let's see if there's more to come this month to justify TW's bullish remarks.

2020E 2021E Old New delta Old New delta Old New delta Revenue 8.5 8.9 0.4 11.9 13.5 1.6 15.0 17.2

Surprised no one has posted Finnaps research note which increased their broker rating to 19p

Trading update.
Revenues increased 45% to £8.9m - £0.4m or 5% above forecast. This was driven by growth in all regions, with the UK, Europe and International markets rising by 20%, 47% and 51%, respectively - the latter now accounting for c.66% of revenues. Sales were generated from over 30 countries (vs. c.20 in the prior year), demonstrating the rapid expansion and adoption of Yourgene’s NIPT.

Year-end cash suggests monthly breakeven achieved. Year-end net cash was £1.25m. Whilst it was c.£0.4m below forecast due to inventory increases relating to Brexit planning, the trend to cashflow breakeven was clear. Free cash outflow was £1.6m in the second half, down from £3.3m in H1. Indeed, we estimate that Yourgene achieved its target of EBITDA breakeven in the last couple of months of FY 2019.

Outlook. We expect strong momentum driven by the IP “handbrake” release, early evidence of positive NIPT reimbursement changes in France and growth in India.

Forecast changes. We have upgraded revenues by 13% (£1.6m) for FY 2020 and 15% (£2.2m) for 2021, reflecting the stronger FY 2019 outturn and sustained momentum. This drives £0.4m and £0.6m improvements in adjusted EBITDA respectively, with the business expected to generate pre-tax profit in H2 FY 2020. ?

Valuation. We raise our target price by 5% to 19p to reflect the better-than-expected FY 2019 revenue. At this price, the stock would trade on a FY 2020 EV/sales multiple of 6.4x, falling to 4.9x in 2021; this is justified in our view given the 2-year CAGR revenue growth of c.39%. Transaction multiples for companies with novel clinically relevant genetic tests, which have shown clear evidence of revenue traction, have ranged from 6-11x EV/Sales and support our valuation target.

Outlook
Yourgene Health has almost tripled its revenues since FY 2017, helped in part by the acquisition of Yourgene Biosciences in December 2016, but driven mainly by the internationalisation of its NIPT products, as illustrated in Figures 2 and 3. Now that the “handbrake”, which created uncertainty amongst Yourgene’s potential customers who may have had concerns over the IP litigation with Illumina, has been released, we see no reason for the momentum, which is already established, to not accelerate further. Yourgene will now have the capability of selling NIPTs to all genetic laboratories, irrespective of whether they are using Illumina or Thermo Fisher next-generation sequencing (NGS) platforms.

Our outlook excludes:
The potential opportunity to sell into the large North American market (worth c.$1bn), China and Brazil, which the company is currently assessing.
Additional genetic tests within reproductive health that are currently in development and include, for example, pre-implantation genetic screening (PGS), Rhesus disease screens and BRAC1 screens
Additional genetic tests in the oncology market.

The results were pretty positive I thought and certainly does put to shame some of the blatant fear mongering we saw in early December over capital raising by this time or a reduced interest by TMO in the business given the new partnership with Illumina.   Pretty solid results which certainly are at odds with the broker targets hence surprised there’s not been a revised broker rating this morning. What’s not to like here? Partnerships with not 1 but 2 billion dollar companies. Revenue momentum continuing to grow year on year with at near 50% growth. Test volumes at 80k suggests certainly over 5% of global NIPT market after 5 years of trading. I would expect that with the Illumina IONA NIPT test launch in early 2020 this will only increase as the Illumina sequencer is more widespread among laboratories which reduces the front end capital costs. So with the Illumina test coming in 2020 and a pipeline of oncology and reproductive I would expect that if TMO were to make a full TO it would be in the next year as otherwise it will thereon be a beauty contest between them and Illumina. By July I would expect further announcements on new product launches to coincide with Full Year trading results. Wonder if we should be expecting more news to qualify rerate by end of April?

As I think has already been mentioned here on ADVFN there's saying that on TW on his bearcast and via private communication has confirmed that Trading Update will be Monday. If it is then it's slightly bad form that this was not communicated to shareholders publicly first and as well. I would however confirm this directly with IR given the amount of false starts here. Last year the trading update was delayed till 8th May from memory so 8th April this year seems keen. When it comes I would be expecting sales and test volume forecast update and potentially update on product map. I'm not expecting a P&L. Anything above £9m sales would be positive for me.

I was not under the impression that a date for the trading update had been formally announced or informally leaked. I would expect this before end of April with Full Year Results announced July. That said if go by past trading updates they could just provide a loosely worded statement of strong 'commercial progress' and may not be accompanied by a P&L or revised Hardman/Finncap research note.