VSA Morning Technology Comment, 28/04/21
Frontier IP Group (LON:FIPP)
Portfolio Company Investment Announced – led by SoftBank Vision Fund 2
Frontier IP Group today announced that portfolio company Exscientia Limited ("Exscientia") has successfully completed a US$225 million Series D funding round. Exscientia, is a UK based clinical stage pharmatech company pioneering the use of artificial intelligence (AI) to design new drugs.
SoftBank Vision Fund 2i led the Series D and was joined by previous round lead investors, Novo Holdings and funds managed by Blackrock. Other investors included Mubadala Investment Company, Farallon Capital, Casdin Capital, GT Healthcare Capital, Marshall Wace, Pivotal bioVenture Partners, Laurion Capital, Hongkou and Bristol-Myers Squibb.
In addition, SoftBank is providing an additional US$300 million equity commitment that can be drawn at the Company's discretion.
On March 4th 2021, Exscientia previously announced Series C investment round of US$100 million. The valuation of that round and the Series D round have not been disclosed. Following the Series C round, Frontier IP held a 2.1 per cent equity stake in Exscientia.
Exscientia uses AI across its platform from target identification through drug design and patient selection in order to precision engineer new medicines. According to today’s announcement, Exscientia has advanced the first two fully AI-designed drugs into clinical trials and now has over 20 active programs in its pipeline. The new capital from the Series D round will be used to advance Exscientia's proprietary pipeline through clinical testing as well as to continue expanding the technology platform toward autonomous drug design.
The scale of the funding round announced today, and the overall quality of the investor base reflects on progress that Exscientia is making - Exscientia was named the fastest growing private biotech or pharmaceutical company in the UK in the 2021 Alantra Pharma Fast 50.
Frontier IP Trading Update – “Materially Ahead of Management Expectations”
Of the 19 portfolio companies that Frontier IP has stakes in, a number are at a point of acceleration in commercial development, paving the way for a step up in valuation or a potential exit. The Group’s equity holdings are in four high growth technology clusters comprising: artificial intelligence, robotics and big and sparse data; pathogens and cell imaging; food and agritech; and engineered particles and materials. Frontier IP has a proven record in commercialising University IP to grow its own EPS and NAV by growing portfolio company valuations. That success is seeing the Group invest in its own expansion for growth.
At Interims, announced in March 2021, the Group noted it had seen progress in the second half of the Group's financial year with further fundraising and commercialisation activity across its portfolio. In addition to this progress it has just announced the Series D funding for Exscientia. In the trading update today, the Group notes that, “This is expected to result in an uplift in Frontier IP's book value for its holding which will be reflected in the Group's results to 30 June 2021.”
Frontier IP also announced today that, “As a result of overall trading across the portfolio in the year to date, the Group anticipates that the outcome for the year ending 30 June 2021 will be materially ahead of management expectations with a significant contribution to the outcome being the increase in the book value of the Group's interest in Exscientia.”
We believe that Frontier IP represents an excellent opportunity for investors to gain exposure to early-stage technology companies, based on leading edge IP, which meets the needs and demands of international markets. Although Frontier IP has yet to have an exit to crystallise cash value, and the timing and value of potential exits is hard to assess, given the number of companies in the Frontier IP portfolio now at inflection points, this is becoming a real possibility over the next twelve months.
As a result, we believe the shares offer distinct valuation upside potential. Buy
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All disclosures and supporting charts can be found in the PDF version.
Phil Smith, Equity Analyst, Technology | T: +44 (0)20 3617 5187 | E: psmith@vsacapital.com
VSA Capital Research | T: +44 (0)20 3005 5000 | E: research@vsacapital.com
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