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A smart technology play

A company that provides commercialisation services to university spin-outs in return for ‘free equity’ stakes is trading ahead of expectations and is set to deliver a material increase in net asset value.
A smart technology play
  • Trading ahead of management expectations
  • Value of stake in Exscientia set to be raised from £13.2m to £22.7m
  • Exscientia announces major strategic collaboration with Sanofi
  • Encouraging data from The Vaccine Group on next generation Covid-19 vaccines

Frontier IP (FIPP:99p), a £55m market capitalisation investment company that provides a range of commercialisation services to university spin-outs in return for ‘free equity’ stakes, has released a robust first-half pre-close trading update that points to a material increase in the company’s last reported net asset value of £38.4m (69.8p a share).

For example, Frontier’s largest portfolio company, Exscientia (US:EXAI), a clinical-stage pharma technology company pioneering the use of artificial intelligence (AI) to design new drugs, has just signed a major strategic collaboration with Sanofi that entitles it to an upfront $100m cash payment and potential milestones and royalties of $5.2bn. Frontier holds 1.565m shares in Exscientia that were valued at $30.9m (£22.7m) at the end of the first half, or £9.5m (17p a share) more than the carrying value in the 2021 accounts.

In addition, Frontier owns a 17 per cent stake in The Vaccine Group (book value of £4.5m, or 8p a share), a company that is developing vaccines to tackle Sars-Cov-2, the virus causing Covid-19. Results of pre-clinical trials in pigs for a Sars-Cov-2 vaccine candidate for use in humans based on its novel herpesvirus-based vaccine platform technology show a strong T cell response is stimulated by a single immunisation, and is further boosted by a subsequent immunisation with the identical vaccine after a four-week interval. Laboratory analysis of immune responses to the vaccine confirmed T cell responses in all animals.

This has great significance given the potential for a T cell-focused vaccine approach following recent reports of substantial T cell-based immune memory in Sars-Cov-2 convalescent patients. Following early discussions with the UK’s MHRA, TVG is seeking immediate funding to move the vaccine candidate to a full Proof-of-Concept stage before Phase I trials in humans can be undertaken. The vaccine candidate is based upon TVG’s herpesvirus vector system, which allows for repeated reimmunisation and booster doses to be used without decreasing efficacy.

I also note that portfolio company Celerum has launched Truck Logistics System, its first commercial product using novel AI based on Nature Inspired Computing, and has just won a first order from a road haulier operating a fleet of about 75 trucks and 150 trailers in the north of the UK. The product uses AI-derived from natural processes and behaviours to maximise resources across logistics networks, cutting costs, carbon emissions and delivery times, so is highly relevant. Frontier IP holds a 33.8 per cent equity stake in Celerum.

There has also been further positive newsflow from University of Cambridge spin-out CamGraPhIC, which is accelerating the development of its graphene-based photonics technology for scalable, faster, cheaper and more energy-efficient optical transceivers.

House broker Singer Markets has introduced a maiden 125p target price which is based on conservative assumptions in my view, and one I am comfortable with. So, having initiated coverage at 56p (‘A differentiated IP play’, 15 November 2019), I feel that the pullback from last autumn’s 130p share price highs after I last suggested buying the shares, at 103p (‘Uncovering hidden value’, 7 October 2021), represents a repeating buying opportunity.

 

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