Ark Therapeutics: Viral Specialist Seeking A Niche

Ark Therapeutics’ (AKT.L) transition from a therapeutics development company to a contract development and manufacturing organisation (CDMO) is complete. The near-term investment case therefore rests on its ability to secure contracts for its viral-based cGMP manufacturing facility in Kuopio, Finland. The expertise, capabilities and potential of the Kuopio facility, core to winning over new clients, is firmly established and Ark has a pipeline of 20 potential contracts under discussion with partners ranging from large pharma to academic institutions.

Viral specialist seeking a niche
Ark is offering its manufacturing, research and development services to all aspects of viral-based product development, including viral-mediated gene therapy, oncolytic viruses and vaccines. Ark estimates a £500m global potential market for outsourced, viral-based product manufacturing services, the bulk of the value coming from pre-clinical development work. This indicates a significant opportunity when compared to Ark’s £3.6m fixed annual manufacturing overheads.

Strategy starting to deliver
Recently signed manufacturing deals – with an undisclosed European gene therapy company and a non-binding letter of intent with EMD Millipore – show that Ark is starting to deliver on its new business model. Manufacturing contracts with PsiOxus and Glasgow University signed last year are progressing successfully and extensions are under discussion.

Partners sought for pipeline candidates
Ark is aiming for £2m in annual savings from a cost-reduction initiative, which includes a significantly reduced headcount in its London office and ceasing further investment in its own pipeline of early clinical-stage VEGF-D gene therapy candidates and a pre-clinical NRP-1 antagonist programme (partners sought to fund further development).

Valuation: Revised rNPV of £15m
We have removed Ark’s pipeline candidates from our valuation model and revised our estimates for the manufacturing business, giving an rNPV of £15m (previously £22m), which compares favourably with Ark’s £2.1m EV. For 2012 and 2013 we forecast manufacturing revenues of £2.5m and £6.5m respectively, but any revenue shortfall would put pressure on Ark’s £4.9m current cash reserve. Securing multiple, financially substantial contracts could stimulate a re-rating of the shares and our valuation.

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