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Small Cap Value Report (Mon 15 Feb 2021) - ONC

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Good morning, it’s Paul here with the SCVR for Monday.

Jack’s sectionOncoimmune Holdings (LON:ONC)

Share price: 177.08p (+2.65%)

Shares in issue: 63,662,446

Market cap: £112.7m

Oncimmune Holdings (LON:ONC) provides two main services in the biopharma space. It is 1) a developer of applied immunodiagnostics for the early detection of disease, and 2) involved in drug discovery and development.

Its ‘proprietary platform technology includes a substantial immunogenic protein library, over 200 patents granted and pending in 47 countries and over 150 peer-reviewed materials,’ apparently.

The group’s HQ is in Nottingham, and it also has a discovery research centre in Dortmund, Germany, as well as a partner representative office in Shanghai, China.

ONC is focused on improving cancer survival and has a diversified and growing revenue from its portfolio of diagnostic products. Meanwhile, its ImmunoINSIGHTS platform enables life-science organisations to optimise drug development and delivery. ​

Oncimmune’s immunodiagnostic technology, EarlyCDT, ‘can detect and help identify cancer on average four years earlier than standard clinical diagnosis.’ This targets a vast market estimated to grow to £3.8bn by 2024.

Although revenue is growing, it is still tiny compared to the group’s market cap of £112.7m with just £509,000 of sales in FY20. So the market is already pricing in a lot of growth at these levels.

The group continues to burn through cash as well, having raised funds from equity in 2013, 2016, and 2018, as well as taking on debt in 2014, 2015, 2016, and 2020. So becoming self-funding is surely the first step with Oncoimmune and it’s possible that the events of the past year have brought this goal forward.

Interim results

Indeed, ONC opens with:

Substantial revenue growth achieved with increased commercial activity across the business…

Growing pipeline of ImmunoINSIGHTS contracts in negotiation with large pharmaceutical companies and biotechs.

But you have to scroll down a fair bit to get to the actual trading figures. Financial highlights include:

  • Revenue for the period was up sixfold to £1.83m (H1 2019: £0.31m).
  • Gross profit for the period was £1.41m (H1 2019: gross loss £0.05m).
  • Total administrative expenses were £2.88m (H1 2019: (Restated) £4.88m).
  • Research amp; Development costs were £0.62m (H1 2019: £1.01m)
  • Loss after tax was £2.60m (H1 2019: (Restated) £5.27m).
  • Investment in the ImmunoINSIGHTS business with additional equipment purchases and headcount to further increase capacity and remove possible operational bottlenecks.
  • Gross cash balance at the period end of £3.28m (FY 2020: £4.24m) and gross debt at the period end of £9.59m (FY 2020: £7.29m).

So, for now, let’s assume the H1 performance is repeated in H2 and ONC generates FY21 revenue of £3.66m. That’s still a valuation of nearly 30x FY21 sales. Whatever the optimistic tone in the narrative, coming back to this basic point on valuation should probably keep our feet on the ground.

That aside, a gross margin of 77% suggests potential and trading does sound good here, with a ‘marked increase in commercial activity’ for its ImmunoINSIGHTS services. Seven contracts were signed in the period, including with Roche Pharmaceuticals and Genentech and a pipeline of over 100 opportunities.

ONC’s Infectious diseases (COVID-19) business has received funding Services from the UK Government to support a joint collaboration with Medicines Discovery Catapult to deliver a research panel for profiling patients with COVID-19.

There’s a subsequent partnership with Cedars-Sinai Medical Center, California, US, signed to analyse COVID-19 samples as biomarkers for this disease, with ‘several global biopharmaceutical companies’ also looking to access this Infectious Diseases panel.

The group’s EarlyCDT® Lung product has seen the first commercial contracts signed to supply EarlyCDT® Lung blood test to the NHS. Sales volumes and forecasts in the US have ‘materially improved’ here, with an expected increase in commercial activity in 2021 and beyond.

On a more general note regarding its lung cancer products and services, ONC expects product sales to at least return to pre-pandemic forecasts as national hospitals open up.


Of that pipeline of over 100 opportunities, 19 are potential contracts with a value of £10.8m from follow-on contracts with existing customers or proposals for new customers. In which case, it’s probably reasonable to assume good top line growth over the next year or two.

But this company also has a history of cash burn and raising funds from debt and equity, so understanding exactly why a corner has been turned in this regard is important. I don’t have that insight yet. What’s more, the ONC valuation doesn’t just factor in becoming self-funding – it prices in substantial revenue growth.

The company does seem to be expanding quickly though. It’s on an exciting trajectory and is successfully establishing partnerships with the NHS, as well as leading pharmaceutical and biotech companies. Meanwhile, the ImmunoINSIGHTS business is underpinned by world leading technologies and expertise which, despite the impact of COVID-19, has delivered significant commercial opportunities.

So it’s certainly worth spending some time considering the prospects here, but there is just the valuation to consider. For those convinced that ONC is on its way to becoming something much larger, perhaps it is worth paying that premium.

But for now, with limited knowledge of the company, that wide gulf between market cap and trading results rules it out for me. There is a presentation later today on if anybody wants to hear from management.



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