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A glaring valuation anomaly exposed

A small-cap investment company's cash pile and listed holdings back up 90 per cent of its share price, meaning its unlisted portfolio is in the price for 90 per cent below carrying value
A glaring valuation anomaly exposed
  • Portfolio company Sofant signs contract with the UK Space Agency and European Space Agency and has successful fundraise.
  • ProAxsis wins US patent for technology associated with a patented bone-specific enzyme-linked immunoassay.

NetScientific (NCSI: 98p), an investment company that backs early-stage life sciences, healthcare, and technology businesses has announced a raft of news for its portfolio companies.

Sofant, the Edinburgh University spin-out that is developing a state-of-the-art antenna for satellite communications and 5G applications, has signed a $7.3m (£5.4m) contract with the UK Space Agency and European Space Agency. It will support the commercialisation of Sofant’s low-cost, low-power satellite communications platform that requires 70 per cent less power by eliminating the need for complex and expensive cooling systems. By connecting devices wirelessly via a satellite network, Sofant’s terminal also reduces the needs for terrestrial infrastructure and makes it easier for people in rural and remote locations to access the internet. Sofant also completed a £843,000 fundraise, of which £300,000 was made by Netscientific.

ProAxsis, a health and life sciences company with a focus on respiratory diagnostics in which NetScientific holds a 95 per cent stake, has received approval of a key US patent for the technology associated with its brand-new K-POSTN Assay, which it intends to launch shortly. This is a major step towards measuring bone health with a new innovation for patients at high risk of osteoporotic fractures.

In partnership with University of Geneva, ProAxsis is creating a patented bone-specific enzyme-linked immunoassay for the detection of serum K-POSTN, a fragment produced from the digestion of periostin (a type of protein that in humans is encoded by the POSTN gene) by cathepsin K which has localised activity in bone and can predict incident fractures independently of bone marrow disease and fractured risk in post-menopausal women. The technology is likely to be of great interest to pharmaceutical companies seeking to develop new treatments for osteoporosis. That's because the K-POSTN assay can deliver specific and quantifiable outcome measurements (due to the rapid response shown by biomarkers) to both anabolic and anticatabolic drugs.

Nasdaq-listed PDS Biotechnology Corporation (US:PDSB:$11.80), a clinical-stage immunotherapy company developing novel cancer therapies based on its proprietary Versamune® T-cell activating technology, has temporarily suspended recruitment for a National Cancer Institute (NCI)-led Phase II clinical trial. It is evaluating PDS0101 in combination with two investigational immune-modulating agents in advanced human papillomavirus (HPV) cancers that have progressed or returned after treatment.

NCI anticipates that the issue, which is unrelated to any safety or efficacy concerns, should be resolved timely, at which time the PDS0101 trial recruitment will resume. The timing of clinical data resulting from this trial is not expected to be impacted by the recruitment suspension. Although US investors took the news in their stride – shares in PDS are unchanged since the announcement was made – it prompted an unwarranted 20 per cent slide in Netscientific's share price back to around my entry point (‘Alpha Research: Back life sciences tech with a hefty margin of safety’, 20 July 2021). The UK group holds a 4.72 per cent stake in PDS worth £11.9m (56.5p a share), or almost three times the £4.1m cost of the investment.

Effectively, the value of the PDS shareholding and net cash of £6.7m (32p a share) post the Sofant investment backs up 90 per cent of NetScientific’s £20.6m market capitalisation. This means the group’s other holdings (Hunting for hidden gems’, 29 September 2021), which have a sum-of-the-parts valuation of £20m (95p a share), are in the price for a bargain basement £2m. The valuation anomaly is glaring and presents a repeat buying opportunity worth exploiting. Buy.


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