EpiStem breaks even as revenue soars

The Novel Therapies division is threatening to steal the show at epithelial stem cells specialist Epistem, as the benefits of its transformational deal with Swiss pharmaceutical giant Novartis kicks in.

The UK biotechnology company saw revenue soar 90% in 2009 almost entirely as a result of the collaboration agreement with Novartis that the company entered into in march 2009.

Revenue improved to £2.8m in the six months to 31 December 2009 from £1.5m in the corresponding period of 2008, thanks to a first time contribution of £1.3m from the Novel Therapies division.

The Contract Research Services division saw turnover edge up to £1.2m from £1.1m while the Biomarker division saw revenue hold steady at around £0.3m.

The company broke even at the operating level after showing a loss of £0.64m the year before.

The company made a profit before tax of £5,000 versus a loss of £615,000 the year before.

'Novel therapies is probably the main star within the portfolio,' chief executive officer Matthew Walls conceded in an interview with Sharecast. 'Things are going well with Novartis and the relationship is turning out to be bigger and broader than we expected, We started out with 266 leads when we signed the agreement but this is now up to 500 or so,' Walls said.

The two companies are working together to identify the key regulators and targets of epithelial (skin tissue) cells and to explore disease opportunities in regenerative medicine.

'We are just starting to see the first hits, some of which we recognise and some of which were new to us. As the collaboration goes on there may be a chance to open up other channels,' Walls suggested.

Somewhat like a mother who loves all of her children equally Walls was quick to talk up the performance of the group's other two divisions. 'We are pleased with the progress of the biomarkers division. Drugs companies can use our technologies to test the effects of drugs on hair samples, so it is a test they can run quickly and frequently. They tend to run these tests alongside their own testing programme,' Walls explained.

Management is looking for an acquisition to bolster this side of the business but it will be on the marketing and distribution side, to complement the strong technical research team EpiStem has.

'With [the] contract research [division] it is a case of steady as she goes. It's a steady business that generates cash,' Walls said.

Although the contract research arm is profitable, newly appointed house broker KBC Peel Hunt sees the near-term upside coming from 'progress in the biomarker division - applying its 'gene signature' technology to analyse drug effects in all stages of drug development; and progress in the therapeutic alliance with Novartis,' a view with which Walls would probably not disagree.

Cash burn is always a concern for small biotechnology companies but with the Novartis deal underpinning much of what the company does this is not much of an issue for the company. 'Cash burn was about half a million or so in the second half of 2009 but we expect it to be more or less neutral over the next six months,' Walls said.