Allergy Therapeutics Plc (LON:AGY) is the topic of conversation with Dr Gary Waanders the Director of Healthcare Research at Zeus Capital. Gary talks through the preliminary results for the year ended 30th June, tells us if this changes his view of the company and what investors should look for news wise over the next year.
Dr Gary Waanders provided the following research note: Allergy Therapeutics Plc 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, today reported its full year results to June 30, 2016. Financial performance was ahead of expectations with net sales growth of 12.2% (19% at CER) to £48.5m (forecast £47.5m, £47.8m consensus), adjusted EBITDA pre-R&D of £6.3m (£4.9m forecast) and net cash of £20.0m (£16.8m forecast). Importantly, during the period AGY increased its market share to 12% (from 10%) in key markets, a strong achievement reflecting the strength of its products and commercialisation efforts. On the basis of this performance in its European markets, we have upgraded our sales forecasts for FY2017 and beyond. We have also reduced our R&D in the short term given the need for a new US Pollinex® Quattro (PQ)-Grass dose-ranging study and the resulting delay to starting a US phase III trial. Long term, the strength of the core business combined with the advanced and broadening product development pipeline give us confidence that the current share price represents an attractive level to buy relative to our risk-adjusted fair value estimate of 66p per share.
Strong financials: In the year to June 30, the growing core operating business manufacturing (UK-based) and selling AGY’s highly competitive ultra-short-course PQ allergy vaccines into mainly European markets generated £48.5m net sales (Germany 59%, Italy 10%, Spain, 9%, Austria 6%, UK / Netherlands / Switzerland 13%, and others 3%). Gross sales (pre-German rebate) at CER reached £55.7m (FY2015: £46.1m, +20.7%). Despite the weak Euro during the year (average Euro/£1.36) the company maintained a healthy gross margin of 71% (£34.4m reported, £33.1m forecast) which we expect to improve in FY’17 in line with the stronger Euro since the end of June. Overhead increased to £30.3m in-line with expectations. Adjusted pre-R&D EBITDA was £6.3m, up from £5.5m in FY’15. R&D spending rose to £16.2m (FY2015: £3.1m) as expected given the ramp up in clinical development activities. With an £11m fund raising during the year, net cash at year end was £20m (£16.8m forecast).
Outlook: Given the solid FY’16 sales performance we have raised our net sales forecasts for FY’17 to £54.8m (previously £52.1m) which assumes growth of 13% y.o.y. AGY’s gross profit should benefit from the now weaker Sterling (72.5% margin forecast). With the additional but simpler phase II dosing study for PQ-Grass in the USA slated to begin in Q3’17, we now expect AGY to invest only around £7m in R&D (previously £14m), including the costs of the phase III PQ-Birch vaccine trial in the EU. We expect AGY will make a small loss in FY’17 but the longer-term value of ultimately approved PQ products is well worth the short-term losses
