When Puretech Health, the American-based healthcare technology company, floated on the London Stock Exchange four years ago, its founder and chief executive said that it had opted for a UK listing because investors understood the business model (Alex Ralph writes).
Puretech joined a UK market with a cluster of companies, such as Allied Minds, investing in a portfolio of promising science and technology companies.
Since Puretech’s initial public offering in June 2015, risk appetite for the model has been shaken by the debacle at Allied Minds, the Neil Woodford-backed technology incubator whose shares have slumped and which has overhauled its board amid pressure from Crystal Amber, the activist shareholder.
Allied Minds floated on Aim, the London exchange’s junior market, in June 2014 and its shares hit a record high of 725p in April 2015 amid excitement over the potential returns from its portfolio. The stock has since slumped and it suffered a setback two years ago when it announced a $146.6 million writedown because seven of its subsidiary companies were deemed “unlikely to yield appropriate financial returns”. Puretech Health, though, has shown little side effects from Allied Minds’s woes.
Shares in Puretech rallied to a fresh high of 292p a share last week, extending gains to 82.5 per cent since its 160p-a-share float, when it raised £108 million and was valued at about £363.6 million.
The clinical-stage, Boston-based company is seeking to discover, develop and commercialise medicines, including for cancers, lymphatic and gastrointestinal diseases, central nervous system disorders, and inflammatory and immunological diseases.
Puretech’s pipeline, which is being developed internally and through affiliates in which it holds varying-sized equity stakes, is made up of 24 product candidates and one that has recently been cleared by America’s Food and Drug Administration.
It has been built on Puretech’s expertise in the biology of the brain, immune and gut systems. The FTSE 250 company has also assembled an experienced board, with Daphne Zohar, 49, its founder and chief executive, joined by non-executives, including Christopher Viehbacher, 59, the former boss of Sanofi, and Marjorie Scardino, 72, its senior independent director and former head of Pearson, the FTSE 100 education group.
After a strong run, half-year results from Puretech yesterday gave the company and investors an opportunity to take stock of what it called “transformational momentum” in the six months to the end of June.
Its internal pipeline received a boost in April when Puretech struck a collaboration with Boehringer Ingelheim, the German company, to explore applying Puretech’s technology to Boehringer Ingelheim’s immuno-oncology drug candidates. Under the deal, Puretech is in line for up to $26 million in upfront payments, research support and pre-clinical milestones, and potentially more than $200 million in development and sales milestones and royalties.
Among its various affiliate assets, Gelesis, in which Puretech holds a 19.5 per cent stake, received FDA clearance in April for Plenity, its first product, a prescription aid for weight management in adults, which could be launched in the US in the second half of this year.
In an attempt to tap further investment, Puretech itself is looking at its own potential US listing on the Nasdaq, which would be in addition to its listing in Britain.
ADVICE Buy
WHY Promising, diversified clinical-stage pipeline and internal assets, supported by recent Big Pharma deals
Supermarket Income REIT
Not much has happened at the Flintoff Way branch of Sainsbury in Preston, Lancs, since a minor arson attack in 2003 (Patrick Hosking writes). That in a nutshell is the beauty of owning superstore freeholds. The shoppers come and the supermarket operator, which is responsible for all upkeep, pays its rent. Time gently passes.
Supermarket Income Real Estate Investment Trust, which bought the store from Legal & General yesterday for £54 million, was set up in 2017 to harness that reliable flow of revenue. With the Preston purchase, the company now owns eight superstores let to blue-chip tenants such as Tesco, Morrisons and now Sainsbury.
The returns are spiced up by gearing — debt is now 40 per cent of the gross value of the portfolio. The shareholders are reassured by the long leases underpinned by upwards-only reviews linked to the retail price index.
The company picks stores that are run as online order fulfilment centres too. Even if shoppers no longer throng the aisles, the stores will still be used for home deliveries or as click-and-collect centres. There are risks. A burst of hyper-inflation would not be good: those upward-only reviews are capped at 4 per cent. A seismic shift in shopping habits would hurt, but even then many see these edge-of-town sites with their huge carparks as potential sites for residential development.
Food retailing is different from general merchandise retailing, which has been rocked by falling valuations. Tesco is buying back its freeholds. The £429 million purchase of 12 Sainsbury sites by New York-listed Realty Income in April shows there is good appetite for these assets.
The shares at 106p trade on a 10 per cent premium to net assets and yield a prospective 5.3 per cent, given management’s plans to pay a total 5.63p in respect of the year just gone. This Reit is an attractive income generator, even after advisers take out £2 million a year in fees.
Cautious investors should wait for the full-year numbers next week, when a fresh NAV figure is due. Speculation about a new share issue to reduce the gearing could also dampen the price in the short run.
ADVICE Hold
WHY Good company but may be worth waiting for equity issue before purchasing