MIDAS SHARE TIPS: What a pleasure – you can profit from drug company that’s easing pain! Rheumatoid arthritis could be helped by firm backed by IP Group
Kathleen Turner was just 38 when her feet began to swell up. Within weeks, she could not move her left arm, then her neck froze and shortly after that, it became almost impossible for the Hollywood actress to walk.
This was the early 1990s and, when Turner was diagnosed with the autoimmune disease rheumatoid arthritis, steroids were pretty much the only drug that could alleviate her chronic pain.
Other drugs have come on to the market since then, most of which work by turning the immune system off and on, creating lingering side-effects. UK start-up Istesso has developed a different approach, which encourages the immune system to work properly. Spun out of Aberdeen University, the company has been backed from the start by IP Group, a FTSE 250 business that specialises in finding early-stage firms and helping them to become successful.
Star sufferer: Kathleen Turner’s painful rheumatoid arthritis could be helped by a drug firm backed by IP Group
IP shares are 69p, having fallen 45 per cent over the past year. The decline is unwarranted and the stock should rally.
IP’s biggest success to date has been Oxford Nanopore Technologies, a DNA sequencing specialist that is best known for identifying and tracking Covid-19 variants. Nanopore floated on the stock market last year, valued at £3.5billion or £4.25 a share. The price is now £2.86, having tumbled in line with other tech firms, but there is widespread agreement that this company’s technology is top-notch and the shares deserve to move higher.
This would be a welcome boost for IP, which helped to found Nanopore in 2005 and still owns 10 per cent of the business. But the group has many more strings to its bow.
Istesso is a case in point. Initial trials for its new drug have been encouraging, a second phase will kick off this year and final tests are expected in 2024. Of course, there is some way to go before the drug is approved but, if all goes well, the consequences will be far-reaching, with independent analysts suggesting Istesso could be valued at substantially more than £1billion.
Other investments in IP’s portfolio have significant potential too. Cambridge-based Feature Space uses artificial intelligence to combat financial fraud, it is already making money and the technology is deployed by giants such as HSBC and Worldpay. Oxbotica is developing self-driving software for larger vehicles, such as vans and buses, it has won multiple awards, is at the forefront of its sector and counts Ocado as a big investor, alongside IP.
Oxford-based First Light Fusion is working on technology that replicates the way the sun produces energy to create ultra-clean power. Pioneers have been trying to make this type of technology work for years.
First Light seems nearer than many to success and is looking for around £400million of cash from external investors to help bring its technology closer to fruition. Should this fundraising prove successful, First Light will see its valuation soar, making IP’s 27 per cent stake considerably more valuable.
IP does not just keep buying new firms. It sells out of businesses too, including stock market-listed Ceres Power, valued at £1.2billion and electric motor specialist Yasa, sold to Mercedes-Benz last year.
The group floated on the stock market in 2003 when the shares were priced at around 60p and the value of its assets per share, known as the net asset value or NAV, was 22p. At that time, therefore, the company was trading at a big premium to the value of its assets. Today, the NAV is £1.37. But the shares are just 69p, so the stock market is claiming that the firm is worth far less than the independently assessed value of its assets.
This does not seem right and chief executive Greg Smith is determined to change it. Promoted from finance director last year, he has since contacted IP’s major shareholders and asked them what they would most like to see from IP.
Following their suggestions, Smith has simplified the company around healthcare, technology and green businesses. He has clarified where the firm is likely to see success over the next few years and started to pay dividends, proving to investors that he can invest in new technologies, support companies as they grow and reward investors along the way.
Midas verdict: The UK is one of the most inventive countries in the world, but it lags far behind the US in turning ideas into successful companies. IP is one of the few firms that can catalyse that process. At 69p, the shares are seriously undervalued. UK investors have a chance to put that right. Buy.
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