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York Pharma (YRK.L) - interims announced: some progress but still waiting for Abasol
YRK.L
Comment by Objective Capital , May 28, 2008
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York Pharma announced its 6 month results to 31 March 2008 today. York announced a post tax loss of £4.5 million which beat management's expectations based on slightly higher product revenues and lower R&D expenditures than budgeted for the period.
During the period, York acquired Derms Development Ltd (DDL), a speciality Dermatological product company with an existent sales and marketing platform, for £15 million (before a £2.5 million contingent consideration). Sales from its DDL product range (including Zindaclin, Vitix and other dermatological products) of £2.2 million.
The company now believes that the market authorisation for Abasol(TM) cream for skin fungal infections expected from the MHRA should be expected for the second half of 2008. Two other formulations of the same underlying substance (for nail and vaginal infections) are in development and should reach clinical trials in the not too distant future. There is no change in the status of both Sabarep (TM) for eczema and Vampex (TM) for psoriasis, both of which are shortly expected to enter Phase IIb clinical development in calendar 2008. Preparations are also afoot for an IND filing with the US FDA for Sabarep in 2008.
York indicates that it now has its marketing platform in the UK and France in place and has begun to establish its presence in Germany. The DDL acquisition also brought with it an international distribution network in other non-core countries.
A placing at £1.20 per share raised £5.35 million in November to pay down bank debt accumulated by DDL (GBP 3 million) and for working capital purposes. The company estimates that with the £2 million that it had in the bank at the interim stage, the second half cashflow from DDL product revenues and expected upfront cash payments collected from partnerships that it expects to sign before year-end it should have enough to get it through to profitability. York management are confident that any shortfall will easily be raised in the capital markets on the basis of strong growth in product revenues that it believes can be demonstrated.
Objective's view:
None of what was announced is unexpected from our point of view. The £2.2 million represents roughly 3 months and a bit of revenues with York indicating that active sales and marketing is already beginning to pay off and should become evident with the announcement of the full year results. In any case, it is not a stretch to believe that the £7-8 million range that we forecast in our January note for DDL revenues are achievable. In fact, it is possible that the company could easily do somewhat better than what we estimated.
York has spent much time cleaning up the DDL acquisition in order to create the platform that it needs not only to be effective at marketing its current product range, but also to act as an effective platform for Abasol and other products coming through the pipeline. It also opens up the possibility that York could begin to take advantage of product line acquisition opportunities as they become available.
This is the first time that York has reported under IFRS which resulted in some adjustments which stem from the differences in UK GAAP and IFRS in the treatment of acquired assets. Under UK GAAP these are amortised over a fixed period whereas under IFRS acquired intangible assets are subject to annual impairment review. This transition resulted in minor adjustments to the Profit and Loss and Balance sheet. All in all, we see no reason to change our current valuation parameters at this time and therefore maintain our valuation range at the £1.92-GBP 3.68 established in our January 14th 2008 note.
The collapse of York's share price from a high of 151p last year to the current price of 50p parallels the drop experienced by many AIM companies in this sector. In our opinion this reflects indiscriminate, wholesale liquidation, irrespective of the prospects of each company. We believe that much of that relates to the risk appetite of investors for companies where there is little prospect of imminent concrete financial progress and the prospect of needing to raise further cash looms large. For those investors who are able to see beyond the short term, we believe that York remains a deeply discounted value play in the speciality pharma sector.
