Not many companies are working to save humanity from disaster, but drugs developer Redx Pharma (REDX) can claim to be one of the few. The group's pipeline of new treatments includes novel antibiotics that are not only commercially sought after, but desperately needed to head off a looming public health crisis.
- Big pharma endorsement
- Strong pipeline of drugs
- Business model focuses on upfront revenues
- Deal execution and clinical approval risk
- Significant profits still far off
A 2011 report by the UK's chief medical officer, Dame Sally Davies, described antimicrobial resistance - the evolution of superbugs such as MRSA and C.difficile - as a "ticking time bomb" and "a threat arguably as important as climate change". Pharmaceuticals giants are failing to meet the need, having reduced research into antibiotics in favour of higher-margin treatments in recent years, and need to strike partnerships with developers to head off a fast-approaching 'patent cliff'.
Redx, whose shares came to Aim in March, hopes to fill this gap and offers investors exposure to the huge and increasing demand for new oncology and anti-infective treatments. Its chemistry technology - which involves exploiting the gaps in big pharma patents - received an enormous vote of confidence in September from AstraZeneca (AZN), which signed a two-year deal to develop an undisclosed cancer drug. That collaboration has the potential for significant licence fees, clinical and commercial milestone payments and royalties.
A further four programmes have reached the pre-clinical 'proof of concept' stage, and commercial agreements with GlaxoSmithKline (GSK) and French pharma group Pierre Fabre are further validation of the company's focus. Additional funds are coming from a £4.2m regional grant from the government, plus the NHS and the University of Liverpool, which are providing Redx with £5.6m and the use of clinical facilities to develop an effective treatment for MRSA. These revenue streams, combined with the £15m raised from this year's initial public offering, give Redx the funds to cope with the cash burn of costly research. Analysts at broker Shore Capital, which is Redx's adviser, expect the company to turn a small profit in 2015-16.
This business model is a major bull point. Young pharmaceuticals companies often struggle in the transition to profitability, which in turn can hit sentiment towards their shares. The fact that Redx is prepared to enter into early-stage collaborations may sacrifice some long-term profits, but the plan provides the company with cash flow and credibility which in turn can help to expand its development portfolio.
Investing in drugs developers is especially risky when companies rely heavily on the pharmacological and commercial success of one or two projects. Shareholders in Redx should therefore take comfort from the wide pipeline of projects in the company's portfolio, which was further expanded this week with the discovery of a potential new treatment for blood cancers and autoimmune diseases.
REDX PHARMA (REDX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 90p | MARKET VALUE: | £58.5m | |
| TOUCH: | 88-90p | 12-MONTH HIGH: | 91p | LOW: 84p |
| FORWARD DIVIDEND YIELD: | nil | FORWARD PE RATIO: | 19 | |
| NET ASSET VALUE: | 3p* | NET CASH: | £0.9m* | |
| Year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014* | – | -4.3 | – | nil |
| 2015† | 4.1 | -4.9 | -8.1 | nil |
| 2016† | 8.5 | 0.1 | 0.2 | nil |
| 2017† | 15.3 | 3.5 | 4.8 | nil |
| % change | +80 | – | – | – |
Normal market size: 3,000 Market makers: 3 Beta: na *Pre-IPO figures, which exclude £15m fundraising †Shore Capital forecasts | ||||
