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Sunday share tips: PureTech, Drax

Sun 19 August 2018 18:07 | A A A

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(Sharecast News) - In her 'Inside the City' column for the Sunday Times, Sabah Meddings set her attention on PureTech, and its novel solution to the alarming rate at which Ritalin has been prescribed to children with attention deficit disorder - a prescription video game.

Meddings wrote that the product might sound "whacky", but it appeared to work, with 'Akili and Me' one of several computer-based 'drugs' developed by the London-listed, US-based PureTech.

The game was currently being reviewed by the Food and Drug Administration (FDA) in the United States.

But targeting ADHD wasn't all PureTech was doing, with the firm describing itself as a 'portfolio company', with a strategy of identifying potential treatments and then spinning them out.

One of its previous projects, 'resTORbio', raised $97.8m on the Nasdaq at the start of the year, and more recently it announced solid results from a phase II trial looking at respiratory tract infections.

Its Karuna spin-out, meanwhile, makes treatments for schizophrenia and pain, and just appointed an ex-research boss at Eli Lilly as is chief executive.

Meddings said such a business model made PureTech look like other UK-listed portfolio companies on the surface, such as Allied Minds, IP Group and Mercia Technologies - noting that none of them had "set the world alight" recently.

What made PureTech different, however, was that it was also developing its own pipeline of drugs, having signed a partnership agreement with Swiss drugs giant Roche last month.

The deal was to use microscopic sacs - or 'exosomes' - which are found in milk, as a route of oral administration for biological treatments.

Apparently, the ingredient could help the ingredients survive the harsh, acidic environment of a patient's stomach, and could be worth up to $1bn to PureTech.

Meddings said much of the company's risk in its portfolio companies was shared with investors, including Amgen Ventures, Baillie Gifford, and the Wellcome Trust.

However, PureTech's share price has been a roller coaster ride since floating at 160p in 2015, with the firm closing at 154p on Friday, putting a value of £441.9m on it.

The Nasdaq listing, $100m fundraising, and a string of positive trial results had failed to put any fire under the share price, which had risen less than 4% since the beginning of the year.

Peel Hunt had put a target of 313p on the stock, adding that the company had enough cash in its coffers to see it through until 2020.

PureTech's board also hoped the deal with Roche would encourage its investors to place their trust - and their money - in PureTech itself.

"Investing in portfolio companies such as PureTech lets shareholders avoid the losses from stocks reliant on only one drug," Meddings said.

"However, it can also mean they do not enjoy the soaring highs when one succeeds. PureTech is worth a closer look. Buy."

Over in the Mail on Sunday, Holly Black was writing for the 'Midas' column, and recalled the pain felt by many a lager drinker earlier in the summer when a major carbon dioxide shortage hit production of many fizzy pub favourites.

The gas, which is usually sourced from the fertiliser industry as a by-product, was in short supply as a number of manufacturers entered summer maintenance periods at the same time as a heat wave saw the national thirst surge.

Black then turned her attention to FTSE 250 electricity generator Drax, which owns Britain's largest power station in North Yorkshire, and announced plans to start a trial of 'bioenergy carbon capture and storage' earlier this month.

The project - reportedly the first of its type in Europe - could help to ensure the power Drax generates at the site carbon-negative, with a ton of carbon dioxide possibly able to be captured and stored under the trial.

According to Black, that would produce enough fizz for around 32,000 pints each day - a fraction of the 10 million-odd refreshing beers served across the UK each day, but as the carbon dioxide shortage showed, every little bit helps.

Drax has told investors that if the trial is a success, it could be scaled up even further, allowing it to capture even more gas for booze.

The firm - which generates 6% of the country's power - has previously spoken of its desire for a coal-free UK, having upgraded three of its six generating units from coal to a wood pellet biomass, and a fourth being converted this year.

It made a pre-tax loss of £11m in the first half to 30 June, narrowing from £104m year-on-year, though its shares slipped earlier in August as it revealed a series of power cuts had hit earnings.

Still, it maintained its full-year guidance, and its shares closed on Friday 6.7% higher than when Midas last recommended them in May.

Credit Suisse analysts expect the stock to outperform, but they had warned that the firm still needed to do work to reduce its costs, which were already down 15% in real terms over the last half-decade.

Holly Black told readers to hold.

"Putting the fizz back into pints isn't ever going to be Drax's raison d'etre but it's an interesting side project for the power company and a handy diversifier, particularly at a time when the energy sector is under pressure from regulators."

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