After covering the predominantly mining small caps last week, I thought it was high time to complete a review of the top biotechs on my radar as we start to head into Q3. Like miners, biotech in general are risky businesses — most have a flagship drug or product in development upon which hinges the success or failure of the company as a whole.
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Consequentially, most biotech investors spread their cash across a variety of companies with the expectation that at least some will fail. Many companies I have covered over the past few years — such as Synairgen, BridgeBio Pharma, Sensorion, Rafael, and Angion Biomedica — saw share price collapses after a single poor update, and this is not an uncommon theme.
Further, the Bank of England base rate stands at 4.5% and is expected to rise to perhaps as much as 6% by this time next year. The impending recession could be akin to a 2008-style crash — and older investors will remember that prior to the Global Financial Crisis, the UK used to be a global biotech market leader.
But more than a third of our biotechs collapsed in the aftermath. This leaves sound finances as more important than ever, but it’s becoming increasingly hard to raise cash on AIM, or even acquire bank loans from risk-averse managers. This additional risk is worth weighing up, with several shares on this list in a precarious financial situation.
It’s also worth considering volatility. This increasingly uncertain environment means that share prices are jumping around like Tigger on Adderall — long-term investors need to be able to hold through significantly outsized paper losses and gains.
Top biotechs to watch
- Avacta (LON: AVCT)
Avacta shares dipped below £1 last week as some investors fell afoul of FUD regarding a potential placing.
While placings are the perennial bane of AIM investors, there was no chance that Avacta would need to resort to this, and even released an RNS today noting that ‘no fundraising is imminent. Avacta has a strong cash balance of £27 million on its balance sheet as at 31 May (unaudited) and anticipates strong news flow in the coming months from across the Group.’
For context, the biotech only just acquired Coris Bioconcept for £7.4 million, with an earnout of up to £3 million. This is not the action of a cash-starved company. Investors should instead be focused on the appointment of Shaun Chilton to the board, who previously led Clinigen as CEO before its £1.3 billion sale, as well as his non-exec Chair role at C7Health before its acquisition two years ago.
Of course, the multi-continent phase 1 trials of AVA6000 — key to delivering chemotherapy without side effects — continues apace. While not risk-free, Avacta could arguably have the widest risk-reward value disconnect on AIM today.
- Hemogenyx (LON: HEMO)
HEMO shares soared to 3.93p in mid-January after announcing ‘significant progress towards the practical use of its Chimeric Bait Receptor (CAR-T) having identified a target protein that can be incorporated into a single multipurpose CBR-based therapeutic capable of treating multiple viruses that belong to different viral families.’
However, after a £4 million placing, shares fell hard, and then fell further after early June news that the US FDA had put a clinical hold on its ‘Investigational New Drug’ application for the flagship Chimeric Antigen Receptor T-cells, for the treatment of acute myeloid leukaemia.
The FDA will be sending out a letter within 30 days setting out ‘additional information required to be provided,’ though CEO Vladislav Sandler remains ‘confident that we will be able to address the FDA’s questions and concerns regarding the IND.’
A dip buying opportunity awaits.
- Abingdon Health (LON: ABDX)
ABDX today launched its Salistick pregnancy test in partnership with Salignostics, the first ever to use saliva rather than urine. While more tests are in the pipeline, this UK launch is a huge catalyst; 12.5 million pregnancy tests are used in the UK every year, while the global pregnancy test kits market is expected to reach $2.28 billion by 2028, growing at a CAGR of 5.08%.
While this novel pregnancy test is being sold directly, investors are most excited by its launch at 400 Superdrug sites in addition to Superdrug.com. Initial success could see this test become the international standard in short order — I don’t know a single woman who wouldn’t prefer to use a saliva-based test.
The only problem is building up brand recognition and trustworthiness — ABDX is after Clearblue’s lunch. It has a superior product, but the company is spending circa £233,000 per month leaving it with just over a year of cash runway.
The board’s ‘primary objective’ is to move the Company to a breakeven and cash flow positive position which it forecasts will be achieved in FY 2024. Another placing now is unlikely but there is very little room for error.
- Genedrive (LON: GDR)
When I last covered Genedrive in early February, I noted that the stock was worth a speculative trade for its excellent tech despite the lack of cash. Given the lack of revenue and poor numbers, I noted that ‘it remains to be seen whether the £20 million company would be able to sell placing shares even at a steep discount’ with it likely running out of money by June.
Fortunately, GENI managed to get a £5 million Equity Prepayment Facility in place in late March, which it concluded was ‘the best option available to the company at the present time in order to further fund the company’s progress while also taking consideration of the investor shareholder base.’
GENI was recently awarded a multi-partner grant for the validation of Genedrive CYP2C19 ID Kit in time critical NHS settings from Innovate UK and the UK government Innovation Accelerator programme. Funding is expected to be made available to further the validation and implementation of the patented test in a time critical clinical setting.
The exact amount of funding will be critical, with GENI hyper volatility reflective of the uncertainty.
- Cizzle (LON: CIZ)
Cizzle is developing an ‘early and cost-effective’ lung cancer detection method, with a focus on the early detection of lung cancer. Current low dose CT scans suffer from false positive rates as high as 90%. Cizzle’s prototype confirmative test could answer this ‘clear unmet clinical need’ — covering early lung cancer detection where curative surgical resection is not possible.
Its approach comes with multiple potential advantages. For the patient, there’s less radiation, it’s faster and involves non-invasive blood sampling, and they don’t need to attend a hospital scanning unit multiple times. Healthcare providers also benefit, as CT scanners become freed up for other patients, and both the test and any subsequent treatment are far cheaper.
The company recently raised £300,000 and issued a variation to a prior £500,000 loan facility, both with the purpose of providing working capital, and for continuing development of the flagship to progress it to UKCA, CE marking and/or FDA 510(k) clearance. It also plans to commence development of the test for use in doctors’ offices and pharmacies.
- Poolbeg Pharma (LON: POLB)
Poolbeg is working towards its first partnering transaction for flagship POLB001 after a recent successful human challenge study. It’s also developing two more promising treatments — POLB0002 for respiratory infections, and POLB003 for melioidosis.
In its most recent results, POLB had £16.2 million on its balance sheet, while a consortium led by the company raised just over £2 million in grant funding for its research. CEO Jeremy Skillington notes that ‘our strong cash position, coupled with the excellent data achieved in our LPS human challenge trial for POLB 001, position us well for 2023 as we work towards our first partnering transaction.’
The company made a loss of £4.7 million in the full year, including £2.2 million on R&D — but this potential new partnership could come at any time.
One RNS may have slipped investor notice — the company recently appointed Brendan Buckley as an Independent Non-Executive Director. Buckley has been an advisor since its founding and was a member of the Board of Directors of the Irish Medicines Board, chairing its Advisory Committee for Human Medicines. He was also a member of the European Medicines Agency Committee for Orphan Medicinal Products. This appointment could have a deeper meaning.
- hVIVO (LON: HVO)
hVIVO last reported positive developments in April. To start with, full-year results saw revenue rise by 30% to £50.7 million, while EBITDA trebled to £9.1 million and margins more than doubled to 17.9%. It also paid a one-off £3 million special dividend.
Further, it reported positive interim results from an ongoing human challenge study testing Cidara’s CD388. hVIVO is conducting the Phase 2a placebo-controlled trial using its H3N2 Influenza Human Challenge Study Model, whereby interim results have showed a decrease in viral replication in the upper respiratory tract and influenza infection in participants receiving a single dose of CD388 when compared to placebo.
Importantly, CD388 was well-tolerated with no drug -related adverse events observed.
On 26 April, HVO reported that the US FDA had ‘granted Breakthrough Therapy and Fast Track designations for its investigational therapeutic for the treatment of seasonal influenza, SAB-176. hVIVO conducted a Phase 2a human challenge trial to assess the efficacy of SAB-176 using its Influenza Human Challenge Study Model.’
These FDA designations are designed to expedite the development and review of medicines that are intended to treat a serious or life-threatening condition — and investors worried about the recent drift downwards may wish to adopt a longer-term mindset.
- Polarean Imaging (LON: POLX)
Polarean Imaging marked a ‘key milestone’ in mid-May when it saw the first clinical scan using its flagship Xenoview tech at Cincinnati Children’s Hospital Medical Centre. This is the only hyperpolarised contrast agent approved by the FDA for use with magnetic resonance imaging for the evaluation of lung ventilation.
On 2 June, the company announced a collaboration with Philips whereby ‘Philips’ MR 7700 MRI scanner will be combined with Xenoview, showcasing the capability to enhance pulmonary imaging by providing regional maps of ventilation in patients’ lungs.’
While a non-exclusive collaboration, it is designed to ‘facilitate the sharing of technical data and marketing materials to jointly advance the field of Xenon MRI into the clinical realm.’ It the collaboration works as intended, it should allow clinicians to view a patient’s lungs in greater detail, while also enabling them to accurately measure lung ventilation.
For patients with pulmonary disease, it has the potential to make a huge early intervention difference. This is a partnership could be a potential inflection point, but would-be investors should note that shares have nearly halved year-to-date.
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This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
