Ergomed: £70m contracted revenues still to come
Ergomed offers clinical trial and pharmacovigilance services to pharmaceutical companies, while also co-developing a product portfolio of therapies.2016 perfectly highlighted the strengths of the Ergomed business: the visibility of its Contracted Revenues and the potential upside from co-development deals. Contracted revenues now stand at an impressive £70m, up from £42m, and the outlook remains auspicious. FY2016 came in ahead of revised forecasts and there are upgrades to FY2017 onwards.
Our FY2016 assumptions were upgraded following the period-end update to revenues of £38m, £2.1m of Profit before Tax and fully diluted EPS of 3.5p. The actual performance showed revenue growth of £39.2m offset by some increased costs. The growth in the Services business substantially outpaced industry average.
The forward order book for the CRO is very healthy. It currently stands at £70m (up from £59m in 2016). Of this, we estimate just under 50% falling in FY2017, with the rest coming through over FY2018 and FY2019. In addition, the Pharmacovigilance (PV) business, which operates on yearly contracts, remains sticky – many of these contracts repeat year-on-year. Considering this, we estimate PV revenues of c£17m for FY2017. At the same time, FY2019 forecasts have also been released and, with no Haeomstatix R&D included, profits grow substantially.
Expected newsflow for 2017 and 2018 indicates significant valuation inflexion points starting with the read-out in April of the Zoptrex phase III results, while in 2018 Haemostatix data and Sevuparin phase II results are of interest. Meanwhile, the Services business could see additional contract wins and is likely to be the focus for M&A.
Finally, our valuation range is increasing. With Haemostatix moving into phase II, good peer performance, earnings upgrades and an attractive order book, the analysis suggests a value range per share of 232p to 437p.
Ergomed is engaged in the provision of specialized services to the pharmaceutical industry and the development of new drugs. Co. focuses on oncology, neurology and immunology and the development of orphan drugs. Co. is building a portfolio of co-development partnerships with pharmaceutical and biotech companies. Co. has two business segments: clinical research services, which provides clinical development services to clients ranging from pharmaceutical companies to small and mid-sized drug development companies; and drug safety and medical information services, which includes Co.'s subsidiary, PrimeVigilance Limited, a pharmacovigilance and medical information services company.
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