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Abzena plc: THE INVESTMENT CASE

Abzena a play on the biologics revolution, says City broker

The subsector in which Abezena is active in (monoclonal antibody and conjugated monoclonal antibodies) could expand to US$180bn, Peel Hunt’s research suggests
Abzena a play on the biologics revolution, says City broker
INVESTMENT OVERVIEW: ABZA The Big Picture
The company works with 18 of the top 25 biopharma companies in the US and the EU

Abzena PLC (LON:ABZA) is a “diverse play” on the biologics revolution. That, at least is the conclusion of Miles Dixon, healthcare analyst at the City broker Peel Hunt.

The market for biologics, which covers disciplines as diverse as vaccines, allergenics and monoclonal antibodies, is expected to grow to US$330bn by 2022.

READ: Abzena moves UK operations to new Cambridge facility; signs lease for new San Diego base

That’s a huge opportunity for the company, which has developed technology that helps biopharmaceutical companies improve drug candidates.

Where the company’s technology is used to enhance or enable a treatment, this normally results in milestone payments and/or royalties on the sale of an approved product.

Collaborations 

It currently has 14 ‘Abzena Inside’ collaboration deals with drug developers at different phases of development.

“This model creates a dual strategy for revenue generation and has the potential to provide significant cash to the business in future years as milestones fall due or the products reach the market,” said analyst Dixon.  

He believes the shares are worth 42p each, with the services part of the business valued at 19p a share and pharmaceuticals candidates pencilled in to his model at 23p. Currently, the shares are changing hands for 26p each, giving Abzena a market capitalisation of £47mln.

WATCH: Growth & investment strategy starting to bear fruit for Abzena PLC

The hybrid model, Dixon believes, “allows investors to avoid the risk of investing in single-candidate pipeline stories but benefit from the biologics revolution of antibody-derived therapies”.

Abzena was created in 2013 when Polytherics, a business founded by Imperial College London and the University of London’s School of Pharmacy, paid £11.5mln for a company called Antitope. It floated on AIM a year later before acquiring two operations in the US – PacificGMP and The Chemistry Research Solution.

Today, it offers a broad portfolio of services helping pharma companies and universities select, develop and manufacture antibodies and proteins. It has three main units: chemistry research, biology research and drug manufacturing services. And it works with 18 of the top 25 biopharma companies in the US and EU.

Abzena Inside

The ‘Abzena Inside’ portfolio includes a tie-up with Gilead Sciences Inc, (NASDAQ:GILD)  a giant of the biotech world.

As mentioned earlier, the firm is tapping into a large and fertile market.

Big pharma is currently looking for replacements for former blockbuster therapies.

However, the flow of these one-size-fits-all treatments for ailments such as high cholesterol, cancer and asthma that have supported the growth of these behemoths to date has slowed to a trickle.

Instead, the focus has turned to personalised medicines, recognising that physiologically no two humans are alike.

This has spawned a series of new drugs that find their origins in bio-medical research.

As mentioned earlier, in five years, the biologics market could be worth a whopping US$330bn if it carries on at its current trajectory.

Rich sub-sector

The subsector in which Abzena is active in (monoclonal antibody and conjugated monoclonal antibodies) could expand to US$180bn, Peel Hunt’s research suggests.

The broker bases its investment thesis on the growth profile of the market it serves, pointing out the company is set for renewed growth after a heavy investment phase.

The diversified portfolio helps mitigate some of the risk, while the business also has a “rich heritage of high profile clients”, analyst Dixon pointed out.

“Abzena is an undervalued CRDMO [research, development and manufacturing] business that delivers robust revenues from its specialist services at the point of delivery,” he added.

“The company benefits from extensive repeat business (c80% by revenue in 2017) as clients stay with Abzena throughout the development cycle for therapeutics.

“Furthermore, Abzena has upside potential from future royalties secured on a number of its co-developed products – the Abzena Inside portfolio.”

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