Drugs firm comes off boil but has right chemistry to be a winner
SPECIALITY drugs group Clinigen was founded in 2010 and within two years, it had joined AIM with a stock market value of £135 million. The shares, which floated at 164p, became a market favourite and by the start of this year they had risen to more than 625p.
Since then, the stock has almost halved to 3833⁄ 4p. At this level, it offers real potential.
Chief executive Peter George is fiercely ambitious and has a welldefined growth plan for the business over the next three to five years. A biochemist turned entrepreneur, George spent many years working in private equity, delivering top results for demanding paymasters. He now intends to continue in that vein on AIM.
The company has three divisions. It runs drug-testing programmes for large pharmaceutical groups. It acquires highly specialised medicines, with the aim of doubling their sales. And under its global access programme, it makes drugs available to patients when they have been extensively tested but have yet to receive regulatory approval.
Clinical testing of new drugs has traditionally been carried out by pharmaceutical groups themselves. Regulators need to know that a new product really is an improvement on existing treatments so new drugs are tested against market leaders. Testing conditions need to be rigorous, however, to ensure that true comparisons are made – otherwise the trial becomes invalid.
Hundreds of millions of pounds are wasted every year in clinical trials because conditions are subsequently deemed to have been sub-optimal, but Clinigen can help to cut this figure. It takes considerable care with procedures and sourcing to ensure that trials are acceptable and its testing division has increased turnover from £4million in 2010 to more than £80million.
Revenues can fluctuate from year to year. In 2013, for example, a single trial produced revenues of £24 million, but larger trials often have lower profit margins than smaller ones, so profits have been growing steadily and George expects to double the size of the division by 2019.
Clinigen has also started to acquire niche drugs that have been neglected by their previous owners. The company then tries to revitalise the products by working out which patients might benefit most from them. The first drug it bought, Foscavir, was being offered to patients who had been diagnosed as HIV positive, but Clinigen realised that it would be far more helpful for those receiving bone marrow transplants, and sales have soared from £4.5 million in 2010 to more than £20million. The company has four niche drugs today, but intends to take that up to ten over the next five years.
Clinigen’s global access programme, which makes drugs available before they are licensed, is the fastest growing division in the group. It can take years for regulators to approve new drugs, particularly in Europe, where governments are trying to cut public sector costs. In Greece, Spain and Italy, for example, very few new drugs have been licensed since the financial crisis, as health services face growing pressure to keep the lid on spending.
This can be hugely frustrating for patients – highlighted in this country by the recent outcry over the £90,000 breast cancer drug Kadcyla, which was deemed too expensive to be approved.
However, patients can access these drugs through schemes like Clinigen’s. The company cannot promote medicines that have not been approved, but top doctors, many of whom will have been involved in testing the products, already know of their existence and can apply to Clinigen for supplies.
Some pharmaceutical groups interact directly with the medical profession. Many prefer to take a step back so they are not accused of active promotion. Clinigen supplies 30 such medicines to 85 countries, including Britain, and George is keen to triple the business by 2019, making it the number one player worldwide.
Results for the year to June will be released at the end of September and are expected to show profits rising 19 per cent to £23.5million with a further increase to almost £27million forecast for 2015. Unusually for a small biotech business, Clinigen pays a dividend, which is poised to increase 15 per cent to 3p this year and a further 10 per cent to 3.3p next year.
Midas verdict: Clinigen came to the stock market in a blaze of glory and suffered at the hands of a merciless City earlier this year when it said that growth would not be quite as racy as analysts had hoped for. However, the underlying business has sound, long-term prospects and the shares offer good value at 3833⁄ 4p. Buy.