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e-Therapeutics - FY 2018 Results Show Good Progress

Writen by Riccardo Lowi

KEY INVESTOR MESSAGES

  • Business on track and focused on four key areas (immuno-oncology, fibrosis, further NDD discovery and artificial intelligence collaborations)
  • Expect more collaborations and licensing deals for the further development of in-house candidates in the coming quarters
  • Solid cash balance provides funding well into the second half of calendar year 2019
  • Our SOTP valuation yields an intrinsic value of about 4x current market cap

RESULTS SUMMARY

e-therapeutics reported results for the full year to Jan 31st 2018; business updates reflect good progress on the main research programs. Cash balance of £9.6mn was slightly higher than we expected, thanks to careful cost management.
 
Under the leadership Ray Barlow since April 2017, the business has undergone a strategic review in mid-2017 and decided to allocate resources to four high-potential areas: two Network-Driven Drug Discovery (NDD) programs in immuno-oncology, NDD programs in fibrosis, enhancing the capabilities of the NDD platform and leveraging the recently established collaborations with two AI companies (Intellegens and Biorelate).

Source: Company presentation, March 2018

With £9.6mn cash on hand at the end of January (and a £1.4mn tax credit expected in the coming months), the business is funded at least toward the end of calendar 2019, at the current cash burn rate.
 
Potential income from new partnerships and the ability to fine-tune R&D expenses may extend the cash runway into calendar 2020.

VALUATION

As discussed in our initiation note of October 2017, we value e-therapeutics using a SOTP approach.
 
We value their leading programs about £60mn and attribute a value of £50mn to e-therapeutics' NDD platform.
 
Taking into consideration the cash balance at the end of January 2018 and the £1.4mn tax credit due in 1H19 (Feb-Jul of calendar year 2018), we get to a valuation of about £120mn.
 
Applying a 30% discount to account for potential future dilution, we reach our intrinsic value of £83mn, about 4x current market cap.

 

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