Demanding second half

Oxford BioMedica (OXB) is a gene-based medicine viral-vector biopharma company. It offers vector manufacturing and development services, while developing proprietary therapies, with its LentiVector® platform. Growth in gross income and profitability were driven by new licensing deals in 2018. Despite steady growth in 1H’19 group sales (bioprocessing and commercial development), a reduction in licensing income resulted in a first-half operating loss; the absence of significant deals in 2019 has also dampened the shares. Although interim results were in line with our expectations, they highlight the importance of 2H’19 for a full-year profit.

• Strategy: OXB has four strategic objectives: i) delivery of vector development services that embed its technology within partners’ commercial products; ii) bioprocessing and commercial manufacture of vector; iii) out-licensing of proprietary candidates; and iv) investment in R&D and the LentiVector platform.
• Interim results: The results were broadly in line with expectations, with growth in group sales (bioprocessing/commercial development) and a reduction in other income (licensing, grants, royalties) following the significant deal flow in 1H’18. An £11.5m milestone payment was awarded from the Parkinson’s partnership.
• Second-half emphasis: The annual manufacturing shutdown contributes to back-end-weighted bioprocessing income, compounded this half by the transfer of the Yarnton facility to next-generation processes. Management remains transparent on, and reiterated its confidence in, closing ongoing deal discussions.
• Risks: Investors should understand that OXB’s core growth trajectory is dependent on the progress of partners’ clinical trials and commercialisation of LentiVector-enabled products. OXB is investing heavily in infrastructure for manufacturing capacity and in personnel, which is affecting the bottom line.
• Investment summary: In our view, OXB is an exciting company with market-leading technology. It has been extensively validated through large deals with leading (bio)pharmaceutical partners and through UK government grants. On expectations of further licensing income in 2019, OXB will be profitable, cashflow-positive at the operating level, and net cash-positive at the full year.