Back life sciences technology with a margin of safety

Investors willing to back the new management team at this technology investment company have a hefty margin of safety built into the current entry price. Net cash and a Nasdaq-listed stake backs up over 75 per cent of the company’s current market capitalisation. That effectively leaves £21m of other assets in the price for a bargain basement £5.6m, despite the likelihood of valuation uplifts as portfolio companies move into profit. The directors are actively targeting liquidity events, which provides another likely catalyst for a narrowing of the unwarranted share price discount to the underlying value of the portfolio.

The fact that shareholders who backed the company's IPO have lost more than 90 per cent of their capital highlights the scale of the underperformance under previous management who adopted a passive approach to investing in early stage life sciences, healthcare, and technology companies. The company’s cost base was also out of sync with this passive approach.

However, a boardroom clear out in the first quarter last year has brought in an experienced management team (new chairman, chief executive, and finance director) who are focused on delivering shareholder returns through proactive management of the portfolio. Their strategic review included an analysis of each portfolio company’s current position, target market, commercial development options, intellectual property, risk profile, core funding needs, grants and other "soft" finance available, value inflection points, exit potential, and the actions and resources to be needed to achieve these.

Now the business is on a far firmer footing and looks cheap based on a sum-of-parts valuation.