Q3 10.9m sales (+18% PCP) in line with expectations, made up of 6.7m of Contracted Future Revenue (CFR) was recognised and 3.4m in Clinical Trial sales contracts. This brought CFR down to 140.0m from 146.7m and 4Q23 realisation of 9.1m will see them finish the year at around US$40m sales as expected.

They noted capital market conditions (ie soft) delaying biotechnology companies sales, just over half last year. Also flagged the Alzheimer’s disease trial reviews in June and July – see the article @Nnyck777 linked a few days ago on Esai facing FDA scrutiny on death of a patient in the study.

Disc: Own.

7/3/23 Half year results release notes (in US$)

·        Sales for the half down 15% PCP and 11% HOH and NPAT only $60k Vs $4.1m PCP as operating leverage reversed on enrolment delays impacting revenue and growth investments increasing Opex.

·        Future Contracted Revenue continued to grow, increasing by $7.7m in the half and by $13.9m Vs PCP, so $27.3m of contracts were added to offset those billed in the period. This is 50% lower than PCP which was an unusually large increase, it is in line with the previous half, so contract growth seems solid and steady, but not growing.

·        Contribution margin from Clinical Trials (85% of revenue) dropped to 46% from 57% last half and 62% PCP. Drop due to lower sales to cover fixed cost, higher direct costs to support clinical trials in other countries (Japan) and lower software licence mix.

·        Operating expense up 15% in the half, due sales (business dev) and marketing costs up.

·        Share buyback plan: A$13m in shares which is about 5% of the shares on offer currently.

·        Guidance: Clinical Trials FY23 sales down 6-9%, contributions improving in second half to 52-55% range. Healthcare consistent with H1. EBITDA 12-15%, EBIT 6-8%, positive Op Cash.

·        Price drop partly justified by poor result and FY23 outlook but significantly over done by trading action to do with undisclosed take over talks which fell through.

Conclusion: FY23 is going to be a backward step on the previous 2 years of growth, but this seems to mostly be timing and a victim of comparatives. Future Contracted Revenue continues to grow and margins setbacks relate to market expansion for future growth investments. The Clinical Trials business provides a stable revenue and cash flow base with a long runway of secured revenue on which to build. The Healthcare business is scaling and offers additional future growth opportunities. 

Valuation Range: $1.50 – $2.45 (FY27 Revenue $63m Vs $100m on 55% GM)

Revenue Note: Clinical Trials dominate revenue currently, with 82% of sales contracts relate to Alzheimer’s in HQ FY23 as does 87% of contracted future revenue. Healthcare revenue is from early stage partnering with Eisai in Japan, Hong Kong and Taiwan with Thailand & Korea in first year. US opportunity is underway with FDA approval for Cognigram (another partnership with Eisai).

Disc: I bought on the drop and now hold.