Abcam on the road to further growth

Historically, Abcam was a life sciences sales and distribution platform, with a catalogue of antibodies sold for research, diagnostics and therapeutic purposes, but more recently the group has been expanding its portfolio of 'home grown' antibodies. In the first half of the current financial year these products accounted for 37 per cent of catalogue sales, up from 32 per cent in the comparable period of the previous year, and chief executive Alan Hirzel hopes to raise this to 50 per cent. These in-house antibodies have substantially higher margins than those sold on behalf of others, which more than offsets the ramp-up in research and development costs. More importantly, the ability to create a wide range of new antibodies allows the group to be more flexible in launching new products into the market. Abcam can now target specific areas of science that need new antibodies, and develop and launch them quickly without reliance on other developers.

Products that Abcam can now create via its own patented technology include rabbit monoclonal antibodies, or RabMAbs. These antibodies, which are derived from rabbits, are widely accepted to be more diverse, with a better affinity to human cells than those from mice or rats - making them better for research, diagnostics and therapeutics purposes. In the first half of the current financial year, RabMAbs saw a 32 per cent increase in sales. Similar sales growth may also be garnered from a new line of human in vitro antibodies, which Abcam can now create thanks to its recent acquisition of AxioMx. This company owns technology to create antibodies from human cells in a lab environment, which can be produced substantially quicker than those from animal models.

The growth in the group's in-house antibody development capabilities has also helped to boost the off-catalogue business - where Abcam develops and launches new antibodies specifically commissioned by companies or research institutes. Following 40 per cent first-half sales growth, this division accounts for 7 per cent of revenue. Broker Numis believes the strong first-half growth marks "an inflection point", thanks in part to the speed of delivery of new antibody lines and the phenomenal growth in the wider lifesciences market. As antibody demand for research, diagnostics and therapeutics increases Abcam - as the leading provider worldwide - is in a great position to benefit.

As Abcam evolves and continues to grow it has also been spending big on IT systems, infrastructure and people. Although this is currently dragging on margins, impacting short-term earnings growth, the medium- and long-term outlook is good. Broker Numis expects 2018 earnings growth of 19 per cent, rising from 6 per cent the year before. Abcam also maintains substantial fire-power in its balance sheet, providing opportunities to invest in both new antibody lines and enhancing technology. Cash flow from operations grew 15 per cent to £26m in the half year, meaning that, in spite of substantial capital investment, the cash position only fell by £2.2m to £56.5m.