Oncimmune “outlook for the services business appears increasingly optimistic” says Zeus Capital

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Oncimmune Holdings plc (LON:ONC) FY 2020 was the first full year of delivery under Oncimmune’s three-year plan of operational, technical and commercial targets for products and services, accomplishing major milestones to support their commercialisation, accelerating post period. Significantly, since year end, there has been a step-change in the performance of Oncimmune’s ImmunoINSIGHTS services business attracting new contracts with world leading biopharma companies and recently a high profile Government funded project to address COVID-19.

FY 2020 and post period highlights include publication of successful results of the Early Cancer Detection Test Lung Cancer Scotland (ECLS) study of EarlyCDT Lung, the largest lung cancer biomarker randomised trial. A Medtech Innovation Briefing published March, supports NHS stakeholder adoption of EarlyCDT Lung. Initiation of a major multi-centre lung cancer study in the China with results expected in Q1 2021, can further boost the prospects for EarlyCDT Lung in this very significant market. The March US launch of EarlyCDT Lung by US partner Biodesix for lung nodule testing, coincided with the COVID-19 outbreak which has limited initial roll out but with prospects anticipated to improve from Q4 FY2021.

Oncimmune drove strong momentum in contract delivery based on high demand for its proprietary ImmunoINSIGHTS platform services, and has now signed five contracts with world leading biopharma companies, including Roche and Genentech. These are initially to analyse autoantibody profiles as biomarkers to aid diagnosis, treatment and accelerate drug development. The fact that ONC is rapidly signing up and expanding such contracts provides strong endorsement to its 2019 acquisition of Protagen Diagnostics which also diversifies its revenue streams. The prospects of expanding these contracts for the development of companion diagnostics in return for milestone payments and or royalties, provide attractive upside potential.

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Our revenue forecasts are underpinned on the EarlyCDT Lung minimum contracted commitments FY2021-2025, and we cautiously assume that there will be recovery in demand during Q4 FY2021. For the Services business, FY 2021 forecasts appear well supported by recent contract wins. We make minor changes for now only to FY 2021, stripping out the Biodesix screening milestone payment of $9m (approx. £7m) (Biodesix has confirmed it will not be exercising its rights under the screening option), increasing our underlying revenue forecast by £0.4m to £5.8m, and narrowing FY 2021 post tax loss to £3.2m (from £4.1m).

The investment case is based on the improving prospects across the business, data to support EarlyCDT Lung, including NHS commercial adoption in view. The outlook for the services business appears in particular increasingly optimistic and we will review our forecasts at the half year trading update in December.

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