IPO: a route to superior growth

Abzena operates a balanced business model with growing revenues from its service business and the potential for significant future growth through royalty bearing licences for the application of its technologies to biopharmaceutical products. The Group’s technologies and services are provided through its wholly-owned subsidiaries, PolyTherics and Antitope. 

Biotech and Money caught up with John Burt, the Chief Executive Officer of the group to talk through what has been a very productive an successful year to date.

B&M: A good place to start would be to understand a bit more about Abzena, and more broadly speaking a little bit more about how the PolyTherics and Antitope elements fit into that.

John Burt: Abzena came about from the combination of the PolyTherics and Antitope businesses, creating a group which is focused on enabling better biopharmaceuticals, by which I mean antibody and protein based therapeutics. We have kept the two businesses as separate entities within the group, retaining the company brands, because they’ve got strong associations for our customers and strong associations with particular technologies. Abzena was created as the group holding company for Antitope and PolyTherics and we IPO’d the company in July of this year. Our business model is to be a service and technology provider to the industry. It is a mixed model whereby we receive revenues for services and fees, milestones and royalties from technology licensing. A really exciting element of our model is the potential for our technologies to become embedded in products, such as with antibody-drug conjugates (ADCs) for cancer treatment, from which we would receive milestones and royalties into the future.

B&M: In terms of the broad range of existing technologies and services that you offer, what is it you feel gives Abzena the unique advantage over your competitors. Is it the broadness of the offerings of those companies?

John Burt: The breadth of Abzena’s offering is a clear competitive advantage, and within the business each of our technologies has its own competitive differentiation and USP. On the immunogenicity assessment side, we are the only company, through Antitope’s EpiScreen service, that can really demonstrate the correlation between the output of our ex vivo assays with reported clinical immunogenicity of biologics. This correlation plus the depth of experience in the immunology field and the quality of service provided is valued highly by our clients. On the Thiobridge technology, it’s about the stability and homogeneity of ADCs that are developed using our technologies. There are competitors in each of the technology domains, but we believe our offering is differentiated at one level or another, and this is evidenced by the level of repeat business we achieve with our customers, which include the majority of the top 20 pharma companies as well as many biotechs.

B&M: What do you see as the greatest opportunities in terms of the markets that these technologies and services are offering?

John Burt: The ADC area is a very significant and active field at the moment; there’s a lot of R&D investment going into the ADC space, and having 2 products approved is really validating the concept of ADCs. With the first generation of products you can quickly recognise the limitations and the need for the next generation of technology to solve those problems. For example, the stability and homogeneity we can bring to ADC production with our Thiobridge linker gives us a differentiated offering and a significant commercial opportunity. The linker between the antibody and the payload plays a crucial role in creating an effective ADC. Our technologies can also improve the antibody element. In Antitope we’ve got the ability to reengineer antibodies to make them non-immunogenic and we’ve got the capability to produce the manufacturing cell lines in which to produce them. So it’s actually being able to address all of the component parts of an ADC without doing the basic disease biology or understanding the tumour types. We leave this to our partners, who are the experts in disease and cancer biology. We provide them with the tools to develop the products.

However, we operate in the whole biologics field, and whilst many of our partners are active in the oncology field, especially with ADCs, our capabilities in enabling biopharmaceutical development are as relevant to cancer immunotherapy, anti-inflammatory and auto-immune indications to name just three very significant fields. There’s an awful lot of opportunity right across the biologics space.

B&M: Do you have any critical milestones or timescales that you have coming up which are focusing on any of these areas in particular?

John Burt: We’re getting greater and deeper traction for our Thiobridge technology with major pharma and biotech companies and so we expect translation of that interest into Thiobridge ADCs being developed towards the clinic over the coming months and years. Those deals and the progression of those programmes will be important for us. We already operate a profitable service business but looking a bit further ahead and over the long term we see licensing revenue coming into play and becoming more important. We expect to see royalties coming into the business from those products which have relied on our technologies during their development. That will be a critical inflection point for our investors when they start to see that royalty revenue coming in on top of the service revenue although as these products progress through development and towards approval, the value of the potential royalties increases.

B&M: Specifically on the technology side, are there are any challenges that you foresee to achieving the milestones or goals that you want to see in the future?

John Burt: With ADCs it’s a constantly evolving field and it is also a very collaborative field. There are established companies like Seattle Genetics and ImmunoGen, which have very established technologies, primarily focused on the payloads; then you’ve got the antibody providers who are either big pharma or the biotech companies. There are new technologies emerging and designed to bring these two components together and for us the key is making sure that we are at the forefront of new innovations in those technologies so we can enable better ADCs to come through. Technology investment is a significant part of our business and we will continue to invest in and expand our tool kit of ADC technology and of different payloads we can offer to our partners.

From the Antitope side, immunogenicity assessment is now a routine part of the pre-clinical development process for our partners so it’s not about significant technology development. Commercially, it’s about our partners across the major Pharma’s and the biotech companies using our services time and time again.

B&M: Do you think there will be anything that will interfere with you being at the forefront and being able to innovate and being able to further invest in the ADC technology development.

John Burt: We have been through a major transition over the past year or so: as PolyTherics, we completed the acquisition of Antitope and the accompanying financing that raised £11m of new capital last year, and then a successful IPO just recently raising another £20m. We have the capital to enable us to continue to grow the business.

The recent relocation of our PolyTherics business from London to the Babraham Research Campus just outside Cambridge - where Antitope is located - also gives us more space and a critical mass within the team to continue to grow and leverage the synergies that exist between each of the technology domains. We have teams doing the protein chemistry and the bioconjugation as well as synthetic chemistry to build the ADC reagents, working alongside the molecular biologists doing the protein engineering, cell biologists and the immunologists. It’s actually leveraging that full breadth of capability which we think is almost unique in a small life sciences company. We’ve got the pieces in place at the moment.

B&M: On the technology side of things what have been your biggest successes been to date this year, what are the things you’re very pleased with over the last 6 or 7 months?

John Burt: On the ADC side, what we’re really pleased with is the adoption of Thiobridge technology. More and more pharma companies, if they’re active in the field, recognise the limitations of the existing technology and are therefore seeing the benefit of Thiobridge. They start with small programmes as they engage with the technology but we’re seeing that traction coming through. We are really excited about the future potential for the adoption of Thiobridge technology within the ADC community, that’s really significant.

Also, company scientists are increasingly recognising the value of Antitope’s Composite Human Antibody platform for re-engineering antibodies so that they’re non-immunogenic. The industry has talked about the humanisation of antibodies for many years, many approaches are described as generating human antibodies but in reality, as they have not been derived from the patient’s own immune system, they are not truly human and they still have the potential to generate anti-drug antibodies in patients.

Because of this, we’re now seeing greater interest from companies wanting to re-engineer those antibodies so they’re non-immunogenic, and also that, with further development, the resulting antibodies are advancing into the clinic. There are now 5 programmes in the clinic that came out of the Composite Human Antibody platform: Gilead has 2 antibody programmes in the clinic, including its Phase 2 simtuzumab antibody, Opsona Therapeutics has a product in Phase 2 and there are other programmes moving forward at NKT Therapeutics and Adheron Therapeutics (Post-interview note: a sixth Composite Human Antibody is now clinical development following the disclosure that Vascular Pharmaceuticals has initiated a Phase 2 clinical study of VPI-2690B for diabetic nephropathy). The progress of these programmes is a real validation of our technology, and they’ve got potential to yield royalties back to Abzena, which gives us the opportunity to benefit economically from the success of those products. These will be small percentage royalties, but royalties without us needing to fund the development.

The model is sometimes described as a ‘picks and shovels business with a royalty on the gold’ because we’ve got that royalty interest in those products that are moving forward. There’s a whole pipeline of other programmes still in pre-clinical phase in our partners’ hands which will feed into the clinic, and watching the progression of those products is quite exciting. It’s about better biopharmaceutical products getting to patients and making a difference, and us providing some of the tools that enable those products to translate to patient benefit. I’m excited on the technology side but ultimately I’m excited about what we can do for patients.

B&M: Coming onto the IPO, congratulations on the recent listing on AIM in July, raising £20m in the placement. You’ve talked a little bit about using the IPO for expansion of the business but can you go into a little bit more detail as the rationale behind the IPO beyond that?

John Burt: Our business model is about being a service and technology provider, it’s a sustainable business model. We’re not a company that’s building ourselves up to flip into a trade sale. It’s actually building a sustainable business with revenue generation from a profitable service business and the trajectory for the licence revenues, and I’m very excited about for the future.

There’s the opportunity to continue to expand and grow the business and increase the potential upside for investors into the future through further acquisitions. We needed additional capital to enable this strategy and one way to raise capital is through public markets, which for Abzena was through an AIM listing. The other opportunity a listing provides is to use our quoted stock for acquisitions. It’s much more attractive getting into an M&A situation where we’ve got publicly quoted paper and a capital structure that we can use.

These are the drivers for going Abzena going public. Of course, there’s also the downside in that you’re more subject to public scrutiny but we’re a confident business and therefore we’re happy to subject ourselves to that scrutiny; that’s the price you pay for having the capital and the paper.

B&M: We interview a lot of companies who have approached IPO and they have a hybrid model where they are generating revenues. Do you find that helped you in discussions and the way you approached the IPO, that you can show a very healthy balance sheet when engaging with those public markets?

John Burt: Having the revenue component and a profitable service business showing a growing revenue trajectory is one of the pillars underpinning the business and that’s a very strong message for our investors. It limits the downside. The upside, the real excitement, comes from the technology licensing piece, but it’s having that revenue component to talk to investors, so they can see that we’re not only going to be spending shareholder capital as we go forward. The capital we raise is about expansion for the business, working capital, not product development capital which would bring in the binary risk. It’s evidence of the fact that we’re not a binary risk player, as so many biotech companies are. Binary risk is what some investors are frightened of in biotech in the public market.

B&M: Would you say it’s a fairly straightforward process or did you find that key elements or obstacles you had to overcome?

John Burt: It was a learning experience for me, I’ve done many types of deal within the pharma and biotech industry but hadn’t done an IPO. In our case, one particular challenge was that we had recently created Abzena as the new group company and so there was a group reorganisation that we went through while also preparing for the IPO. Before Abzena was established, the parent company was Polytherics Ltd and it had made 2 acquisitions: Antitope in 2013 and Warwick Effect Polymers back in January 2012. There were some complexities in the share capital structure for PolyTherics that had developed over the years, which we had to work through so we could get the clean capital structure that came to the market as Abzena. But we got through it thanks to a great team on the management side with good corporate finance and legal advice to steer us through the process.

B&M: Obviously it was a very successful experience for you. If you could sum up things as briefly as possible, what were the success factors?

John Burt: We spent a lot of time thinking through the positioning of the business we were bringing to the market and how to present to the investors – what was the story we were selling and why would they make money out of investing in Abzena. We have a strong service business that’s dominant in its field particularly on the immunogenicity assessment side. There’s also the upside that comes from the technology licensing portfolio, so overall it’s that mixed service and technology licensing business model. It was crucial that they understood what we meant when describing Abzena as a ‘picks and shovels business with a royalty on the gold’ and what that actually meant to them in terms of what we offer. Getting that message right that was fundamental and this was supported by having strong investor support, particularly from Imperial Innovations and Invesco.

B&M: So one success factor is the strength of your story, you found the story that resonated with investors. The second element is the strength of the investment that you had previously, your investment track record. On the investor story, what do you think it was that resonated? You mentioned having the service income but was there anything else about the story.

John Burt: It’s about being a business first and foremost. It’s not a project and it’s not a product development play, where there is binary risk. It’s almost ‘We’re a business that incidentally is in the life sciences space because that’s what we do’. My previous company Thiakis was the complete opposite. That was a product development company, developing a single product. It was a project and we sold the company to Wyeth. It wasn’t a company that would ever have IPO’d because it was never appropriate. If you’re going to go down the route of raising investor capital with a view to building a sustainable business and going to market you’ve got to think of yourself as a business: top line, bottom line and cashflows.

B&M: You’ve always had the intention once the plans were in place and you wanted to move the company forward to do an IPO but was the timing perfect for you? Did you feel that you brought it forward because you mentioned earlier you thought that the markets might get tighter as the year goes on. Is it more the case that it suited your timing now or did you naturally bring it forward?

John Burt: It suited our timing now, it was a natural next step in the evolution of the business. In some degree the IPO was frustrating because the development of the underlying business and pursuit of further acquisitions got put on hold while we went through the process. But, it was a necessary step to get to where we wanted to in terms of the capital, capital structure and the publicly quoted paper. It fell at the right time in that evolution and the trajectory we were on as a business.

B&M: We talked about the strengths of the technology and the services, now you’ve relocated to Cambridge where do you see your major focus lying over the next 12 to 18 months. You’ve gone quite granular on Thiobridge in particular but where do you see the greatest opportunity now for Abzena now you are a public listed company.

John Burt: One objective is to continue growing revenues from our service business, and ensuring that we’ve got the team in place with well-equipped labs to be able to meet customer demands. Another strategic goal is to make further acquisitions to expand our offering and so we anticipate pursuing these transactions as the opportunities arise. Adding complementary capabilities to what we have now will give us more touch points into customer programmes and will expand the business in terms of the top and bottom lines now and into the future. It’s the opportunity to expand that business and really deliver on what I see as our mission to enable better biopharmaceuticals. If we have all the services and technologies that our partners want and need, they’ll be able to create better therapeutic products and patients will benefit. We’ll have a very successful business as a result of that.

B&M: Do you see now that your company is publicly listed do you see a major change in how you communicate with your investors and the wider public market itself? 

John Burt: It changes the nature of the dialogue you have with investors because we’re publicly traded. We have a long relationship with Imperial Innovations, Invesco and Woodford Investment Management, as well as our other pre-IPO investors, but being public now means we need to communicate with them in more formal way as there are other investors and potential investors to consider. They understand this and we understand that we cannot communicate everything that’s really exciting with the business until the right time in the future.

B&M: To round off the interview, are there any additional thoughts you’d like to add? 

John Burt: A message that it’s an exciting time for UK life sciences. There’s a lot more attention being paid to the sector. Recognition of the strength of the science base in the UK has been energised by the Pfizer bid for AstraZeneca as well as by companies that have come to the market, including Horizon Discovery and us. There is a different business model that’s emerging, it’s now not just a sector that has typical biotech binary risk with the potential for success but also the potential for failure. There is now diversity in the UK life sciences eco-system, and recognition of the strength of what we have to offer the global industry. These are really exciting times within our industry.

John Burt will be joining the 70+ speaker faculty at London’s newest flagship life science investment congress from 3-4 February, Biotech and Money London 2015.

He will be participating in a 45mins discussion session on IPO and Capital Markets. Download the brochure to see the speakers in this session and all others across the two days.

There is also ‘An Anatomy of an IPO’ session hosted by Horizon Discovery at the congress, outlining the approach taken and the steps to a successful listing.

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