Successful legal outcome removes uncertainty

AGY is a long-established specialist in the prevention, diagnosis and treatment of allergies. The Pollinex Quattro (PQ) platform, an ultra-short-course subcutaneous allergy immunotherapy (SCIT), continues to gain market share despite its availability in the EU on a ‘named-patient’ (NP) basis only. Several products are in clinical development, with the aim of moving the platform to full registration under the new regulatory framework. AGY has issued a positive trading update highlighting the strong operating performance of the group. Also, it has reached a successful settlement of an ongoing legal dispute with one of its third-party R&D contractors.

• Strategy: AGY is a fully-integrated pharmaceutical company focused on the treatment of allergies. There are three parts to its strategy: continued development of its European business via investment or opportunistic acquisitions; the US PQ opportunity; and further development of its pipeline.
• Trading update: Underlying sales growth appears close to expectations, rising 8.7% to £74.0m (£68.3m). Although further Brexit costs (-£0.5m est.) have dented any prospect of gross margin improvement, this has been more than offset by lower spend on marketing (+£1.0m), G&A (+£1.0m) and R&D (+2.0m).
• Legal settlement: AGY has settled a legal dispute with Inflamax Research Inc (Inflamax) regarding the inconclusive US Phase II Grass MATA MPL trial. Inflamax has paid AGY $7.4m/£6.0m in full settlement of the dispute. In addition, Inflamax has agreed to pay a ‘substantial portion’ of AGY’s legal costs.
• Risks: AGY’s primary risk lies in the timings of the regulatory approval process, mostly outside of its control, related to the PQ Birch immunotherapy and the European TAV process for full approval. Ongoing trials do represent a risk, but this is limited by the products’ use on a named-patient basis.
• Investment summary: The share price continues to recover from the overly pessimistic view of the PQ Birch trial primary endpoint failure in March and the positive trading update and news that the legal dispute has been settled will help. Despite the recovery to date, AGY is trading on an EV/sales of only 0.93x 2019E, down to 0.86x 2020E – well below the multiples commanded by its direct competitors.