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Arix Bioscience strategy pays off big time as Merck snaps up VelosBio


What Arix does

Arix Bioscience PLC (LON:ARIX) is a venture capital company that invests in disruptive growth companies with the potential to significantly increase in worth as they progress through clinical trials and conduct financing rounds at higher valuations.

It aims to provide more than just capital when it invests.

Arix will take a board seat and play an active role to support portfolio companies. It also brings to the party scientific and commercial experience to help navigate clinical and operational hurdles.

The firm’s PLC balance sheet enables it to take a longer-term view than non-listed peers that might have a set investment horizon.

It can provide investee businesses with the flexible, patient capital they require to grow.

Arix describes itself as being “unconstrained by institution, geography or stage of company development”.

It, therefore, has the ability to source the best life science innovation without restriction.

How it’s doing

In September, the biotech company backer revealed that its net asset value (NAV) had risen to £251.0mln by the end of June 2020 from £202.1mln at the end of 2019, while NAV per share jumped 24% to 185p from 149p.

The group’s gross portfolio value climbed to £203.4mln from £149.2mln at the end of 2019, driven by good clinical and financial progress by its portfolio companies.

Successful financing rounds that resulted in valuation increases were completed by Imara (+46%), VelosBio (+95%) and Quench Bio (+40%).

In addition, the share prices of portfolio companies listed on the Nasdaq generally performed well during the period, the company noted.

November, though, saw an even bigger validation of the strategy as it picked up US$185mln following the agreed takeover of privately-owned portfolio company VelosBio by Merck (NYSE:MRCK) for US$2.75bn.

The price represents a twelve times return on Arix’s original £12mln investment and a gain of £121mln (89p per share) on the £21mln gross value.

What the boss says: Naseem Amin, Arix’s executive chairman

“The trade sale of VelosBio to Merck is a major milestone for Arix, marking the first strategic acquisition from our portfolio, just four years since Arix’s inception.

“This acquisition validates our ability to identify, assess and develop breakthrough biotechnology companies globally and to generate superior returns for our shareholders.

What the broker says

Jefferies added that the VelosBio sale is the first strategic acquisition from Arix’s portfolio, in addition to NAV gains and the removal of all funding concerns.

The US broker added the deal highlights and validates the value of Arix’s assets, particularly the less visible private ones, as well as the management’s capability to execute and therefore should boost investors’ confidence and narrow the discount.

“The substantially strengthened expected cash position of around £179m also provides the group with extra flexibilities for new and existing investments; or potentially some distributions to shareholders.”

Inflexion points

  • Investee companies have many clinical trials underway
  • Multiple results from these trials expected over the next 18 months
  • Analysts rate the value of the portfolio way above market price

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