Allergy Therapeutics

Manufacturing pause takes it toll on revenues

Update | 28 October 2022

Share this note

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 30202120222023E2024E
Revenues (£m)84.372.867.873.6
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)40.320.5(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

Price17.00p
Market Cap£115.5m
Enterprise Value£90.6m
Shares in issue679.1m
12 month range15.2-38.5p
Free float20.0%
Primary exchangeAIM London
Other exchangesN/A
SectorHealthcare
Company codesAGY
Corporate clientYes

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

 

Disclaimer

Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publicly available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.

Copyright 2022 Trinity Delta Research Limited. All rights reserved.