Northland Capital believes that SkinBioTheraputics PLC (LON:SBTX) is “significantly undervalued” amongst its peers despite having demonstrated significant progress since its IPO almost exactly a year ago.
In a note to clients initiating coverage on the microbiome skincare company, the joint ‘house’ broker noted that, as SkinBio operates in a new therapeutic area, there is little market data in the sector.
As a result, Northland said it has compiled a basket of comparable peers operating in the microbiome space, or in the cosmetic goods sector.
The broker noted that, with an average market capitalisation of £73mln for the basket, SkinBio - currently valued at £13.65mln - is significantly below that level.
SkinBio floated on AIM on April 5 last year at 9p a share, which valued the business at around £6mln, after raising £4.5mln from a placing of 50mln new ordinary shares, and the stock has risen by 50% to 12p currently.
Northland noted that SkinBio is an early entrant in the new and potentially high growth market of probiotic skin health.
It added that since 2010, microbiome companies have attracted around US$840mln in equity investments globally.
The firm’s proprietary probiotic platform, SkinBiotix, has completed three toxicity tests with no safety issues, clearing a hurdle in the regulatory process and further de-risking the pathway to commercialisation.
The company intends to conduct and complete a volunteer study for the cosmetic application of SkinBiotix in 2018, and positive data should permit labelling of the cosmetic as ‘dermatologically tested’.
Northland pointed out that cosmetic studies are shorter than drug trials, providing a shorter path to commercialisation.
The company operates a semi-virtual business structure and focuses on developing commercially-ready technology to be licensed to larger companies for marketing of the end-product.
It has already signed a material transfer agreement with an unnamed global consumer goods company which demonstrates the level of interest from potential partners and the commercial prospects of the SkinBiotix platform.
The broker noted that the microbiome is a growing area and is attracting significant interest from large cosmetic and consumer goods companies, including L’Oréal, Procter & Gamble and Johnson & Johnson.
Dr Cath O’Neill, CEO of SkinBio, in collaboration with Professor Andrew McBain of the University of Manchester, first began investigating the role of the microbiome in skin health.
Their proof-of-principle research focused on the use of probiotics, beneficial bacteria, to improve skin wellbeing, including barrier strength, wound healing and infection control.
In 2016, AIM-listed OptiBiotix Health PL (LON:OPTI) – an healthcare company developing nutraceuticals which modulate the human microbiome - recognised the commercial potential of O’Neill’s research and acquired the technology and associated IP from the University of Manchester.
OptiBiotix subsequently chose to spin-out SkinBio as a separate entity to crystallise the value in the business.
Northland concluded that, in its view, SkinBio’s market capitalisation has not risen to reflect the progress in operations demonstrated by the year’s milestones. Therefore, the broker thinks, the company is significantly undervalued.