Member Info for Sorcerer

Twix,

I think it's simply adjusting the previous target for the increase in the number of shares in issue through the last placing. The problem with doing that is obviously that it's a one-sided adjustment, as it makes no allowance for the increased value following the acquisition i.e. it just changes the denominator and not the numerator. To be fair TW has no new numbers to work from, so I would expect the target to be updated once we get the new broker note, which will give us a new 'numerator' to work from.

Twix,

I was pondering the same thing earlier in the year and concluded that is was likely down to the natural mathematics of the rapidly increasing scale of the business making material contract wins (material relative to the increased scale of the business) less and less likely. A £50k or £100k contract two years ago was very material, but it's not today.

I agree however, that some form of summary would be helpful - bundling them all up into a nice quarterly update would do a lot for confidence and the SP.

I remain convinced that we are overdue a very material re-rate, but the market needs to see the numbers to drive that, which is why I'm hopeful that the next broker note starts to paint that picture in a way that FinCap never did. I also think that the size of the latest placing must point to Lyn wanting to have a war chest for further acquisitions as they didn't need to raise that amount.

It’s 30 days on Friday since the placing and appointment of the new broker. From what I can find, there isn’t a regulatory blackout on research notes following a placing / acquisition / broker appointment, but it seems to be common practice (and a new broker needs time to pull their research together). Maybe we’ll get the first of the new broker research notes next week? Would be a good time for the directors to buy, as the note is not news, just opinion, so presumably not a closed period?

It's both Truro, but my understanding is that only a subset of the tests are sent to Manchester - many of the labs we sell to have all the facilities to process the samples themselves, so they don't need the clinical facilities in Manchester. Happy to be corrected, but that's my understanding.

............and Yourgene was already charging a fraction of those costs mishmos before Sage32 was launched.

You just need to do the maths from the same half year results statement that includes the 45% growth number............

Revenues increased by 45% to £3.9m (H1 2017-18: £2.7m)

Test volumes increased by 73% to 38,000 (H1 2017-18: 22,000)

£3.9m / 38000 = £102.63p average cost for each test

Important to recognise that the extremely encouraging market growth projections I’ve posted links to are based on a hugely conservative take-up rate reaching only 5% of births in ten years’ time, so while all of those observations about the populations in Asia etc. may be true at the moment, it’s already accounted for and Sage 32 etc. will make testing much more accessible than it is today for the remaining 95% of the market.

Interesting article cottoner and aligns with the report and thoughts I posted a week or so ago:

https://www.prnewswire.com/news-releases/global-non-invasive-prenatal-testing-nipt-market-to-grow-5-67-billion-by-2028-865511277.html

Expected CAGR of 15% for NIPT over the next ten years which will see the annual market grow to $5.57Bn by 2028. Interestingly, that's about 7.5m tests annually, which is still only about 5% of global births, which sounds quite conservative to me, especially with the lower cost Sage 32 solution coming onstream in the last few months.

The report highights how important North America is to the market (over 50% of the market, which underscores the importance of YGEN's deal with Illumina) and points to Asia Pacific as the fastest growing market (which underscores the importance of the exclusivity agreement with TF). The report summary also mentions the IONA test specifically as a contributor to the growth of the market (the only product mentioned by name).

I posted my thoughts on what I think this means for us previously, but since then I've been trying to find out what firms like YGEN typically trade at in terms of P/E ratios once they become profitable and I found this:

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/pedata.html

I don't know how much weight to place on this, but there are a lot of firms included in the analysis (including YGEN) and it says that the Trailing PE ratio for Healthcare Products (within which YGEN sits in the analysis) is 88 versus an average of 35 across all sectors. If that's right, it means that, in simple terms, the sector returns £88m in market cap for every extra £1m in profits. That's huge and translates to about 19p per share for YGEN for every £1m extra profit.

To put the above in context, the Hardman report shows our losses will reduce by about £3m between fiscal 19 and fiscal 20. I think this is actually out of date and the actuals will be better, but for the purpose of this it doesn't matter. What matters is the £3m improvement - in a profitable business that improvement would add 57p to the sp using the above PE ratio as the basis for valuing the improvement.

There will obviously be lots of different factors at play across the sector and no doubt a huge spread of different PE ratios, but you have to say that things must look pretty bright for a fast growing, debt free, minnow that's about to break even with whole market access and an established global distribution network in a market that's about to explode.

Not feeling huge - feeling hugely optimistic!

Found this report on the how the NIPT market is expected to grow and develop over the next ten years. I hadn't seen this before (published Oct 18) but it's pretty bullish about growth. Not downloaded the whole thing, but some interesting numbers in the summary.

https://www.prnewswire.com/news-releases/global-non-invasive-prenatal-testing-nipt-market-to-grow-5-67-billion-by-2028-865511277.html

Expected CAGR of 15% for NIPT over the next ten years which will see the annual market grow to $5.57Bn by 2028. Interestingly, that's about 7.5m tests annually, which is still only about 5% of global births, which sounds quite conservative to me, especially with the lower cost Sage 32 solution coming onstream in the last few months.

The report highights how important North America is to the market (over 50% of the market, which underscores the importance of YGEN's deal with Illumina) and points to Asia Pacific as the fastest growing market (which underscores the importance of the exclusivity agreement with TF). The report summary also mentions the IONA test specifically as a contributor to the growth of the market (the only product mentioned by name).

The article left me feeling hugely optimistic about our next trading update, which we're led to believe will be very good, and about our future in general:

1. The NIPT market is expected to see sustained annual growth of 15%+ over the next ten years (and I reckon there must be considerable upside to that, given the low proportion of tests this represents versus births).
2. We know that we've been growing well ahead of the market for the last two years (approx 35% organic growth).
3. We've just doubled the size of our addressable market through the deal with Illumina, which opens up North America.
4. We've just launched SAGE 32, which will bring unit costs down dramatically (and as far as I'm aware, this is a unique product, so that means we can reach underdeveloped parts of the market i.e. the other 95%, where costs are prohibitive for other players).
5. Drag of litigation and debt removed.
6. Led to believe that we have either already, or are about to, hit break even.
7. Very high Gross Profit margin - Revenue minus COGS (Cost Of Gross Sales) is about 60%, based on Hardman numbers.
7. Huge operational gearing - once our fixed overheads are covered (and we're close to, or already at that point), the gross profit from every sale goes straight to the bottom line. Allowing for a bit of growth in fixed costs and R&D, that means that every extra £1m in revenue probably adds £0.4 / £0.5m in profit. It's important to recognise that this has been hidden in the performance we've seen to date, because it's all been going towards the fixed overheads and R&D, but once we pass break-even, those costs are covered and profits start to rise exponentially with revenue.
8. All of the above relates just to NIPT - we know that other products for oncology etc. are in the pipeline.

Overall, I'm feeling huge

Nothing new from TW - just references the tweet from the trade event and remains bullish

TW tipped as his top tip for Q1 yesterday. Did anyone see / hear the Adam Reynolds interview at UK Investor City Forum last night? Was expected to cover YGEN.

when the clowns come on

Strikes me that this may be more strategically significant than it looks - the RNS only references the TF platform, which on face value suggests that this enhanced offering will not be extended to the Illumina platform when that’s developed? Maybe this was how the YGEN team kept TF on board with the settlement terms, which would keep everything in play for them in the largest growth markets from an acquisition perspective?

That chart pattern can surely only mean news is coming on Monday. Maybe, just maybe, Santa's on his way?

Agree it would be good to get some clarity from AR about the TF deal as it was him who said that our CEO was actually over in the States talking to them about it back in October (which I thought was an odd thing to disclose publicly ahead of any deal being actually struck). I guess it’s possible that the discussions didn’t come to anything, or they may have led into bigger conversations about the longer term gameplan. I notice that TF financial year end is 31st Dec, which I guess might have a bearing on any announcement from their perspective, although I’m not sure that’s it’s a hugely material amount to them either way.

I agree with Notaflipper that we will get some very important news over the next few weeks. That news may take the form of new contracts or even new products, but that’s not what matters. What really matters is the revised strategy and the business plan that goes with that, including the forward projection of the numbers. To me, the period we are now in is the most important period in our history and the coming updates will fundamentally redefine the investment case, which should bring in fresh interest that’s looking forward, unburdened by the horrible history.

Not quite the weekend I was hoping for, but on reflection, it's actually been quite helpful that we've had a couple of days with the market closed to absorb the RNS's and understand what's actually happened here re the placing (assuming TWs account is accurate).

There was some odd wording in the placing RNS about the placing conditions that I do not recall seeing with other placings - edited extracts below:

"The First Tranche is conditional, amongst other things, on the following:

i. the Placing Agreement not being terminated prior to Admission of the First Tranche Shares and being otherwise unconditional in all respects;

The Second Tranche is conditional, amongst other things, on the following:

i. the Placing Agreement not being terminated prior to Admission of the Second Tranche Shares and being otherwise unconditional in all respects;

ii. the Subscription not being terminated prior to Admission and being otherwise unconditional in all respects (save in respect of Admission of the Subscription Shares)"

This struck me as odd at the time, but I figured it was a safety net for the directors, in case they couldn't raise the rest of the funds. However, I wonder now whether it was specifically included to allow the whole thing to be replaced with AR's fund-raising, which wasn't quite complete at the time of the RNS?

I think that, given events and the speculation over the weekend, it's pretty certain that we will get some form of further RNS in the morning, hopefully confirming that AR has done the placing at 10p and that it was oversubscribed (in which case, we should probably take as much as we can get).

I've never been in a share with a short squeeze on it before, so that could be interesting - average daily volumes are usually only a few million shares, so if anyone has sold forward in any quantity and needs to close rapidly, it might be a good day for LTHs. Add the possibility of increased news flow into the mix and I think it's going to be a very interesting few weeks.

Agree entirely notaflippa - there is also now nothing stopping a takeover offer at any point and the company is only going to get more expensive from that perspective, so why wouldn’t it happen sooner rather than later?

Yes, they do need to tighten up on their cost control, but it also looks like we're gearing up for a major commercial push (new CEO and new commercial director, plus that's the focus of the strategic review), so that means they'll be working on both sides of the equation (revenue and costs), which should help accelerate us towards true profitability.

The thing that was missing yesterday was any real forward looking numbers, which we always used to get from Hardman. I'm not sure if we will still get those, as it's not clear to me whether Hardman are still actively covering Premaitha, but it would be really helpful to get them - or maybe to get some form of planned revenue and cost growth off the back of the strategic review. My guess is that they will need to present the new plan to institutional investors if they want to do a further placing at a good price and while nobody really likes placings, I'm expecting the next one to be tied up with the launch of the revised strategy. Given the drag we've had on the business, a bit of a relaunch with the litigation out of the way seems like a good idea. We're starting from a pretty solid footing in terms of distribution and sales, plus we have various recent contracts (including India) only just starting to contribute commercially, so I think some form of PR offensive that sets out the investment case as it now stands would be a good idea.

I wasn't a subscriber to Share Prophets, but signed up today to hear first hand what TW has to say about it in his bearcast, as it seems like there's quite a lot been going on behind the scenes. I'm not going to repeat it here, as it's a fairly scathing attack on the role that the broker has played, but TW basically says that it wasn't Premaitha's fault and Adam Reynolds stepped in earlier this week to make sure that the placing was done at a sensible price. TWs going to provide an updated valuation on Monday.

Assuming that the placing was messed up initially but has now been done, as is being suggested, I think that explains a lot. If that's the case, the Board would almost certainly have always been planning to release the two RNS's together, but with the intention that the fundraising had been done, not proposed. The half year trading update would then have been considerably more upbeat, with £2.8m in the bank rather than the £0.3m stated, but it looks like whatever went on pushed them right to the wire, rather than it all being announced at 7am yesterday, or maybe even earlier in the week.

Regardless, if true, a successful fundraising with new investors coming in with fresh money at 10p is actually very good news, as it shows the value that people now see in the company. As LTHs it's easy for us to look at the glass being half empty (still not at break even after all this time etc) but new investors don't carry that baggage and can look objectively at the forward potential. They're not investing to get their £1.7m back at 10p per share.