Be brave and snap up Clin­i­gen while its shares are weak

The pharma com­pany boasts up­beat prospects de­spite tem­po­rary set­backs

Shares - - GREAT IDEAS -

Re­cent share price weak­ness in spe­cial­ity pharma firm Clin­i­gen (CLIN:AIM) presents an at­trac­tive en­try point for a busi­ness ex­pected to de­liver sig­nif­i­cant profit growth in the com­ing years.

Stock­bro­ker N+1 Singer fore­casts it will grow pre-tax profit from £69m in the year to June 2018 to £124m over the next three years.

While one of Clin­i­gens’s re­cent ac­qui­si­tions looks very ex­pen­sive, the fu­ture re­wards could be sig­nif­i­cant as Clin­i­gen now has a stronger po­si­tion in Europe and ‘the pieces are now com­ing to­gether to cre­ate a true global plat­form’ says N+1 Singer con­tribut­ing an­a­lyst Chris Glasper.

WHAT DOES IT DO?

Clin­i­gen sends phar­ma­ceu­ti­cal prod­ucts to hos­pi­tals around the world for pa­tients with a high un­met med­i­cal need. It works with pharma busi­nesses to make their drugs avail­able for a vol­ume-based fee or sales mar­gin, or ac­quires and re­vi­talises drugs so they can be ap­plied to dif­fer­ent mar­kets than his­tor­i­cally.

In the past fi­nan­cial year, the sale of un­li­censed medicines com­prised 45% of group profit while 44% was gen­er­ated via

li­censed drugs. The rest came from its Clin­i­cal Trial Ser­vices (CTS) arm where Clin­i­gen ac­quires drugs that will be used in clin­i­cal tri­als on be­half of phar­ma­ceu­ti­cal com­pa­nies.

WHY HAVE THE SHARES BEEN WEAK?

Over the last year, shares in Clin­i­gen have fallen from a oneyear high of £11.77 last Oc­to­ber to 865p. The sell-off was trig­gered by half-year re­sults in Fe­bru­ary fol­low­ing a ‘sig­nif­i­cant di­ver­gence’ in di­vi­sional per­for­mance, ac­cord­ing to in­vest­ment bank Beren­berg.

While its Com­mer­cial Medicines arm smashed fore­casts of 15% growth with a 37% surge in profit, both un­li­censed medicines and CTS missed ex­pec­ta­tions. The per­for­mance of un­li­censed medicines has since re­versed but the trend in CTS has con­tin­ued.

It is im­por­tant to recog­nise that CTS only con­trib­utes a small amount of over­all prof­itabil­ity. Clin­i­gen also made a man­age­ment change in March to ad­dress un­der­per­for­mance of CTS and bet­ter po­si­tion it in the US and drive fu­ture de­vel­op­ment glob­ally.

An­other share price sell-off hap­pened in late Septem­ber when Clin­i­gen raised £80m to help buy pack­ag­ing and dis­tri­bu­tion ser­vices spe­cial­ist CSM. The ac­qui­si­tion price looks a bit rich in our view at ap­prox­i­mately 15 times earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion (EBITDA). How­ever, strate­gi­cally it looks im­por­tant to Clin­i­gen’s de­sire to ex­pand ge­o­graph­i­cally.

It is now the job of the man­age­ment to de­liver on earn­ings ex­pec­ta­tions, or hope­fully smash them, in or­der to win back the mar­ket’s favour. This is a high-risk in­vest­ment given cur­rent weak mar­ket sen­ti­ment, yet we be­lieve any­one tak­ing the plunge could see hand­some re­wards in time. (LMJ)

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