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Hardman & Co

Arix Bioscience: Realising the valuation disconnect

Arix Bioscience plc (LON:ARIX) is a listed global venture capital (VC) company that presents an opportunity for institutional and retail investors to participate in the high risk-return profile of early-stage biotech investing. ARIX minimises risk through its expert investment team and with portfolio diversification. Strong interim results, which saw the NAV rise 24% to £251.0m, highlighted the enormous disconnect between this and its share price. ARIX has prioritised 11 companies in the portfolio on which to focus its resources and expertise. These have a number of important value inflection points – mostly clinical events – over the next 12-18 months.

  • Strategy: ARIX sources opportunities from an established network and a strong scientific reputation. The portfolio is diversified by therapeutic area, treatment modality, stage of discovery/development and geography to balance the risk-reward profile. Value is realised when ARIX successfully exits its investments.
  • Interims: Results for 1H’20 exceeded market expectations with a 24% rise in NAV to £251.0m (£202.1m at 31 December 2019) driven by a valuation uplift in portfolio companies. At 30 June 2020, ARIX had £44m of cash to support existing portfolio companies, early-stage companies, and operations.
  • Performance: During the period, portfolio companies raised $392m of working capital, with ARIX playing a supportive role in many cases. Since inception, ARIX has deployed £149m into its portfolio, realised £13m through opportunistic divestments, and generated an IRR of 20% (realised and unrealised). With a number of upcoming clinical events, ARIX has set an aspirational target to make an annual IRR of 15%-25%, and produce an NAV of £500m by the end of 2023.
  • Risks: Development of new medicines always carries risk. In the short term, there may be added risk from COVID-19 affecting the recruitment and running of clinical trials. Value is realised through clinical progression, regulatory approvals, partnering and financial milestones, allowing it successful exits. Therefore, much depends on the skill of the investment team.
  • Investment summary: Even though Arix BioScience is still a relatively young company, the market is beginning to appreciate that the company has a maturing portfolio, with investee companies running 19 clinical trials that could lead to a number of value inflection points. Since inception, ARIX’s investments have generated an IRR of 20% and it has set itself an ambitious set of targets for the coming three years which, if achieved, could see the NAV double to ca.£500m.

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