Allergy Therapeutics plc (AGY), the UK-based, specialty pharmaceutical company focused on the development, manufacture and sale of vaccines and other products for the treatment and prevention of allergies, this morning released a pre-close trading update for the 6 months to Dec 31, 2016. The company has highlighted a period of strong growth in revenue, driven through gains in market share and also currency movements. AGY anticipates that it will report H1 revenues of approximately £40.4m (we had expected £35.4m). Importantly, the company has confirmed that its clinical development plans as outlined last year for Pollinex Quattro (PQ) Birch and PQ Grass have been agreed with regulators in Europe and the USA. The company had cash of £27.8m at December 31st 2016. We have revised our financial forecasts for the coming years with increases in sales and gross margins as well as overheads. Our risk-adjusted fair value estimate now stands at 69p per share (previously 66p).
Sales: During the period sales are expected to have grown to approximately £40.4m (39.3% growth ‘as reported’, 17.9% at constant currency) driven by a number of separate factors. Firstly, in broadly flat markets AGY continues to gain market share in Germany, Austria, Spain and The Netherlands based on the strengths of its PQ-based vaccines. Secondly, market share has grown following certain weaknesses experienced by key competitors in Europe including Allergopharma (continuing to lose market share through strategic organisational uncertainties), ALK (injectable vaccine supply constraints following investments necessary to upgrade manufacturing facilities), and Stallergenes (French manufacturing issues led to loss of market share which has not been regained from AGY, particularly in the UK). Thirdly, Euro strength against GBP has favoured AGY’s sales, the majority of which are Euro denominated.
Margins: We expect gross margins to have increased given that the majority of Cost of Goods for its PQ-based named-patient products relates to labour costs in Worthing (UK). Raw materials, even those imported from outside the UK, represent only a small portion of product costs.
Overheads: Currency movements during the period are also likely to have affected overheads, much of which are also Euro denominated including R&D (mainly conducted in European countries) and Sales, Marketing and Distribution (around 90% in Europe).
Forecasts: With these movements in mind, we have revised our sales and overhead forecasts for FY2017 (to June 30) and subsequent years as shown opposite. In addition, we have increased our R&D spending forecasts reflecting the new certainty of development with confirmation of acceptance by the regulators for the company to go ahead with its clinical trials as planned.
Comment: AGY’s full year is normally heavily H1 weighted as this is the peak prescribing and treatment period for seasonal allergies in Europe. The indicated H1 sales performance, which the company will report in more detail on March 29th, has been stronger than expected and operationally, the company is now positioned to enact its clinical development plans for PQ Birch (phase III in Europe) and PQ Grass (phase II in the USA) following agreement with the respective regulators. Our revised forecasts take into account the improved market share of AGY in many European countries which we believe are likely to continue to grow based on the competitive strengths of its product portfolio. The company has invested significantly in its European subsidiaries and we believe this should enable it to continue to trade successfully in the longer term following the UK’s eventual separation from the EU. Ultimately however, we expect more than 50% of the company’s revenues are going to be derived from product sales in non-EU markets, particularly the USA.
