Oxford BioMedica (OXB), like the majority of small-cap biotechnology companies, is a notorious cash guzzler. In the first half of its current financial year, for example, research, development and administration spending of £16m and capital expenditure of £6m dwarfed the loss-making company's gross income of £14m. But unlike the majority of its peers, the company also carries a hefty level of debt, which has been secured on punishing terms. This is all the more concerning considering OXB has not turned a profit since its inception in 1995. It has also repeatedly returned to the market for more cash, raising more than £190m since it became a public company 20 years ago, which includes two very expensive and discounted share issues this year alone raising £17.5m with costs of over £2m.
- Repeatedly returning to the market to raise money
- High net debt despite investment requirements
- Struggled to fulfil terms of deal with Novartis
- New drugs still in early stages of development
- Potential takeover target
- Market-leading technology
But back in 2015 OXB was riding a wave of optimism based on its strong position in an exciting area of medicine. The company develops and manufactures lentiviral vectors which, put simply, are delivery vehicles for transporting new cells into the human body. This type of treatment, commonly known as gene therapy, can be applied to a wide range of diseases. But after two decades of operation OXB hasn't commercialised this potential and treatments currently undergoing clinical trials are still in very early stages.
The company does, however, obtain revenues from its partnerships with large pharma companies including GlaxoSmithKline (GSK) and Sanofi (fr: SAN). Most recently, Novartis (ch:NOVN) sought the use of the vectors for the delivery of its novel cancer treatment CTL019. The Swiss giant will pay milestones of up to $90m (£72m) plus royalty revenues if CTL019 is launched. But the development of such an innovative type of treatment comes with big risks, which have been elevated by the recent approval of an almost identical drug by rival Kite Therapeutics.
Although the Novartis deal has sent revenue soaring in recent months, it has put OXB, which employs 252 staff, in a dangerous financial position. In order to satisfy the terms of the contract, the company has spent £26m to expand its Oxford-based laboratory. The expenditure forced OXB to take out a loan with Oberland Capital and the company has drawn $40m of its $50m facility. Interest on that loan is paid quarterly at a minimum annual rate of 10.5 per cent and from April 2017 onwards a further 0.35 per cent of net revenues is payable for eight years for each $5m drawn sover $30m.
The company must maintain a minimum of $10m in cash while the Oberland loan is outstanding, meaning the half-year cash position of £11.9m looked concerning. This explains why OXB was prepared to raise £10m at 3p a share in September despite costs equivalent to 15 per cent of the net amount raised. With cash burn at its current rate, it won't be long before the company needs another top-up.
OXFORD BIOMEDICA (OXB) | ||||
|---|---|---|---|---|
| ORD PRICE: | 3.8p | MARKET VALUE: | £117m | |
| TOUCH: | 3.8-3.9p | 12-MONTH HIGH: | 8.5p | 3.0p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 0.3p | NET DEBT: | 209% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m)* | Earnings per share (p)* | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 5.4 | -12.8 | -0.8 | nil |
| 2014 | 14.7 | -10.8 | -0.4 | nil |
| 2015 | 18.8 | -17.0 | -0.5 | nil |
| 2016* | 28.4 | -16.3 | -0.5 | nil |
| 2017* | 34.3 | -14.7 | -0.4 | nil |
| % change | +21 | - | - | - |
Normal market size: 50,000 Matched bargain trading Beta: 0.21 *Broker N+1 Singer forecasts, adjusted PTP and EPS numbers | ||||
