The world of drugs is changing fast. Once, big, international pharmaceutical companies were responsible for virtually every new product that came to market. Today however, around two-thirds of all drugs approved by the regulators have been discovered by small, dynamic biotech firms.
New therapies have fundamentally changed the prognosis for a wide range of conditions, from certain types of cancer to debilitating auto-immune diseases. But the businesses behind them – often spun out of universities – need cash to bring their ideas to fruition.
Arix Bioscience aims to help these firms to succeed – and make money for shareholders along the way. The company listed on the stock market in February 2017 at 207p, the shares rose to 218p earlier this year but they have since drifted back to 199p. At this price, they offer major long-term rewards.
Cash injection: Arix invests in undervalued biotech firms
The company benefits from an exceptionally strong management team, chaired by Jonathan Peacock, who was formerly finance director at California-based Amgen, the largest independent biotech firm in the world.
Amgen’s share price rose by 125 per cent while Peacock ran the group’s finances and he also worked at Swiss drugs giant Novartis, during which time the company’s profits rose by more than 40 per cent.
Peacock’s right-hand man is chief executive Joe Anderson, who has spent his career in and around the pharmaceutical industry. A partner at successful biotech investment firm Abingworth for 12 years, Anderson has a track record of spotting lucrative opportunities in the sector. Armed with a PhD in biochemistry, he was also head of strategy at The Wellcome Trust and spent several years in the City.
Renowned biotech entrepreneur Sir Chris Evans is also on the board as deputy chairman. Over the years, Evans has founded numerous listed companies, valued today at almost £2billion.
Having highly experienced people at the helm does not just mean they are better than most at investing in businesses with good prospects – it also means they can source exciting transactions ahead of competitors.
When the group listed last year, it had already made five investments as a private company. Since then, it has added another eight businesses to the portfolio and aims to bring the total to 20 by the end of this year.
Arix has developed strategic partnerships with four major drug groups, including cancer and rare disease specialist Ipsen
Each of these firms is focused on different conditions and each is at a different stage in its development. This is particularly helpful in biotech investment, as some ideas may ultimately fail.
Not that Peacock and Anderson expect much failure at Arix. The firm is rigorous in its approach to new deals, screening 800 companies before investing in just 13.
The group is headquartered in London but it has an office in New York as well and its investment team scans the world in search of businesses with potential. They are also on the board of every company in their portfolio, helping them to succeed not just by providing cash but operational support as well.
Adding to its firepower, Arix has developed strategic partnerships with four major drug groups – Hong Kong-listed healthcare firm Fosun, Japanese giant, Takeda, cancer and rare disease specialist, Ipsen and Brussels-based multinational, UCB. Each of these companies has bought shares in Arix, they invest in the portfolio businesses and could potentially acquire them over time.
Arix has already made notable progress with its investments. One company, Iterum Therapeutics, applied just last week to list on the US Nasdaq stock exchange, while another Autolus did the same six weeks ago.
Based in London, Autolus is developing an innovative way to treat cancer through immunotherapy and its products are already undergoing clinical trials. Arix owns 8.6 per cent of the business, valued on its books at around £20million. Once the company lists however, analysts suggest that the business could be valued at more than £400million in total, implying that Arix’s share is worth at least £35million.
Iterum is a very different business but it is also thought to be substantially undervalued in the Arix portfolio. Based in Dublin, the group is focused on discovering new antibiotics for stomach and urine infections and the Nasdaq flotation is expected to take place over the next few months.
Midas verdict: As companies in the Arix stable deliver positive clinical data, receive external investment or float, their value rises. Several such catalysts are expected this year, which should boost Arix’s valuation and the company’s share price.
Most analysts believe the stock should rise to at least 260p over the next 12 months and further gains should come through as the company grows and acquires more businesses. Peacock and Anderson consider themselves to be long-term investors, retaining stakes in portfolio businesses until they are commercially viable. At that stage, however, they are likely to prove attractive acquisitions, delivering more good news for shareholders.