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Buy into Oxford BioMedica growth spurt

Oxford BioMedica looks far more attractive since Novartis came knocking.
April 1, 2015

Oxford BioMedica (OXB) was once your typical, high-cash-burn biotech outfit, but last October the outlook for the business was transformed by a major drug-development deal with a big pharma partner. With profits now in sight, net cash on the balance sheet and important data releases on the horizon, investors should buy into OXB's de-risked model.

IC TIP: Buy at 12.3p
Tip style
Speculative
Risk rating
High
Timescale
Long Term
Bull points
  • Novartis deal
  • Sanofi licensing deal
  • Net cash
  • Visible revenue stream
Bear points
  • Clinical failure risk
  • Growing capacity demands

Until last October, Oxford BioMedica had promised big, but returned little to investors. Floating in 1996, the share price fell from a peak above 120p during the biotech boom of 2000 to below 2p during 2013, not really picking up speed until late last year. Along the way, the group secured some big pharma partnerships, most notably with French group Sanofi, which took on development of two OXB products: StarGen (a gene-based therapy for the treatment of the degenerative retinal Stargardt disease) and UshStat (which targets the retinitis pigmentosa aspect of Usher Syndrome, a common form of deaf-blindness).

 

 

But it wasn't until Swiss group Novartis (NOVN) came knocking last October that things turned around. As a specialist in gene-based therapies, it is perhaps unsurprising that OXB caught the attention of multiple partners. The big guns want to develop lucrative treatments that target patients in a 'personalised' manner, and thus promise massive commercial success. Cancer is the optimum field for such treatments and, while OXB has had its own high-profile clinical failures in this field, such as its TroVax kidney-cancer drug in 2008, it found success signing a three-year licensing deal to help develop Novartis' Cart-19 leukaemia drug.

Cart-19 involves re-engineering a patient's disease-fighting T-cells so they hunt down and destroy cancer cells. There's excitement about the drug's prospects after early-stage trials found 19 out of 22 children with lymphoblastic leukaemia went into complete remission after receiving it. In return for helping Novartis develop the drug, the Swiss giant will pay OXB up to $90m over the next three years and take a 2.8 per cent stake in the company. But that doesn't include undisclosed royalty payments from future potential sales of Cart-19.

As a result, Oxford BioMedica's cash flow has been transformed. With the top line significantly boosted by upfront payments from Novartis, the company hopes to break even in 2016 before moving into the black in 2017. The deal is also a huge vote of confidence in the group's LentiVector platform, which delivers genetic material efficiently and stably, making it a valuable tool for gene-therapy development. In medical research, the technology can be used as part of transgenesis, stem-cell manipulation, somatic-disease models and gene discovery, and it has proved to be effective across multiple therapeutic fields. All in all, this sets a convincing precedent for more pharmaceutical partnerships.

Meanwhile, City analysts believe that, if data from OXB's own RetinoStat clinical trials (due in mid-2015) proves positive, the macular degeneration product could be another "licensable asset", with positive implications for the share price.

OXFORD BIOMEDICA (OXB)
ORD PRICE:12.3pMARKET VALUE:£316m
TOUCH:12.3-12.5p12-MONTHS HIGH:13pLOW: 2p
FORWARD DIVIDEND YIELD:nilFORWARD PE RATIO:na
NET ASSET VALUE:0.9pNET CASH:£13.2m

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20127.8-10.3-0.8nil
20135.4-12.8-0.8nil
201413.6-10.8 -0.1nil
2015*14.5-5.2-0.1nil 
2016*15.5-4.7-0.1nil
% change+7---

Normal market size: 50,000

Matched bargain trading

Beta: 1.50

*Peel Hunt forecasts, subject to revision following 2014 results