Trinity Delta Manufacturing pause takes it toll on revenues

Manufacturing pause takes it toll on revenues

Update | 28 October 2022

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Allergy Therapeutics has quantified the potential near-term revenue impact from the voluntary UK manufacturing pause. Whilst this is only expected to last around six weeks, FY23 revenues are expected to be 13-18% below current consensus expectations. This is unfortunately due to the interruption occurring during the peak production period, which is undoubtedly disappointing given management guidance of a return to near double-digit growth in FY23. This setback puts increasing pressure on the pipeline to deliver next year, with important readouts expected for both VLP Peanut and Grass MATA MPL; both are expected to initiate key clinical trials this year. Our valuation is lowered to £260.8m, or 38.4p/share, with the commercial business DCF reduced to £45.9m or 6.8p/share and our pipeline NPV unchanged.

Year-end: June 30	2021	2022	2023E	2024E
Revenues (£m)	84.3	72.8	67.8	73.6
Adj. PBT (£m)	2.5	(13.9)	(36.7)	(23.1)
Net Income (£m)	2.9	(13.8)	(37.1)	(24.0)
EPS (p)	0.5	(2.1)	(5.6)	(3.5)
Cash (£m)	40.3	20.5	(2.8)	(25.9)
EBITDA (£m)	8.2	(8.1)	(30.7)	(16.2)

Source: Trinity Delta Note: Adjusted numbers exclude share-based payments and exceptionals.

UK manufacturing set to resume mid-November Manufacturing at Allergy Therapeutics’ UK-based Freeman facility is set to resume on 14 November, following a temporary pause announced 4 October, equating to around six weeks of interrupted production. This pause was voluntarily implemented by management following an internal review, in order to optimise quality systems and accelerate capacity improvements. Whilst the pause was voluntary, the timing is particularly unfortunate, coming during a peak production period ahead of the pollen season.
Adverse revenue impact amplified given timing FY23 revenues are now expected to be 13-18% below consensus expectations of £80m, implying revenues of c £66-70m. Based on this we have lowered our FY23 revenue forecast to £67.8m (from £80m), implying a 15.3% YoY decline. We also decrease FY24 revenues to £73.6m (from £85.6m), which assumes slightly higher growth of c 8.6% but from a lower base. However, revenue recovery could be quicker, delivering higher FY24 growth. The reduced revenues are somewhat offset by anticipated cost savings of c £3m, mostly related to S&M, although we no longer expect Allergy Therapeutics to deliver an operating profit pre-R&D in either FY23 or FY24.
Pipeline now even more in focus With current uncertainties on the commercial business, the pipeline is now even more critical for the investment case. We expect key data readouts for both VLP Peanut and Grass MATA MPL during summer 2023 and Q4 2023, respectively, assuming trials initiate as planned this year.
Valuation reduced to £260.8m or 38.4p/share Our pipeline valuation is unchanged at £190.0m (28.0p/share). However, we now value the commercial business at £45.9m or 6.8p/share (from £112.8m and 16.6p/share) given lower revenues. Progress of key programmes could unlock material upside to our pipeline valuation, while an improved growth trajectory would boost the commercial outlook.

Update

28 October 2022


Price	17.00p
Market Cap	£115.5m
Enterprise Value	£90.6m
Shares in issue	679.1m
12 month range	15.2-38.5p
Free float	20.0%
Primary exchange	AIM London
Other exchanges	N/A
Sector	Healthcare
Company codes	AGY

Corporate client	Yes

Company description

Allergy Therapeutics specialises in the diagnosis and treatment of allergy. The existing European business generates > £70m annual sales. Near-term R&D efforts are focused on the Pollinex Quattro platform, whilst in the medium-term the VLP platform is highly promising.

Analysts

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Franc Gregori
fgregori@trinitydelta.org
+44 (0) 20 3637 5041

Exhibit 1: Summary of financials

Source: Trinity Delta, Allergy Therapeutics

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