PureTech finds security through affiliate firms

Patience is a virtue for early-stage biotech investors. It can take years to bring a promising drug candidate to market – and managing company finances through the clinical trial process is a delicate balancing act. 

While PureTech Health (PRTC) does not expect to generate revenue from sales of its own products in the near future, it does generate sales through licences, services and collaboration agreements. It reported a small decrease in its revenue for the year ending 31 December as various collaborations were concluded. 

In the same period, the group’s research and development (R&D) expenses were $154.4mn (£125mn) – an increase of 38 per cent on the year before. PureTech’s business model is fairly unique in the biopharma sector in that it develops drugs through its wholly-owned programmes while also bringing in revenue via stakes in what it calls its “founded entities”. 

These are firms established by PureTech, which subsequently helps them take drug candidates through key milestones. Altogether, the group’s founded entities raised $1.28bn last year, according to management, with the vast majority of this capital coming from third parties.

PureTech itself was able to generate $115mn through the sale of stock in Karuna Therapeutics (US:KRTX) – a founded entity that makes psychiatric medicines. PureTech now holds some £200mn of shares in listed affiliate companies.

Meanwhile, its wholly-owned drug pipeline now includes five therapeutic candidates, four of which are in clinical trials. Ultimately, though, the company’s diversified income streams are what make it stand out from sector peers – and its net cash position means it has capacity to keep experimenting. Buy.

Last IC View: Buy, 249p, 25 August 2022