Zeus Capital Q&A with Dr Gary Waanders: C4X Discovery Holdings PLC (LON:C4XD)

C4X Discovery Holdings PLC

Zeus Capital Healthcare Research Director Dr Gary Waanders caught up with DirectorsTalk for an exclusive interview to discuss C4X Discovery Holdings PLC (LON:C4XD)

 

Q1: Now, C4X Discovery released its results for the year to July 31st 2016 last Friday, can you run through the important highlights for us?

A1: Sure. So on the financial side revenues were flat at about £0.2 million compared to the prior year, as expected expenses increased, mainly as a result of greater investment in R&D so they’ve moved from £3.9 million prior year up to £5.2 million but we need to remember that this year was the first full year of the public company, the prior year was only three quarters of the year. The company ended the year with £1.3 million in cash but this was topped off post period end with the raise of a further £5 million in September.

The important events from an operational perspective to the company were 2 acquisitions during the year which helped in building the C4X Drug Discovery Engine. The company acquired Adorial Limited which bought with it a high sensitivity smart drug discovery platform called Taxonomy3 which is based on multi-various analysis on DNA databases, importantly this helps to identify genetically-validated clinically meaningful novel targets for new drug discovery programmes. The second acquisition was one of the assets from a company called Molplex which included the pioneering chemoinformatics and artificial intelligence software platform.

So these 2 acquisitions combined with C4X’s proprietary Conformetrix platform create a drug discovery engine which we believe holds great promise for more growth discovery.

 

Q2: The Company has shifted its strategy recently, how’s this changed and what do you think will be the benefits of those changes?

A2: So the strategy, C4X has moved from essentially being a fee-for-service company to focussing on its proprietary drug discovery programmes. So under a fee-for-service profile, margins are generally quite thin and the company has limited control over its own technology development. With that I think the value generation is restricting somewhat so the shift moves the company, I would say, up to the pharmaceutical value chain, evidence of that is seen in recent pre-clinical, in-licencing trends which have shown a strong increase in value over the past 4/5 years.

So the new strategy will enable the company to control the use of its resources on the one hand and also enables it to focus on disease areas where it sees higher value opportunities.

 

Q3: Now, what’s the outlook for the company over the next 5 years?

A3: I think we need to step back a bit and look at the industry as a whole and how it’s performed so despite enormous investment over the past 20 years or so the drug discovery operations of large pharmaceutical companies have failed to generate enough high quality new drug candidates to feed their late stage pipelines. So, as I mentioned previously, the industry is doing quite a lot more in terms of in-licensing deals where it’s looking for early stage new drug candidates and this has increased quite dramatically over the past 5 years. So the value of these deals has increased and we’re looking at values moving from about $10 million per pre-clinical programme a few years ago up to more than $30 million in 2015 and I think that trend is set to continue.

So we expect that the quality of C4X new drug candidates, which we think of as first and best in class, and the novel targets there are identifying in high value therapeutic markets should attract significant large pharma interest. We see the company signing at least one out-licensing deal in the next 12 months and I think that’s a trend that’s probably going to continue in the coming years. It’s an important fact that with these new in-licensing and out-licensing deals there’s usually an upfront payment associated with each deal, while they are important and they will actually change the profile sequence quite dramatically, there is a longer term value in these deals as we’d expect each new licence would generate further revenue from milestone payments and ultimately royalties. So quite clearly the company will increase in value with each licensing deal that it executes.

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