VSA Morning Technology Comment, 13/09/21
Frontier IP Group (LON:FIPP)
Portfolio Company Exscientia - Registration statement filed for proposed initial public offering of Exscientia in the United States
Frontier IP Group (LON:FIPP) this morning notes that a registration statement on Form F-1 (the "Registration Statement") has been filed for portfolio company Exscientia Limited with the U.S. Securities and Exchange Commission (the "SEC") relating to a proposed initial public offering of Exscientia (the "IPO") in the United States of its Share Securities ("Share Securities").
Frontier IP also noted in its RNS this morning that, “At this stage there can be no certainty on the IPO proceeding nor the terms or timing of the IPO. Further announcements will be made by Frontier IP at the appropriate time.”
The news today from Frontier IP follows an announcement last week that Exscientia was entering into a US$70 million collaboration, over a four-year period, with the Bill & Melinda Gates Foundation’s Strategic Investment Fund (SIF) to develop anti-viral therapeutics against Coronavirus and other viruses with pandemic potential.
Exscientia uses AI across its technology platform from target identification through drug design and patient selection in order to precision engineer new medicines.
The collaboration with the Bill & Melinda Gates Foundation will initially focus on developing broad-spectrum Coronavirus agents (e.g., SARSCoV-2 and its variants, MERS), including accelerating Exscientia’s lead program, which targets the main protease (Mpro) of SARS-CoV-2, the virus responsible for COVID-19. Subsequently, the collaboration will expand to develop therapeutics for influenza and Paramyxoviridae (e.g., Nipah), with the potential to develop additional programs as identified by the joint team.
Exscientia is gaining commercial traction and securing significant investment. In May 2021 Exscientia announced that it had entered into a collaboration agreement with Bristol-Myers Squibb Company (NYSE: BMY) to accelerate the discovery of small molecule therapeutic drug candidates in multiple therapeutic areas, including oncology & immunology. The agreement with Bristol Myers Squibb includes up to US$50 million in upfront funding, up to US$125 million on completion of near to mid-term potential milestones, and additional clinical, regulatory and commercial payments that take the potential value of the deal beyond US$1.2 billion.
Exscientia completed a US$100 million Series C funding round and in April 2021 a US$225 million Series D funding round led by SoftBank’s Vision Fund 2i and other major investors. The valuation of the 2021 Series D and Series C rounds has not been disclosed. Following the Series C round, Frontier IP held a 2.1 per cent equity stake in Exscientia.
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. Frontier IP also announced on April 28th 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, such as the proposed Exscientia IPO, 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
#Indicates VSA house stock.
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Phil Smith, Research Director, 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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