Have you ever wondered what happened to the victims of the tragic TeGenero drug trials back in March? Unfortunately, the news is not good.
After the so-called “Elephant Man” tests went so dramatically wrong at Northwick Park hospital (in London), it was hoped that the six men involved would make a full recovery. But from recent examinations, it appears that these human guinea pigs are likely to develop incurable diseases in later life, such as multiple sclerosis and cancer. One way of preventing such terrible events ever repeating themselves is (where possible) to perform the tests on human tissue prior to conducting formal trials on the general public. That’s where this company steps in.
Gamble of the week: Asterand plc (ATD, 6.25p)
The company was created in January 2006 from the merger of Pharmagene and Asterand. Asterand is a supplier of human biomaterials and drug-discovery services to the pharmaceutical industry. Typical materials include tissue in frozen and fresh formats, blood, serum and DNA. The firm collects the substances from around 100 hospitals, stores them in controlled conditions and sells them to healthcare companies for use in their research.
The samples help Asterand’s customers, such as pharmaceutical giants Glaxo, Pfizer and AstraZeneca, to examine the effectiveness of new drugs, and are critical both for screening new compounds and obtaining regulatory approvals. Importantly, Asterand also reduces the need for animal testing, thus avoiding the huge problems that the likes of Huntingdon Life Sciences have experienced.
Last week, Asterand released its interim results. Although still loss-making, revenues at £3.8m were 73% higher than last year, with net cash of £5.8m as at 30 June. House broker PiperJaffray forecasts that sales will hit £7.2m in 2006 and rise to £11.2m by 2008, when the business should also become profitable and self-funding. The company is spending about £2m to £3m a year – so although existing funds are tight, they should be sufficient without the need to raise new capital.
However, the risks are not insignificant. If growth is slower or takes longer than envisaged, then fresh equity might be needed, potentially diluting shareholders. Meanwhile, the integration of the two companies is not yet complete, and the board is expecting “further investment and reorganisation in the second half to achieve its growth objectives”.
Frankly, Asterand is a highly speculative stock, but it also offers substantial upside from current levels. Typically, companies of this nature are valued at around 1.5 times revenues, so if Asterand does achieve its 2008 targets, then a share price of 15p in two years’ time is not inconceivable. PiperJaffray has a price target of 11.7p.
Recommendation: SPECULATIVE BUY for the more adventurous investor at 6.25p (market cap £7m)