3 Reasons to add C4X Discovery Holdings #C4XD to your Watchlist
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3 Reasons to add C4X Discovery Holdings #C4XD to your Watchlist

THE CONTENT OF THIS BLOG / WEBSITE (OR CONTENT ASSOCIATED WITH IT) IS NOT INTENDED AS INVESTMENT ADVICE, IT IS FOR INFORMATION PURPOSES ONLY. YOU SHOULD TAKE PROFESSIONAL FINANCIAL ADVICE IN CONNECTION WITH, OR INDEPENDENTLY RESEARCH AND VERIFY, ANY INFORMATION THAT YOU FIND ON THIS BLOG / WEBSITE AND WISH TO RELY UPON, WHETHER FOR THE PURPOSE OF MAKING AN INVESTMENT DECISION OR OTHERWISE. WE ARE NOT REGULATED UNDER UK FINANCIAL SERVICES LAW. THE AUTHOR OF THIS BLOG MAY HOLD AN INTEREST IN THE STOCK FEATURED.

C4x Discovery Holdings #C4XD
Share Price: 97.5p
Market Capitalisation: £45m

C4X Discovery aims to become the world’s most productive drug discovery engine by exploiting cutting edge technologies to design and create best-in-class small-molecule candidates targeting a range of high value therapeutic areas.

The company’s goal is to drive returns through early-stage revenue-generating deals with the pharmaceutical industry.

3 Reasons to add C4X Discovery #C4XD to your Watchlist

DISRUPTIVE STRATEGY

Typical small cap biotech or pharmaceutical companies tend to focus on one lead drug and spend a lot of time and money progressing it through clinical trials to commerciality.

The drug-development process will typically proceed through three phases over many years.

If the drug successfully passes through Phases I, II, and III, it will usually be approved by the national regulatory authority for use in the general population.

As you can see from the table above, only around a quarter of drugs pass phase III. For a small cap non-revenue company, this failure can be financially catastrophic if not fatal. Of course, if they do pass this final trial there could be a lot of commerical upside.

In summary, traditional clinical drug development is:

High Risk – There’s only one drug and with the odds against chance of success, its a boom or bust situation.

Expensive – The three phases involves testing on lots of humans at different locations.

Time Consuming – The three phases can take years, often nothing less than a year per phase.

Inflexible – Years are spent on one drug regardless on the changing demand for that drug.

THIS IS NOT THE MODUS OPERANDI OF C4X DISCOVERY

LOWER RISK

The don’t concentrate on just one drug, they currently have a drug asset portfolio consisting of TEN programmes. In 4-5 years time they plan to have between 30 – 40 pre-clincal programmes going on at anyone time.

REVENUE GENERATING

Eventually C4XD intend to have 3 to 4 suitable candidates for licensing with pharma partners EVERY YEAR. They will only take a drug into clinical trials if they have a partner.

They’ve already announced one deal:

On 29th March C4XD announced a licensing deal with, FTSE 250 company, Indivior worth up to $294 million for C4XD’s oral Orexin-1 receptor antagonist for the treatment of addiction, receiving $10 million upfront.

The treatment of addiction represents a substantial area of unmet medical need, forecast to be worth an estimated $13 billion per annum in 2018.

FOCUSSED

The pre-clinical trial are concentrated on disease areas with high partnering interest and highest value activities like their NRF-2 Activator Programme:

FLEXIBLE

C4XD collaborate with big pharma companies, early on in the programme development, which is important as 65% of new molecular entities were originated by small-mid size BioPharma companies and this trend is getting bigger.

 

MANAGEMENT

CEO – CLIVE DIX

Clive has more than 30 years’ experience in life science research, with over 20 years in senior pharmaceutical industry positions and a degree and PhD in Pharmacology.

One of those roles was UK research director at GlaxoWellcome, which he left 2001.

At Glaxo I managed some 600 drug discovery programs across the globe. As it got bigger it was impossible and I left at the merger with SmithKline Beecham when it became GSK.

At that point joined PowderJect which unfortunately within two years we were acquired by Chiron which was then the start of my what I call my second career.

So in 2003 I said to the Chiron management, “when you bought this company you actually don’t want the technology you only wanted the products. So can I have the technology please?”, and they said “Yes”.

So I raised $30 million from the city and a year and a half later sold that company for seven times that to Pfizer.

After that….I acquired some really nice pain molecules out of GSK and in 2010 again raised $30 million. In January 2015 I sold that company to Biogen for $650m.

So I think I know how to take money and turn it into value through doing drug discovery”.

On C4XD Clive says, “This is my big swansong I’m going to make this really work. It’s going to be the best UK biotech ever. That’s my ambition”.

 

 

CUTTING EDGE TECHNOLOGY

There are two parts to their software, Taxonomy3® identifies the target and Conformetrix identifies the important molecular shapes and from those, design and develop safer and better drugs.

Taxonomy3®

Taxonomy3® used to analyse complex genetic datasets to identify and characterise novel drug target candidates. Since these novel targets are based on human genetic data, the resulting drugs have a greater probability of successful clinical development and product realisation.

 

Conformetrix


This patented technology platform allows the dynamic 3D-shapes, of free drug molecules, to be precisely measured from experimental data, giving medicinal chemists new and unprecedented insights into the behaviour and physical properties of drug molecules.

The measurement, analysis and use of dynamic 3D-shapes is at the heart of the C4X drug discovery engine. The focus and clarity that these provide allow us to make rapid progress in developing new and better drugs at a fraction of the cost compared to best industry practice.

 

IS C4XD’s SOFTWARE REALLY CUTTING EDGE?

In order to achieve their ambition of becoming, “the world’s most productive drug discovery engine”, C4XD have to be at the technological forefront.

During 2017, C4XD’s Taxonomy3® identified a grand total of 180 novel genes being discovered that have not previously been associated with Parkinson’s Disease. The rest of the world, put together, have only identified 60!

FROM 3D TO 4D

C4XD have initiated the creation of a specialised visualiser, “4Sight”, to allow the viewing of C4XD’s proprietary 4D molecular data to provide a revolutionary way of viewing and comparing molecules in a virtual world utilising the latest VR technology.

4Sight has been chosen as a case study for Immerse UK which is supporting the UK in becoming the global leader in the application of immersive technologies. You can read about that here.

 

C.C.A.S.S.H.

How does C4XD fit in with my research model, C.C.A.S.S.H which you can read more about by clicking here

Green equals good, black equals neutral and red equals bad.

CAPITALISATION

At £45m, C4XD is a lot bigger than the size of companies I normally I invest in but was attracted by the $294m deal C4XD signed with Indivior and the potential going forward.

This deal validates C4XD’s pre-clinical licensing revenue model.

They intend to have 3-4 candidates up for licensing deals each year. So let’s do some rough but conservative maths on this. If C4XD license out 1 deal per year (out of a possible maximum if 4) for $200m this would mean they are currently undervalued.

Here’s my workings out:

Low Case Scenario (based on 1 licensing deal per year)

Revenue = $200m (£140m)

Pre-Tax Profit (based on a conservative 10% margin) = $20m (£14m)

If we value them at 10 times earnings, which is conservative for a cutting edge biotech company, their valuation would be $200m (£140m) or 3 times more than they’re worth now.

 

Mid Case Scenario (based on 2 licensing deals per year)

Revenue = $400m (£280m)

Pre-Tax Profit (based on a 15% margin) = $60m (£42m)

If we value them at 15 times earnings, their valuation would be $900m (£631m) or 14 times what they’re worth now.

 

High Case Scenrio  (based on 4 licensing deals per year)

Revenue = $800 (£561m)

Pre-Tax Profit (based on a 20% margin) = $160m (£112m)

If we value them at 30 times earnings, which is not unknown for a cutting edge biotech company, their valuation would be $4.8bn (£3.37bn) or 106 times what they’re worth now.

 

CHART

Avoid the spike!

On the day before the news about their Indivior deal was released, the share price closed at 56.5p. The next day after the news release, the shares opened at 110p and rose to 150p then dropped to close at 112.5p (double the previous day’s close).

The price has settled down a little and the current range seems to be between 85p – 100.5p.

The share price may dwindle over the next few months, if news isn’t released but points worth noting are the previous placing prices. They raised £7m at 85p in March 2017 and £5m at 102p in September 2016, which is pretty much the last few days range.

ASSETS

– C4XD had net assets at 31 January 2018 of £6.2 million.

– Cash, cash equivalents, short-term investments and deposits of £1.4 million

– Post-period end an R&D tax credit of £1.7 million and the upfront payment from Indivior of £7.1 million ($10.0 million) have been received.

In a recent interview Clive Dix, CEO said this cash would last them for, “a year or so runway but with a year or so pushing harder as we’ve been quite prudent with our cash and just hitting milestones all the time not pushing to much out there but we can probably do a lot more now and accelerate our programmes”.

SHAREHOLDERS

The shares are very tighlty held, significant shareholders (above 3%) hold 67.2% of the issued share capital.

Directors hold 6.9% of which Clive Dix, the CEO, holds 2.8%.

SIGNIFICANT MILESTONE

They currently have a drug asset portfolio consisting of ten programmes.

They plan to have between 30 – 40 pre-clincal programmes going at anyone time within, “the next for to five years” and of these they intend to have 3 to 4 suitable candidates for pre-clinical licensing with pharma partners every year.

So you could say for every 10 pre-clinical programmes they’re running, they hope to sign one licensing agreement per year.

They’ve already done one this year and in a recent interview Clive said he’d be very disappointed if they weren’t in talks on, “at least another one in the next calendar year”.

HEAD HONCHOS

The board and management team have very impressive track record, which you can see by clicking HERE, headed up by Clive Dix, a serially successful biotech entrepreneur.

C4XD has reinvented the model normally associated with traditional small biotech companies.

They’ve done this with their disruptive strategy of lowering the risk of economic failure by developing many multiple pre-clinical programmes, running concurrently, aimed at addressing high demand diseases.

Their cutting edge software platforms, Taxonomy3® and Conformetrix assist this process with more accurate analysis and design techniques that ensure the risk of clinical failure is also reduced.

On top of this, their process is flexible and targeted, as its steered by early collaboration with big pharma companies who increasingly rely on smaller biotech companes to develop new molecular entities.

Of course the above disrutive model is entirely to the credit of the experienced board and management team.

There’s little doubt that this model, if successful, has the potential to generate a staggering amount of value in the mid to long term.

At the moment their development engine is in first gear so there maybe some time before the next significant milestone is achieved. In the short term this may have a negative impact on the share price, which for the longer term investor could present a very decent opportunity.

To add C4X Discovery #C4XD to your Vox Markets Watchlist, click here and tap the, “Follow”, button 

THE CONTENT OF THIS BLOG / WEBSITE (OR CONTENT ASSOCIATED WITH IT) IS NOT INTENDED AS INVESTMENT ADVICE, IT IS FOR INFORMATION PURPOSES ONLY. YOU SHOULD TAKE PROFESSIONAL FINANCIAL ADVICE IN CONNECTION WITH, OR INDEPENDENTLY RESEARCH AND VERIFY, ANY INFORMATION THAT YOU FIND ON THIS BLOG / WEBSITE AND WISH TO RELY UPON, WHETHER FOR THE PURPOSE OF MAKING AN INVESTMENT DECISION OR OTHERWISE. WE ARE NOT REGULATED UNDER UK FINANCIAL SERVICES LAW. THE AUTHOR OF THIS BLOG MAY HOLD AN INTEREST IN THE STOCK FEATURED.

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THE CONTENT OF THIS BLOG / WEBSITE (OR CONTENT ASSOCIATED WITH IT) IS NOT INTENDED AS INVESTMENT ADVICE, IT IS FOR INFORMATION PURPOSES ONLY. YOU SHOULD TAKE PROFESSIONAL FINANCIAL ADVICE IN CONNECTION WITH, OR INDEPENDENTLY RESEARCH AND VERIFY, ANY INFORMATION THAT YOU FIND ON THIS BLOG / WEBSITE AND WISH TO RELY UPON, WHETHER FOR THE PURPOSE OF MAKING AN INVESTMENT DECISION OR OTHERWISE. WE ARE NOT REGULATED UNDER UK FINANCIAL SERVICES LAW. THE AUTHOR OF THIS BLOG MAY HOLD AN INTEREST IN THE STOCK FEATURED.

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Mentioned in this post

C4XD
C4X Discovery Holdings