Report
Martin Hall

Hardman & Co Insight: Survival of the UK life sciences sector

For two years running, the Hardman & Co Healthcare index has declined, underperforming both the FTSE 100 and the FTSE All-Share indices. This is quite unusual for healthcare stocks. Apart from the general economic influences, which have made institutions more risk-averse, there was a common knowledge that several companies were in need of additional working capital; so, share prices were marked down in anticipation of equity raises.

However, the small- and mid-cap life sciences sector has always been capital intensive, so has anything changed? Consolidation within investing institutions and pension funds has created a much smaller number of groups with enormous funds under management that are much less interested in small, capital-intensive companies. Consequently, the pool of institutions interested in such investments has diminished significantly.
Because valuations commanded by several large London-listed companies are well below their international peers, rumours are circulating constantly about an exodus to overseas markets, particularly the US. It is no different for the life sciences sector. Among the small caps, three have already delisted from London this year over poor valuations, with at least one of them expecting to relist in the US when the time is right.

Things need to change. Institutional investors in the London market must be more supportive of its life sciences industry, which, historically, has offered them very good returns, otherwise, we fear that the sector could disappear within a few years.

But low valuations do throw up opportunities. We highlight Tissue Regenix, which has two regulatory approved tissue technologies that are in much demand; barriers to entry are enormous because of the regulation and controls involved in the processing of human tissue, with customers preferring to leave these technicalities in the hands of a specialist. Following investment in manufacturing capacity expansion, TRX is showing consistent, above-average sales growth, is cash generative and profitable. Yet the market values it at only $57m compared with the $150m spent to get it where it is today.
Underlyings
Advanced Oncotherapy

Advanced Oncotherapy is focused on providing radiotherapy systems for cancer treatment through the use of a proton therapy technology. Co. operates in two business segments: proton therapy and healthcare related properties. The healthcare related property U.K. segment relates to Co.'s property in Folkestone, which is being marketed for sale.

Allergy Therapeutics PLC

Allergy Therapeutics is a pharmaceutical group focused on allergy vaccination. Co. mainly sell its products in European countries and its pipeline of products in clinical development includes vaccines for grass, tree and house dust mite, as well as a peanut allergy vaccine in preclinical development. Co. sells a range of aluminium-free allergy vaccines and diagnostics. Co. sells both injectable and sublingual (oral) formats. The commonly prescribed are those for the treatment of pollen related allergies, particularly for allergies to grasses, weeds and trees. Co.'s vaccines trade under various brand names depending on the market, e.g. Pollinex Quattro, Polligoid and TA Graser Top.

AstraZeneca PLC

AstraZeneca is a holding company. Through its subsidiaries, Co. operates as a biopharmaceutical company engaged in discovering, developing, manufacturing and commercializing its pipeline of small molecule and biologic prescription medicines, including targeted business development through collaboration, in-licensing and acquisitions. Co. is focused on three main therapy areas: Oncology, Cardiovascular and Metabolic Diseases, and Respiratory. Co. is also selectively active in autoimmunity, infection and neuroscience. In addition, Co. works across small molecules, oligonucleotides and other drug platforms, as well as biologic medicines.

C4X Discovery Holdings

C4X Discovery Holdings is a drug discovery company. Co. operates one segment, being the provision of new technologies to improve the drug discovery process for small molecule therapies. Co.'s proprietary target discovery technology Taxonomy3® is used to analyze genetic datasets. It identifies and characterizes defined patient groups and is able to identify previously unknown genetic linkages and interactions between genes and biological pathways in a range of diseases. Co.'s drug design technology also comprises both Conformetrix and MolPlex. These technologies enable Co. to enter chemical space and gain knowledge about the bioactive form, allowing the design of selective molecules.

ConvaTec Group Plc

ConvaTec Group is a holding company. Through its subsidiaries, Co. is a global medical products and technologies group. Co. has four franchises: Advanced Wound Care, which provides wound dressings, devices and skin care products used for the management of acute and chronic wounds; Ostomy Care, which focuses on devices, accessories and services for individuals who have a stoma; Continence and Critical Care, which provides products for people with urinary continence issues; and Infusion Devices, which develops and manufactures disposable infusion sets for the suppliers of insulin pumps for diabetes treatment and similar pumps used in continuous infusion treatments for other conditions.

E-therapeutics

E-Therapeutics is a drug discovery company with a proprietary in silico discovery platform based on the application of network science to the modelling and analysis of cellular processes and utilizing public and proprietary chemical biology and multi-omics data. The therapeutic focus of Co.'s discovery activity is in areas of disease with unmet medical need, including immuno-oncology.

Genedrive

Genedrive is a holding company. Through its subsidiaries, Co. is a molecular diagnostics business developing and commercializing a point of care diagnostics platform for the diagnosis of infectious diseases and for use in patient stratification (genotyping), pathogen detection and other indications. Co.'s Genedrive® is a patented small polymerase chain reaction platform which enables rapid nucleic acid amplification and detection from various sample types, including plasma, sputum and buccal swabs. Co. also provides contract research services to drug development companies under the Epistem brand name.

GlaxoSmithKline plc

GlaxoSmithKline is a global healthcare company. Co.'s segments include: Pharmaceuticals; Vaccines; and Consumer Healthcare. The Pharmaceuticals segment is focused on developing new medicines in respiratory, HIV, oncology and immuno-inflammation, with discovery research exploring these and other areas. The Vaccines segment has a portfolio and pipeline of vaccines to help protect people throughout life. Co. delivers vaccines to people living in over 160 countries. The Consumer Healthcare segment develops and markets consumer-preferred brands in oral health, pain relief, respiratory, nutrition/gastro-intestinal and skin health.

Immunocore Holdings ADS

Novacyt SAS

Novacyt is an international diagnostics group. Co. sales clinical products used in oncology, microbiology, haematology and serology testing, focusing on the development, manufacture and commercialisation of molecular, protein and whole-cell diagnostic products. Co. also develops new products for the infectious disease and oncology testing markets. Co. operates it business through three divisions that are principally based in the United Kingdom with additional operations in France, China, Australia and the United States: Primerdesign, NOVAprep® and Lab21.

OXFORD NANOPORE TECHNOLOGIES PLC

Redx Pharma

Redx Pharma is engaged in drug discovery, pre-clinical development and licensing. The principal activities of the business are the discovery and development of proprietary, small molecule drugs to address areas of high, unmet medical need. Co. is developing a porcupine inhibitor drug candidate, RXC004, as a cancer treatment using in vivo models of pancreatic and gastric cancer. ROCK1/2 inhibitors (known as systemic pan-Rock inhibitors) are known to induce hypotension. Co.'s ROCK inhibitor is designed to only work at the site of action in the gastrointestinal tract and degrades quickly, once absorbed, through enzyme-mediated metabolism in the blood, deeming it a soft inhibitor.

ReNeuron Group

Reneuron Group researches and develops therapies using stem cells. Co.'s products include: CTX cells for stroke disability, which is its therapeutic candidate for the treatment of patients left disabled by the effects of a stroke; human retinal progenitor cells (hRPCs) for retinitis pigmentosa (RP), which is its therapeutic hRPC candidate for the treatment of RP, a blindness-causing disease of the retina; hRPCs for cone-rod dystrophy, which is a hRPC therapeutic candidate across a range of genetic diseases of the eye; and CTX-derived exosomes, which is its exosomes nanomedicine platform that generates early pre-clinical data in cancer.

SILENCE THERAPEUTICS PLC

SMITH & NEPHEW PLC

Smith & Nephew is a global medical devices business operating in the markets for advanced surgical devices comprising orthopaedic reconstruction and trauma, sports medicine and advanced wound management. Co.'s advanced medical products and services include: Orthopaedic Reconstruction and Trauma (joint replacement systems for knees and hips and products to help repair broken bones); Advanced Wound Management (treatment and prevention products for hard-to-heal wounds); and Sports Medicine (implants and enabling technologies for minimally invasive repair of the joint).

TISSUE REGENIX GROUP PLC

Yourgene Health

Premaitha is an international molecular diagnostics group which utilize the DNA analysis technology to develop and regulatory approved genetic screening tests. Co.'s primary focus is on non-invasive prenatal tests (NIPT) for pregnant women. Co.'s NIPT solutions include: regulated in vitro diagnostic product supply that enable clinical laboratories to establish their quality assured, regulated, NIPT analysis offering; clinical laboratory service, which available in Manchester, the U.K. and Taipei, Taiwan, where customers can send blood samples for NIPT analysis; and portfolio of technology, which has developed to support laboratories and healthcare to generate the NIPT analysis.

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Hardman & Co
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Analysts
Martin Hall

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