The contract momentum continues to build for Aim-traded IXICO (IXI:73p), a London-based company that uses proprietary artificial intelligence (AI) software algorithms to analyse images from brain scans – magnetic resonance imaging (MRI) and positron emission tomography (PET). Specifically, these scans provide measurements of small changes in brain structure, assess the efficacy of new drugs being trialled, monitor patient safety, and provide valuable insights into different aspects of trial performance.
Having prompted analysts to materially upgrade their profit guidance not once, but twice since I first suggested buying the shares at 33p three months ago ('Alpha Report: Simon Thompson spies opportunity in cutting edge technology', 23 July 2019), IXICO has just announced three new biopharma contracts, all of which highlight the value of its core technology and ability to unlock insights on a broad range of neurological disorders and across the full spectrum of clinical development.
The first contract is focused on a progressive supranuclear palsy (PSP) programme for a new client, ahead of patient enrolment later in 2019. The 12-month contract, worth £400,000, is expected to lead to a larger programme of work in early 2020, according to IXICO’s directors. The second contract is worth £350,000 over three years and is an expansion of a study with an existing client which will see IXICO’s AI technology extended and deployed to several sites in mainland China. The third contract involves IXICO providing imaging analytics services to support a Phase IV programme in mental health for a new US-based biotechnology client. It’s worth £450,000 over the next two years.
Alongside news of the contract awards, IXICO has announced the appointment of a chief business officer, Lammert Albers. His commercial experience in clinical research organisations includes roles at $6.5bn market capitalisation Nasdaq-listed corporation PRA Health Sciences (PRAH), and latterly with Australian Stock Exchange quoted CogState (COG), during which time he has developed deep expertise of the Alzheimer’s disease trials market. Based in the US, Mr Albers will have responsibility for global business development, with a particular focus on driving international growth in North America and Asia. It’s a sound strategic move that supports IXICO’s strategy of growth through international expansion.
True, the shares have now increased in value by 118 per cent on an offer-to-bid basis since I initiated coverage 13 weeks ago, and are within pennies of hitting the upgraded 75p target price I outlined a fortnight ago (IXICO upgrades guidance again’, 15 October 2019). But with contract momentum building strongly, and profits from a relatively fixed cost base highly operationally geared to rising sales, I see ample scope for outperformance against analyst estimates, which conservatively suggest operating profits of £941,000 on revenue of £10.9m in the 2020-21 financial year.
Moreover, the company’s net cash of £7.3m (15.5p a share) equates to 22 per cent of IXICO’s market capitalisation of £33.3m, so the business has substantial funding in place to support further contract wins. The earnings upgrade cycle looks to have some way to run and I am raising my target from 75p to 85p. Trading on a bid-offer spread of 72p to 73p, I continue to rate IXICO’s shares a buy.
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