Continuing to gain market share

Allergy Therapeutics (AGY) is a long-established specialist in the prevention, diagnosis and treatment of allergies. The Pollinex Quattro (PQ) platform, the ultra-short course subcutaneous allergy immunotherapy (AIT), continues to gain market share, despite its availability in the EU only on a “named-patient” basis. Several products are in clinical development, with the aim of moving the platform to full registration under the new regulatory frameworks in both the EU and the US. Management has the plan and resources to achieve the ultimate goal: to be the first to launch a fully-regulated subcutaneous immunotherapy product in the US market.

• 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.
• 2019 results: Underlying sales grew 8% to £73.7m (£68.3m) in a flat market, equating to a market share gain of ca.0.6ppts to 14.1%. The product profit margin (pre-R&D) increased 3.0ppts to 38.4% (35.4%). The net cash position was £25.0m, boosted subsequently by a $4.1m/£3.3m settlement of legal costs.
• R&D update: AGY is still analysing why the subjective primary endpoint in the Phase III Birch trial was not met, while there was a significant effect observed with the objective secondary endpoint. The findings will be used to tighten the US Phase III Grass MATA MPL trial protocol, due to start in 2H calendar 2020.
• Risks: The risks inherent in subjective clinical trial outcomes were clear in the Phase III Birch trial. However, AGY prudently included an objective secondary endpoint of activity, which will be used in EU regulatory discussions about the way forward, and to adjust the pending US trial protocol.
• Investment summary: The strong trading updates, coupled with positive settlement of the outstanding litigation, have seen some share price recovery from the low caused by the PQ Birch trial outcome in March. Despite the recovery to date, AGY is trading on an EV/sales of only 0.72x 2020E, reducing to 0.67x 2021E. In our view, this is too low for a company with a long and profitable product history, and well below the multiples commanded by direct competitors.