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e-Therapeutics plc: Initiate Coverage at 37p with a Recommendation of Buy with Initial Target price of 106p

e-Therapeutics is an AIM listed UK based drug discovery company targeting therapeutic sectors with high unmet clinical using its unique and fully patented in silico bio-analytics drug discovery platform. The company, through this platform, has a growing portfolio of repositioned and proprietary drug candidates progressing to Phase II clinical trials.

in silico ticks three of the key boxes for any major pharmaceutical company. It potentially reduces the risk of candidate failure and the time to market (i.e. extending the candidates patent life) through the application of its unique bio-analytics algorithms. (For example, the conventional drug discovery approach typically takes 15 years before a candidate reaches the market while e-Therapeutics can reduce this to 8 years for a new chemical entity and 6 years for a repositioned candidate.) More importantly, the in silico platform’s algorithm’s can analyse complex biological systems and diseases and generate potential candidates for their successful treatment.

e-Therapeutics is commercially focused and recognised that the quicker commercial successes will come from reprofiling existing drug candidates, using its in silico technology, to meet new unmet clinical needs and thereby generate earlier revenue stream. This is the basis of their own proprietary portfolio of candidates to date.

The company de-risked the investment risk through a placing in February, raising £17.6 million before expenses of development capital at 26p per share, which should see the company through to full commercialisation of its existing pipeline of candidates.

Realistically valuing any early biopharma is, to say the least, highly speculative because they are typically bets on one or two very early stage drug candidates ever making it to market or securing a late stage clinical trial partner before the company runs out of cash. However, e-Therapeutics is unlike its stereotypical peers because it has a unique, patented, bio-analytical drug discovery platform ( in silico ) that has already generated a sizeable, diversified and growing portfolio of drug candidates that are targeted upon commercially large areas of unmet clinical need. Indeed, some of the portfolio has already been part licensed. Nevertheless, we have decided to value, or more accurately provide, an indication of the potential value for this pre-revenue company, using very cautious assumptions for only 3 of its current portfolio of 8 drug candidates for the period 2014 – 2028 These candidates have a combined addressable potential market of US$76.5 billion. Our heavily risk discounted NPV generates an indicative share price of 106p rising to 423p if the 3 candidates are successful in their forthcoming Phase II trials. Neither figure attributes any value to the unique and fully patent protected drug candidate development platform in silico, which should become increasingly more valuable as the portfolio expands and more candidates become partnered.

Obviously, realisation of any potential value is dependent upon many variables but between now and the first commercial launches estimated to be during 2014/15, we anticipate that the share price will respond more to news flow concerning the results of clinical trials for these candidates, and the other portfolio candidates, as well as, development partner announcements. Consequently, we recommend the shares as a buy at 37p with a 106p target price.

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