Clinigen Group PLC (LON: CLIN) – Diversified business model and broader client base

Clinigen Group PLC is a FTSE AIM UK 50 index listed global Pharmaceutical and Services Company. Through three areas of medicine supply - unlicensed, clinical trials, and licensed medicines, it ensures the delivery of the right medicine at the right time to the right patient. It has sites in Europe, Asia Pacific, North America, and Africa. The Company employs over 1,100 people in 14 countries across five continents. It serves 22 of the 25 largest pharmaceutical Companies, by interacting with over 15,000 registered users and ships nearly 6.4 million units annually. It is operating as a global leader in specialist supply for clinical trials. Moreover, it has evolved significantly since the IPO by expanding the portfolio of products and services of niche medicines. In October 2018, the Company completed the acquisition of CSM and iQone to extend the geographic capabilities.

On 26 November 2020, the Company expects to hold its annual general meeting.

 (Source: Company Presentation)

Growth Prospects and Risk Assessment

CLIN has established the market position as the global leader in the specialist supply and management of quality-assured comparator medicines and services. Moreover, it has a deep and longstanding relationship with large pharmaceutical and biotech companies as customers. It also has a strong cash generative business model which are underpinned by tight credit control and working capital management.

 (Source: Company Website, chart created by Kalkine Group)

 (Source: Refinitiv, chart created by Kalkine Group)

The Company has around 458 clients in Clinical Services division, which provides synergy benefits to other two divisions as well. Under the Unlicensed Medicine division, there has been an excellent growth in Europe and AAA region and having an extensive pipeline in place to reap the benefits in future. Further, the Commercial Medicines division continues to enhance commercial footprints and licensing opportunities. Despite the global disruption caused by the pandemic, it has been working closely with hospital pharmacist customers and pharmaceutical clients to ensure the supply of critical medicines to patients.

Overall, Clinigen, through the wide-ranging scope, has accelerated growth organically and through strategic acquisitions. It has a global reach and scalability to meet the market trends with supplies in 115 countries, having 14 international locations and employs 1,168 people.

(Source: Company Presentation)

However, there are uncertainties and number of potential risks that could have a material impact over the business, such as Brexit and economic downturn can impact the operational and financial efficiency. It operates in a competitive environment and losing market share can affect the growth trajectory. Moreover, the ongoing Covid-19 mayhem can disrupt the supply chain network. It also needs to comply with stringent regulatory policies, and failure to do so could result in heavy penalties and fines. Also, the overdependence on technology can lead to loss of data and significant service interruptions. Due to global operations, it is also exposed to foreign exchange risk. Furthermore, failed integration post acquisitions can reduce returns and disrupt operations.

Key Fundamental Statistics

Key Shareholders Statistics

Recent Developments

On 8 October 2020: The Company announced that it had made an application of 129,876 ordinary shares for the admission to trading on AIM (Alternative Investment Market), which was priced at 0.1 pence each. The admission of new ordinary shares has been effective from 13 October 2020. Overall, the total issued share capital of the Company consisted of 133,028,647 ordinary shares, with no shares held in treasury.

On 29 September 2020: Clinigen Group Plc has signed an agreement with Synairgen Plc to launch a Managed Access Program for Synairgen’s inhaled formulation of interferon beta (IFN-beta), SGN001. This is for the treatment of Covid-19 patients in the UK and EU regions.

On 16 September 2020: The Company stated that John Hartup, as a Senior Independent Non-Executive Director, will not stand for re-election at the Group's upcoming AGM.

FY20 Key Performing Indicators (KPI)

(Source: Company Website)

A Glimpse of Business Segments

(Source: Company Website)

Financial Highlights (for the year ended 30 June 2020 (FY20), as on 17 September 2020) – Delivered double-digit organic EBITDA growth

(Source: Company Website)

• The Company delivered a strong financial performance, with an increase in reported revenue of 10%, adjusted net revenue of 15%, adjusted EBITDA of 30% and adjusted EPS (earnings per share) of 20%.
• It represented a solid second-half performance after the working capital headwinds seen in H1 FY20, with operating cash flow conversion of 123% in H2 FY20. While the cash generation and cash conversion in FY20 of 72% were below the historical levels.
• The growth in adjusted EBITDA was driven by strong underlying performance.
• On a reported and constant currency basis, the Company saw a decent performance in commercial medicines business and clinical services division.
• The adjusted net finance cost increased to £11.4 million as compared with the last year data (2019: £8.6 million), due to the Company’s higher net debt position (an increase of 24%) following the recent acquisitions.
• Clinigen’s adjusted effective tax rate (ETR) slightly decreased to 19.8% against the prior year (2019: 20.0%), but it expects the ETR to increase approximately 50–100bps in FY21.
• The Board has proposed a final dividend per share of 5.46 pence, an increase of 15% from the previous year. Hence, the full-year dividend per share stood at 7.61 pence (2019: 6.7 pence), an increase of 14%.
• Moreover, the Company generates strong cash returns, with an improvement in cash flow in H2 FY20.
• Organic net revenue to be at the lower end of the medium-term target range of 5% – 10%.
• Overall the FY20 results were in line with the market expectations, with improved levels from the last quarter of 2020.

Operational Highlights (FY20) – Expanded service capabilities and geographical expansion

• In Q4 FY20, Clinigen has adopted the diversified business model to tackle the Covid-19 impact.
• In Commercial Medicines division, the Company delivered strong underlying performance across the portfolio, with several developments and agreements in the Africa and Asia Pacific regions (AAA).
• In April 2020, Clinigen signed an exclusive licensing and distribution agreement with PBL (Porton Biopharma Ltd) to commercialise Erwinase®, which will commence in 2021.
• In Unlicensed Medicines division, the Company saw excellent growth in Global Access.
• CLIN has shown a robust top-line performance in Clinical Services business, due to the material contract win in CTS and robust growth in CSM.
• The Company had extended the geographical footprints and expanded the service capabilities by making both transformational and bolt-on acquisitions.

Financial Ratios (30-June, FY2020): Strong profitability margins against last year comparatives

Reported profitability metrics for the financial year 2020 were higher against the previous year, reflecting higher revenue generated and better control over expenses as compared to the prior year. On the liquidity front, Clinigen Group Plc’s current ratio was slightly lower than the industry median of 1.65x, but it is reflecting sufficient liquidity to meet short-term obligations and shows a robust liquidity profile to tackle the uncertainty due to the Covid-19 outbreak. On leverage front, the debt-equity ratio was 1.02x, which was higher as compared to the industry median of 0.13x, reflecting that the Company is more leveraged as compared to the industry.

Share Price Performance Analysis

   (Source: Refinitiv, chart created by Kalkine Group)

On 15 October 2020, at the time of writing (before the market close, at 8:47 AM GMT+1), Clinigen Group Plc shares were trading at GBX 607.00, down by 2.25% against the previous day closing price. Stock 52-week High was GBX 1,000 and Low of GBX 350.40, respectively.

From the technical standpoint, 14-day RSI (35.07 level) is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

 (Source: Refinitiv, chart created by Kalkine Group)

In the last ten years, Clinigen Group share price has delivered ~235.71% return as compared to the ~76.36% return of FTSE AIM UK 50 index, which shows that the stock has outperformed the index during the last ten years.

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Industry Outlook Dynamics

The increased prevalence of counterfeit and substandard medicines due to rising demand creates substantial opportunity for Clinigen to serve across key stages of pharmaceutical product’s lifecycle. According to the publication from Grand View Research, the market size of global pharmaceutical logistics sector was valued at US$69.0 billion in 2019, and projected to reach US$118.9 billion by 2027, representing a CAGR of 7.3% from 2019 to 2027. However, the fast-paced growth can be impacted in the short-term due to the impact of Covid-19. The market growth is dependent on various factors, such as increasing demand for OTC (over the counter) medicines, growing and ageing population, regulatory policies, the prevalence of diseases, urbanisation, and taxes.

(Source: Company Presentation)

Business Outlook Scenario

Clinigen has remained immune to the Covid-19 disruption as its performance remained robust in FY20, and it delivered double-digit EPS growth and double-digit organic growth. In future, it will continue to focus on both the unlicensed and licensed markets, and it has pillars to accelerate growth from FY22.

The long-term fundamentals of CLIN and its market appear to be strong despite short-term uncertainties with Covid-19. As demonstrated in FY20, the Company is well-positioned to capture further market share by growing its product portfolio in the Commercial Medicines business.

Regarding medium-term guidance, it expects to deliver future organic net revenue growth between 5–10% with an expected launch of a generic Foscavir in the EU. However, revenue in H1 FY21 is expected to be below the H1 FY20 level, given the contracted Proleukin shipments. The business should return to growth in H2 FY21. Furthermore, growth in FY22 and beyond is expected with Erwinase as the Company continues to gain market share. It also sees potential for higher organic growth with Proleukin revitalisation as it gains traction with new indications. The operational leverage is expected to increase in FY22. Furthermore, it is targeting the leverage of 1.0x – 2.0x within 12-18 months.

(Source: Company Presentation)

Considering the decent operating & financial performance, high level of cash generation capabilities, strong track record (~22% CAGR growth in EPS for FY12 - FY20) and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Clinigen Group at the current price of GBX 607 (as on 15 October 2020, before the market close at 8:47 AM GMT+1), with lower-double digit upside potential based on 2.48x EV/NTM Sales (approx.) on FY21E sales (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.

Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.