Services expansion underway – CLL data
Hybrigenics, (ALHYG) is delivering on its services growth strategy, strengthening its competitive position through acquisitions and establishing a US subsidiary. As a result, we have raised our FY14 services sales estimate by 34%. Meanwhile, a recent update from the Phase II trial of inecalcitol in chronic lymphocytic leukaemia (CLL) suggested oncology potential, while newly granted EU orphan designation in CLL could help to accelerate its development. We have raised our valuation to €65m from €26m.
Services expansion in full flow
Hybrigenics is executing its services expansion strategy through M&A and organically, penetrating new geographies with an expanded range of services. It is now the leader in the niche Y2H protein analysis services market, having acquired the Y2H assets of its main competitor DualSystems. The acquisition of the genomics assets of France-based Imaxio is a diversification into the fast-growing field of genetic sequencing. The incorporation of the US subsidiary provides an opportunity to grow revenues in this key region for life sciences research.
Revenue boost from acquisitions
In FY13, services revenue grew c 18% to €3.9m and we forecast a 34% increase in FY14 revenue from the division, largely because of the impact of the acquisitions. The end-of-December 2013 gross cash was €2.5m. Subsequently, the company raised €1.1m issuing 0.721m shares through the equity line taking the cash reach into late 2015.
Interim CLL data suggest oncology potential
Recruitment into the Phase II trial of inecalcitol in CLL is complete, the trial update showed that 58% of 19 patients treated achieved a delay or a stabilisation of disease progression. If the final data expected in 2014 confirm this trend, this could help attract a licensing deal for CLL and other cancers. Hybrigenics recently received European orphan drug status for inecalcitol in CLL which allows a 10-year period of European marketing exclusivity for the product.
Valuation: Raised to €65m based on CLL progress
Our sum-of-the-parts DCF valuation of Hybrigenics is €65m (€2.8 per share), raised from our previous valuation of €26m, mainly due to progress in the CLL trial. Given the c 50% share price rise this year, the shares appear close to fair value. If Phase II data are positive and inecalcitol moves into a Phase III study, our valuation would increase to €85m.
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