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Yourgene Health - Initiation of Coverage

Yourgene Health is an international molecular diagnostics group which develops & commercialises genetic products & services, mainly in the area of reproductive health. It works in partnership with global leaders in DNA technology to advance diagnostic science & positively impact human health.

• Taking advantage of growth in the molecular diagnostics market

  The molecular diagnostics market had a global value of $8.3 billion in 2019 and is forecast to grow at a CAGR of 9% up to 2026, according to analysts at GM Insight. Since the launch of its flagship product in 2015, the non-invasive pre-natal testing (NIPT) IONA® test, combined with expansion via acquisition, Yourgene has grown revenues at a CAGR of 61.3%.

• Acquisition of Elucigene significantly expands product portfolio

  The business was significantly expanded in April 2019 when Yourgene completed the £9.2 million acquisition of Manchester based neighbour Delta Diagnostics (trading as Elucigene), a molecular diagnostics manufacturer and developer. The deal brought with it a complementary suite of in vitro diagnostic CE (CE-IVD) marked products focused on reproductive health and oncology, including leading products for cystic fibrosis testing and invasive pre-natal aneuploidy screening.

• Historic issues cleared and strong progress being made on strategic aims

  The business has been significantly de-risked over the past two years. In September 2018, Yourgene settled a long-running patent infringement case with sequencing technology firm Illumina Inc., taking a licence under Illumina's patent pool for NIPT and planning to develop an IONA® test that runs using Illumina’s sequencing technology. Then In February 2019 a major capital restructuring saw the writing off of £12.7 million of debt by shareholder Thermo Fisher, leaving Yourgene substantially debt free.

• Expansion into COVID-19 products and services broadens portfolio

  Attracting the attention of investors amidst the global pandemic, Yourgene has signed a contract manufacturing services agreement to support the production of COVID-19 diagnostic tests, launched a CE-IVD marked diagnostic test to detect the SARS-CoV-2 virus and expanded its laboratory capabilities to support the NHS & private users in COVID-19 laboratory service testing.

• DCF valuation suggests 54% upside without considering further acquisition or COVID product potential

  Our DCF valuation of the company suggests a target price of 26.63p per share. However, this ignores the company’s focus on expansion by acquisition and the potential for upside from COVID products & services, thus suggesting significant further upside to our target price in the medium to long-term. We initiate coverage of Yourgene Health with a stance of Conviction Buy.