BULL POINTS:
■ Technology deal with Glaxo
■ Plenty of cash
■ Relationship with Novartis intact
BEAR POINTS:
■ Embarrassing dealings with Sandoz
■ US regulatory problems for asthma products
Serendipity can apply just as much to companies as it can to individuals. And it may have chanced upon respiratory drugs developer Vectura which, after years of diligently developing only so-so drugs, may have a found a niche among the big pharma players for a technology-driven approach to improving existing asthma treatments. And, if Vectura has finally worked out what it can do well, then it could be time to give the company's shares another investment chance.
| IC TIP RATING | |
|---|---|
| Tip style | Speculative |
| Risk rating | High |
| Timescale | Long term |
| What do these mean? Find out in our | |
What interests GlaxoSmithKline, which has signed a £20m deal to license a series of compounds and know-how associated with Vectura's Powderhale technology, is that Vectura's technology efficiently delivers molecules to the lungs with minimum effort. And that complements its programme for asthma treatment Relovair, which Glaxo hopes will eventually replace its block-buster product, Advair. The £10m upfront cash payment, plus milestones and an annual royalty rate capped at £13m will come in very useful as Vectura tries to develop its other compounds. The deal is similar in many ways to one it struck with Novartis, which was more about acquiring technology than a specific attempt at product development.
This activity means Vectura should no longer have cash worries. It has £64m in the bank, enough to last well into 2013. Besides, Vectura has restructured its research and development (R&D) operation. The changes will cost £3m to implement, but should shave £6m a year from the R&D budget. And broker Evolution Securities reckons that the likely milestone payments mean Vectura may not be burning any cash after 2011.
| ORD PRICE: | 55p | MARKET VALUE: | £179m | |
| TOUCH: | 54-55p | 12M HIGH / LOW: | 102p | LOW:33p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 45p | NET CASH: | £64m | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 25.2 | -21.4 | -6.1 | nil |
| 2009 | 31.2 | -19.6 | -5.2 | nil |
| 2010 | 40.1 | -13.8 | -3.2 | nil |
| 2011* | 40.5 | -16.9 | -4.0 | nil |
| 2012* | 26.9 | -25.6 | -6.8 | nil |
| % change | -34 | +51 | - | - |
NMS: 5,000 Matched Bargain Trading BETA: 0.7 *Evolution Securities forecasts | ||||
That looks sensible given how much can go wrong in drug development. Existing shareholders need little reminding of the 30 per cent fall in the share price earlier this year when Vectura's development partner Sandoz handed back the rights to a generic version of Advair, VR315. The embarassment was accentuated when Sandoz subsequently bought a competing product when it acquired Oriel Therapeutics, which vindicated the doubts of some analysts about the drug's usefulness. VR315 is still in development limbo in the US, although Vectura would have the resources to research it further if it chose to. An additional problem is that the US drugs regulator has not yet issued guidelines for the approval of generic dry powder inhalers in the US, whereas European regulators instituted a clear regulatory process in 2009. But, at least the relationship with Novartis, Sandoz's owner, seems to be in good health. The Swiss drugs maker took Vectura's NVA237 drug for chronic obstructive pulmonary disease into late-stage clinical trials in June, which triggered a milestone payment of $7.5m (£4.8m).
