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Buy Amryt Pharma at a 24.5p offer - target to sell 30p+

By Tom Winnifrith | Wednesday 13 September 2017

Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Amryt  Pharma (AMYT) has announced results for the six months ended 30 June 2017. There were no great shocks  the buy case is compelling and low risk - my target, for shares I admit to owning, is very conservative. Others are twice as ambitious or more!

Although revenues were c10% ahead of expectations. Sales were €6.2 million, including a a first time contribution of €5.75 million from Lojuxta, the treatment for the orphan disease homozygous familial hypercholesterolaemia (HoFH).Try saying that after a few ouzos.  But it is what boss Joe Wiley says about going forward that matters. We quote him but the bolding up is ours:

We are delighted with the progress Amryt continues to make. The in-licensing of Lojuxta - which treats the ultra-rare condition, HoFH - at the end of 2016, was a major step in the Company's development. Revenues are ahead of our expectations and we now believe that the potential addressable market is larger than we originally anticipated. A major focus for us looking forward is opening up new, untapped territories covered by our licence agreement.


For the half year Amryt reported a gross profit of €3.7 million but an operating loss of €5.8 million. That loss primarily reflects €5.4 million in R&D investment, mostly related to the ongoing EASE trial, which started patient recruitment in April 2017. The headline loss was €13.8 million reflecting a notional non cash €7.7 million financing charge on contingent consideration mostly related to the 2016 acquisition of Berkin AG So that headline loss can be discounted. Cash at 30 June 2017 was €10.9 million, which included a €10 million draw-down from the EIB loan - a further €10 million from the EIB facility remains available and is expected to fund Amryt to 3Q18, after interim analysis of the EASE trial is conducted.

By then Lojuxta will clearly be generating enough of a gross profit to cover PLC costs if the EASE trial is scrapped and R&D spend canned. However that is not something we expect. It is worth noting that Wiley and colleagues have revised upwards their estimate of the potential market for HoFH in its territories to c.€100 million. Brokers forecast sales of Lojuxta of €21.6 million by 2020. That would imply a gross profit of c €13 million and thus a pre-tax profit of perhaps €9 million - call it £8 million. At a 24.5p offer the market cap is c£50 million so - given historic losses and thus tax shelter that is a PE of not a lot more than six.

Phase III results of AP101 expected in 2H18 but Amryt expects an interim analysis in 1H18 after at least 82 patients have been recruited to EASE to adjust the trial size if necessary. Brokers reckon this product could generate sales of $258 million by 2023. But that is an IF. Frankly the current share price fails to discount even the massive potential of Lojuxta. But AP101 offers massive additional potential. Brokers value this stock at 60p to 88p. We are more cautious, probably too cautious. The shares are a BUY with a target to sell of 30p+. Our valuation is based on Lojuxta alone. Even heavily risk weighting AP101 should add well over 20p per share to that valuation so our target is low ball.

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