Sometimes value can be hidden in plain sight. Berenberg thinks that is the case with IP Group PLC (LSE:IPO), the London-listed investor in university spin-outs, where it sees a “significant" opportunity in a licensing deal linked to the booming obesity-drug market.
The note highlights IP Group’s tie-up with Metsera, a Nasdaq-listed biotech developing next-generation weight-loss treatments. Pfizer last month agreed to buy Metsera for up to $7.3 billion, including $4.9 billion upfront.
That deal, says Berenberg, shines a light on the potential royalty stream that could flow to IP Group through its original stake in Zihipp, a company spun out of Imperial College London and later acquired by Metsera.
Under the terms of the agreement, IP Group is entitled to milestone payments, annual fees and a low single-digit royalty on any eventual sales of Metsera’s lead drugs, including its injectable and oral GLP-1 candidates.
Half of those revenues would be shared with Imperial.
Berenberg admits valuing the licence is difficult given uncertainties over clinical trials, timing and market share.
But even on conservative assumptions, it estimates a net present value of more than £100 million (a fifth of IP's current market value), or potentially far higher if the drugs progress successfully.
Berenberg flags the chance that Pfizer or another buyer could purchase the licence outright, giving IP Group a faster route to monetisation.
In a note, it repeated its “buy” rating and 100p price target, arguing that the Metsera link could help narrow the gap between IP Group’s market value and its assets.
Deutsche Numis, which believes the royalties could be "substantial", values the stock at 103p.
It said in a note: "Metsera is currently not included in the net asset value, and, in our view, if successful, may, in time, contribute to a narrowing of the [IP Group] discount (currently of around 47%),
"We leave numbers unchanged pending an opportunity to collaborate with our Pfizer analyst."
The update from IP Group on highlighting the Metsera opportunity appears to have jolted the investment community into life, with the stock up 13% at 60.15p in early afternoon trading.