4D Pharma Plc

4D Pharma Plc (LON: DDDD) is a Pharmaceuticals & Biotechnology Company, offering product and services through harnessing bacteria.

Investment Highlights - 4D Pharma Plc – Avoid at GBX 102.70

• The Company generated revenue for the first time in H1 FY2020, while reported higher losses due to an increase in operating expenses.
• In the last one week, the Company delivered a negative return of ~ 15.68% and delivered a significantly lower return compared to the benchmark Index (FTSE-AIM Index).
• The Company has a negative ROE (Return on equity) of 51% in H1 FY2020, which is lower than the industry median of 5.3%. The Company’s ROE remained in the negative zone from last 5 years.
• From the technical standpoint, shares were trading below the support level of 20-day simple moving average prices (110.20), which reflects a downtrend in the stock and can move down further.

Key Risks

• Significant competition in the industry could affect the revenue and profitability of the Company.
• Any change in regulations and government policies could affect the overall business of the Company.

Recent News

On 22 October 2020, 4D pharma announced the proposed merger with a NASDAQ-listed SPAC (Special Purpose Acquisition Company), Longevity Acquisition Corporation. On completing the merger, 4D will remain in existence, while Longevity’s shareholders will receive American Depositary Shares. The merger is agreed at a valuation price of £1.10/ share of 4D. The 4D shareholder will own around 86.9%, while Longevity Shareholders will own 13.1% of Enlarged Group. The enlarged Group is expected to launch ADR (American Depositary Receipt) programme and will apply for trading on NASDAQ, under ticker LBPS, through the admission of American Depositary Shares, while on AIM the Company will continue to trade under DDDD ticker. The Company will also be benefited by cash of US$14.6 million held by Longevity, along with backstopped by supportive investors and extension of the current operational runway.

Financial Highlights – H1 FY2020 (30 June 2020) (released on 30 September 2020)

• In the first half of the financial year 2020, the net assets stood at £31.5 million as compared to £35.0 million on 30 June 2019 and £22.3 million on 31 December 2019.
• Driven by higher research and development expenses, the Company reported a net loss of £13.6 million in the first half of the financial year 2020.
• The cash balance as on 30 June 2020 stood at £10.0 million (31 December 2019: £3.8 million and 30 June 2019: £12.9 million.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in the first half of the financial year 2020. Despite the higher revenue, the bottom-line performance declined, while profitability remained in the negative zone. DDDD is looking to meet the working capital requirement through the issue of shares, reflecting lower liquidity position. The Company will be benefited by the recent merger with Longevity Acquisition Corporation, as it is expected to apply for trading on NASDAQ and will also be benefited by cash held by Longevity. The stock made a 52-week low and high of GBX 23.50 and GBX 183.00, respectively.

Based on the headwinds faced by the Company, we have given an “Avoid” recommendation on 4D Pharma Plc at the current price of GBX 102.70 (as on 13 November 2020, before the market close at 8:05 AM GMT), and we will watch out at the benefit of the leading position in Live Biotherapeutics field and progress made in the admission of American Depositary Shares of NASDAQ.

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