VSA Morning Technology Comment, 20/05/21
Frontier IP Group (LON:FIPP)
Portfolio Company Exscientia announces multi-target, AI-driven drug discovery collaboration with Bristol Myers Squibb
Frontier IP Group yesterday announced that UK based portfolio company Exscientia Limited ("Exscientia"), had entered into a collaboration agreement with Bristol-Myers Squibb Company (NYSE: BMY). Exscientia uses AI across its platform from target identification through drug design and patient selection in order to precision engineer new medicines. According to this week’s announcement, the collaboration will use AI to accelerate the discovery of small molecule therapeutic drug candidates in multiple therapeutic areas, including oncology & immunology.
The agreement with Bristol Myers Squibb includes up to US$50 million in upfront funding, up to US$125 million on completion of near to mid-term potential milestones, and additional clinical, regulatory and commercial payments that take the potential value of the deal beyond $1.2 billion. Exscientia will also receive tiered royalties on net sales of any marketed drug products resulting from the collaboration.
Exscientia’s collaboration with Bristol Myers Squibb was first initiated in 2019 with Celgene prior to Celgene's acquisition by Bristol Myers Squibb.
Exscientia is attracting significant investment and progressing rapidly. Last month it successfully completed a US$225 million Series D funding round led by SoftBank’s Vision Fund 2i and other major investors. In addition, SoftBank is providing an additional US$300 million equity commitment that can be drawn at the Company's discretion. On March 4th 2021, Exscientia announced that it had closed a Blackrock led Series C investment round of US$100 million. Exscientia is making strong commercial progress, as this weeks’ announcement attests, and was named the fastest growing private biotech or pharmaceutical company in the UK in the 2021 Alantra Pharma Fast 50.
The valuations of the Series C and the Series D rounds have not been disclosed. Following the Series C round, Frontier IP held a 2.1 per cent equity stake in Exscientia.
Of the 19 portfolio companies that Frontier IP has stakes in, a number are at a point of acceleration in commercial development, paving the way for a step up in valuation or a potential exit. The Group’s equity holdings are in four high growth technology clusters comprising: artificial intelligence, robotics and bigand sparse data; pathogens and cell imaging; food and agritech; and engineered particles and materials.
Frontier IP has a proven record in commercialising University IP to grow its own EPS and NAV by growing portfolio company valuations. Frontier IP also announced on April 28th that, “As a result of overall trading across the portfolio in the year to date, the Group anticipates that the outcome for the year ending 30 June 2021 will be materially ahead of management expectations with a significant contribution to the outcome being the increase in the book value of the Group's interest in Exscientia.”
We believe that Frontier IP represents an excellent opportunity for investors to gain exposure to early-stage technology companies, based on leading edge IP, which meets the needs and demands of international markets. Although Frontier IP has yet to have an exit to crystallise cash value, and the timing and value of potential exits is hard to assess, given the number of companies in the Frontier IP portfolio now at inflection points, this is becoming a real possibility over the next twelve months.
As a result, we believe the shares offer distinct valuation upside potential. Buy
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Phil Smith, Equity Analyst, Technology | T: +44 (0)20 3617 5187 | E: psmith@vsacapital.com
VSA Capital Research | T: +44 (0)20 3005 5000 | E: research@vsacapital.com
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