Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Davand - it would be £40m, they would only need to acquire the 800m shares already in issue. The second tranche can’t be issued until the EGM, so it would be a swift move, ahead of the EGM to propose an alternative that would be more attractive to existing shareholders than what the BOD are proposing. £40m for a global business with £20m turnover on the brink of break even.
I think 5p would be a distinct possibility if anyone was interested because the business is a really great business that’s just been run with no regard for shareholder value. The BOD must know it’s a possibility too - maybe that’s the reason for this being done three days before the Christmas break, when everyone who might work on a takeover offer isn’t working.
I don’t think so - they’d have to make it an attractive alternative to waiting for the recovery, which I suspect will miraculously happen very quickly.
If anyone has been eying up YGEN, would now be the time to make a move? Put in an offer at 5p a share and existing holders would take their hand off for it.
"The year-to-date performance and healthy commercial pipeline supports unchanged management revenue expectations for the year as a whole"
"the Board continues to assess its cost base in the context of its pipeline of commercial partnerships and discretionary investment options. The Board is confident that it can further reduce operating costs to achieve positive adjusted EBITDA in the next financial year, and can exercise control over discretionary spending and working capital to manage the Group's financial position"
"Lyn Rees, Chief Executive Officer of Yourgene, commented: "The year-to-date performance informs the Board's confidence in the business remaining on track to deliver full-year revenues in line with expectations and to prioritise market penetration over near-term EBITDA delivery. Yourgene remains well placed to exploit the opportunities available to its growing portfolio of genomic products and services and, with additional partnerships in place and being added, is expanding its market access to create significant strategic value."
Question for the EGM: How can so much have changed in just six weeks?
But if they're that desperate, LR's position must be unsustainable, given what he's on record as having said. And how on earth will they get the institutional investors to support it? (unless they're all out already, in which case there are other questions to answer).
One thing that struck me about the announcement is the apparent urgency to push ahead with the first tranche of 66m shares. That will only raise £200k, but it seems that will be pushed through immediately, based on the existing authorities that the BOD have. It reads that the BOD shares will all be part of the second tranche, but I also noted the following in the detail of the fundraising: "On or before Second Admission, the following Directors intend to step down from the Board: Adam Reynolds, Dr. Stephen Little, Hayden Jeffreys and Dr. Joanne Mason". Are they stepping down before their new shares are approved, or afterwards? Will any of the initial tranche be allocated to the directors, or is it all via an open market bookbuild? Why the urgency for the first tranche? Who benefits from that being secured ahead of the EGM?
I think there is more to play out here than we can see at this point. We have a company that recently told shareholders they didn’t need to raise funds not only doing so at the lowest ebb the sp has ever seen, but discounting the raise by a whopping 75% to boot, when the business is not just fundamentally sound, but growing well and with a good pipeline. The BOD have a great deal of explaining to do ahead of the EGM, not least why a rights issue to existing shareholders at ten times the proposed price isn’t a viable option. Who wouldn’t support that versus what’s on the table?
Natdan, you're not the first person on here to raise the possibility of YGEN being taken private. I've not experienced that before with any of my holdings, but I think you're suggesting that it would be accompanied by a derisory offer from whoever it might be who was proposing that. However, I'm not sure that means that any investors would have to sell at that price, they would only need to sell if they wanted to avoid continuing to hold without the liquidity that being listed provides. I hold shares in a number of private (unlisted) companies, acquired through participating in early stage crowdfunding. The shares cannot be easily sold at this point, but that doesn't mean that they are not growing in value - at some point I expect the shares to either be listed, or for an attractive offer to be made for the whole business, at which point I will receive the money from whoever buys it. Wouldn't it be the same with YGEN, we could just hold on to the shares and they would appreciate in value , but without a liquid market. There would need to be some kind of event (takeover, or relisting) that allows us to exit, but that's just a timing thing. I don't think it's possible for the BOD to say that they're taking it private and we must sell our shares to them? To force us to sell, there would have to be a takeover offer, which would be subject to all the usual rules of the City Code?
The mid-year trading update has been mid to late October in each of the last three years. Lyn alluded to this year’s update being to a similar timescale, or maybe early November, so I think they will use that statement to settle nerves.
We already know from the AGM that they are (at least) on track to meet market / broker expectations for this financial year, with a significant pipeline already building into H2. The business is broadly at break even, with easily enough cash to cover their operations and a whole host of opportunities are now coming to fruition, so I’m expecting an upbeat trading update and a material re-rate back into the teens in the very near future.
The only consolation of the current SP is that the disconnect between the underlying value and future earnings of the company is now bigger than it has ever been. The markets are driven by both sentiment and fundamentals. Sentiment seems to have the upper hand at the moment, but with the return to 20%+ annual growth and a whole string of upside opportunities coming through, there will come a point very soon where the fundamentals kick in, as YGEN moves definitively into profit.
Our Market Cap is now less than last year's annual revenues and less than 2x the pre-Covid revenues. That in itself is a massive undervaluation, but add in the revenue potential from the substantial expansion in both commercial capability and lab capacity that has happened over the past two years and its staggering.
I think the 20% growth number that existing broker forecasts are based on will be significantly exceeded in the coming months. The market is ultimately only interested in whether the business will make money - the SP is pants, but it's clear that Yourgene is better placed than it has ever been to drive forward material growth in revenues and profitability. The idea that a global biotech selling over 100 products into 65 countries in expanding markets with IP protection around its key technologies, zero debt and 20%+ growth in its core business is worth just £35m is frankly absurd. The market will wake up to that at some point soon.
I'm not sure that all the speculation about a low ball buy-out is realistic. We need to remember that the II's are very significantly underwater too and they demonstrated the power they can exert by exercising their muscles at last year's AGM, which led to the embarrassing withdrawal of what would otherwise have been a relatively standard pre-emption rights resolution.
Any proposal to sell the company would need to satisfy those investors, many of whom invested at 17p per share back in August 2020 as part of the placing for the Coastal Genomics acquisition. They will want to see a return on their investment, so unless the company is in distress (and there is no indication of that), I'm struggling to see a scenario where any offer below that level could be credibly recommended by the Board - surely they'd simply say 'thanks but no thanks, we'll just keep going as we are'. The only circumstance where that choice would be taken away from the Board is in a hostile takeover situation, in which case the suitor would have been stake-building ahead of making an offer and it's abundantly clear that's not been happening.
My guess is that YGEN is simply out of favour with the market and until that changes, the SP will stagnate. If that's the case, it would only take the slightest sniff of an upgrade to revenues (and ideally profits) in the trading update to turn things around and a very decent re-rate could be on the cards.
I have to admit that today's RNS took me by surprise - firstly because I was leaning towards them wrapping up the trial without a further DE (for the reasons in my post earlier in the week), but secondly because such a short length of time has elapsed compared to previous DEs.
The first patient in cohort 1 was dosed on 11/08/21
The dose escalation to cohort 2 was announced on 03/02/22 (176 days later)
The dose escalation to cohort 3 was announced on 29/09/22 (146 days later)
The latest dose escalation was announced today (64 days later)
That is a huge reduction in the cycle time for the latest cohort.
We know from what AS has said previously that Covid disruptions slowed the cycle time for the first cohort. My understanding is that the 3+3 trial design requires that any patient who doesn't complete the trial must be replaced. This presumably significantly extends the cycle time for the whole cohort, as any patient who joins the cohort late still needs to go through the whole cycle.
We know that the patients who have selflessly volunteered for this trial are extremely sick. Given the advanced stage of their disease, it seems inevitable therefore that some of those patients will sadly not make it through the trial, requiring the recruitment of additional patients into the cohort to meet the trial's design requirements. Indeed, there was some suggestion that AS alluded to this possibility in one of his updates.
Now, if we assume that AVA6000 is working as expected, then it's also fair to assume that, all other things being equal, it's efficacy will likely increase as the dose is increased (subject to the potential constraints that I mentioned in my previous post). If that's the case then, given that each cohort starts with a fresh group of patients, we could reasonably hypothesise that, all other things being equal, the patients in the later cohorts would likely experience the most therapeutic benefit from participating in the trial. Correspondingly, we could also expect that they would be more likely to successfully reach the end of the treatment cycle.
There must be a reason for the latest cohort cycle time being so much shorter than the previous cycle times. To me it is highly suggestive that they did not need to recruit any additional patients into this cohort, which allowed the cohort to complete uninterrupted. If that's the case, it could be just down to chance, or it could equally be that the latest cohort saw a marked improvement in therapeutic efficacy, which enabled all of them to complete the cycle as an uninterrupted collective.
I don't know whether we will get the readout from the whole trial at the same time as the last cohort finishes, or whether they may announce the end of trial first and then release the data a few days later. Either way, if cohort 4 finishes in a similar (or shorter) timescale to cohort 3, then I think we would know that the drug was hitting the mark.
I've been thinking about whether there will be a further DE before phase 1 is drawn to a close and while it could clearly go either way, I'm personally now leaning towards there not being a further dose escalation. The reasoning behind this is as follows:
1. Given that we haven't hit MTD yet, it seems pretty clear that the Dox is being contained (outside of the TME) and therefore we are unlikely to reach dose limiting toxicity any time soon in terms of impacts away from the TME.
2. In terms of Dox levels in the TME, then assuming that AVA6000 is cleaving, we are already at doses that are many multiples (likely orders of magnitude) greater than standard Dox.
3. While the TME has its own physiology and pathology, my understanding is that it's not an island that's completely cut off from its surrounding tissues (it's more of a land-locked entity). I suspect, therefore (and I'm happy to be corrected), that even though the Dox is only being released in the TME, there will be some kind of halo effect on the surrounding tissues, as presumably those tissues will experience the highest levels of leakage from the cleaved Dox. If that's true, then continuing to escalate the dose ad infinitum is not without consequence - it may not cause the kind of systemic side effects that normal chemo does, but it could cause significant harm to tissues local to the TME.
I recognise that that it's a tasteless metaphor, but using military action as a comparator, then there are a range of options for taking out a target. A bullet is the most precise and least likely to cause collateral damage. A precision missile is the next most targeted, but may cause some collateral damage in a halo around the strike zone. A cluster bomb will take out the target and everything around it. Thermobaric and then nuclear weapons come next. The point being that escalating the intensity of the attack increases the certainty of destroying the target, but also expands the size of the 'halo' impact. That matters if your dealing with cancers attached to (or close to) important organs, as there's little point in destroying the cancer if you destroy the tissues of a surrounding organ at the same time.
So, my feeling is that there's a good chance that phase 1 may be drawn to a close sooner rather than later because, assuming it's working, the team will want to move forward with the next phase of the trials on the basis that the levels of Dox in the TME are probably already well in excess of what will be needed to material enhance the therapeutic index of the drug. There must also be a significant possibility that they have already reached the effective maximum therapeutic efficacy of the drug - i.e. if a tumour isn't responding at the current levels, then it's probably Dox resistant and may not respond to at any level.
Exciting few weeks ahead.
I actually thought the presentation was professional and reassuring - nothing new in terms of the strategy and key messages, but it does sound like they are now making material progress in the US, where they are wanting to expand their commercial presence to capitalise on the pipeline of opportunities they are working on. That suggests to me that growth is not just returning, but will accelerate markedly with the right commercial resources in place.
While he was true to previous form on the share price, Lyn did say that the business was seriously undervalued. Sooner or later the market cap will adjust to reflect the growth and revenue potential of the business - that's how the market works.
After re-watching Alastair's presentation of the recent AVA6000 poster for the AACR (https://avacta.wistia.com/medias/kv40kul5b2), I've been doing a bit of research on Patient Derived Xenograft (PDX) models, which Alastair covers 8mins 40secs through the presentation. The information that's readily available on these models is quite technical, but the following paper, which explores the pitfalls of the models, is quite helpful in explaining what PDX models are, how they are used and what their limitations are: https://www.oncotarget.com/article/27001/text/
In essence, human tumours are transplanted into genetically immunodeficient mice (I think this is to prevent the innate immune response in the mice from attacking the transplanted cancer) and then therapies are trialed to determine the efficacy of whatever drugs are being considered. It seems that these models are used in both drug development (as with AVA6000) and in personalised treatment planning. The former seeks to identify the efficacy of new treatments against a range of PDX models derived from different patients, whereas the latter seeks to identify the efficacy of a range of different treatments against a specific patient's tumour, to enable a personalised treatment plan to be developed for that patient, based on which drug(s) worked best with the mouse PDX models.
The main limitation with these PDX models seems to be that, in some cases, the resulting tumour growth can sometimes take on the characteristics of murine (rodent) cancer cells, rather than simply propagating the implanted human cancer cells, which would clearly limit the utility of the models for determining the efficacy of the drug being evaluated on human cancers. However, this limitation seems to be well understood and the models do seem to be regarded as an effective means of evaluating the effect of new oncology drugs on human cancer cells.
I have to say that I hadn't fully appreciated the significance of the PDX models, but it's obvious to me now why the share price rocketed when the poster was published - the In Vivo PDX model data isn't simply about the efficacy of AVA6000 in mice, it's about the efficacy of AVA6000 on human cancer cells in mice. That's hugely significant, as you would imagine that the TME of human cancer cells mice would likely to be very similar, if not near identical to the TME of the same tumours in humans. Given the clear efficacy of AVA6000 versus both placebo and ordinary Doxorubicin in the PDX mouse models, the only logical conclusion I can draw is that AVA6000 was clearly being cleaved in the TME of these mouse PDX models, a TME which is likely significantly closer to human biology than mouse biology, as it's made up of human cancer cells.
AS has access to all the trial data as it emerges and can compare all of it to what they saw in the PDX models - I think his continued confidence is hugely significant.
Yourgene is an enigma to me. Notwithstanding the various own goals over the last 5 /10 /15 years (yes, been in since Vialogy), YGEN is now poised for global expansion across literally dozens of markets, and yet, we’re sitting here with a market cap that’s only fractionally more than 1x last yeast’s annual revenues. And that’s in a sector where, even in a bear market, the most mature (low growth) businesses trade at 5 to 6 times annual revenues and high growth businesses trade at multiples of those numbers. At some point, YGEN is going to post some numbers that the market has to respond to and when it does, we will surely be in for a huge re-rating.
Lyn is characteristically coy about what the YGEN share price should be. But it’s not a difficult question - we’ve acquired a number of businesses in the sector, so it’s not difficult to put a value on what YGEN is really worth. My question for Lyn when I next get the opportunity to ask is “Yourgene has a track record of acquiring promising businesses to support its growth plans. If you came across a company doing what Yourgene is doing today, how much would you be prepared to pay for all that potential”. I’d love to know the answer.
A quick question for any intellectual property experts out there. Will the licensing of the precision version of a drug lead to a new period of patent protection for whoever licences it? Just thinking that, if that’s the case, there could be an absolute tsunami of pharma companies queuing up if AVA6000 proves successful. If the licensing effectively creates a new patent, then regardless of whether the current (non-prescision) version is on or off patent, you could imagine that the existing manufacturers would want to move very rapidly to protect their existing revenue streams.
I've been thinking about the steer that AS gave at the AGM that AVA6000 would likely be targeting ovarian and soft tissue sarcoma in the dose expansion phase and what we might infer from that. I was particularly wondering how they had concluded that those were the cancer types to target and why, for example, not include pancreatic cancer or maybe breast cancer?
Looking at some of the literature, it's clear that different cancers respond differently to different treatments at different stages. So, standard of care not only differs according to the type of cancer, but also according to what stage the cancer has reached. We know that Doxorubicin is a very powerful chemo drug, but it doesn't seem to have universal application in terms of being selected as standard of care for all types of cancer - it's primarily used to treat breast cancer, ovarian cancer, soft-tissue sarcoma and lymphoma (not pancreatic cancer, as far as I can tell).
Perhaps unsurprisingly, the trial may be showing that the most promising results have been seen with two of the main types of cancer for which Dox is already the standard of care i.e. greatest benefit is derived from taking a drug that already works well for a particular cancer and super-charging it. Presumably, it will also be relatively easier to seek approval for a pro-drug that is already the accepted standard of care, than to try and broaden its application and displace completely different drugs used for other types of cancer.
So what can we infer from this? Well, I think we can be pretty certain that the trial must include patients suffering from ovarian cancer and soft tissue sarcoma - otherwise, how could they possibly be confident of targeting those in the next phase? And then that leads to a further inference, which is that either those are the only two types of cancer that the patients in the trial have (unlikely), or that there are other cancer types included, but that those have responded relatively less well. That wouldn't be a surprise, because ordinary Dox has varying efficacy for different types of tumours, so Pro-Dox probably will do too. But, crucially, that difference could only be observed if the drug was having an effect on the tumours i.e. AVA6000 is being cleaved in the TME and the Dox is being released - it must be working, otherwise, how could you determine which cancer types to target in the next phase?
Just listened to the presentation and they have an incredibly impressive offering - I was struck by the M&A pricing info too, which gives an indication of what someone would pay for YGEN (i.e. around £375m - interesting slip of the tongue there from Lyn when he was talking about revenues). The Ranger tech sounds like a real differentiator that will drive huge value in the US and globally and could be very attractive to a larger player.
To be fair to Lyn, they really do have all their ducks lined up now - a hugely broad platform that's primed to drive real growth across a much wider range of global markets than ever before.
I'm feeling very excited again by the prospects here.