Over the last eighteen months, I have, perhaps not surprisingly in part enjoyed exposure to companies operating in the Scientific, Health and Diagnostics areas of the market. Successes on that front included Avacta, EKF and also my longest invested holding, SDI Group.
There has emerged one laggard however, that being SourceBio Intl, which to date sees my holding there under water.
The winners have though, thankfully far outweighed SBI’s performance and it remains an area I continue to focus on, not least as spend across these areas looks set to continue for the foreseesable future.
Another way of enjoying exposure to the sector,is by way of a fund or an Investment trust and to that end I also hold shares in IIG the vehicle set up by David Evans.
Although I have no wish to be over exposed to this particular arena, last week I bought some shares at 98p in NetScientific (NSCI), a holding company with various investments that include a US Nasdaq quoted Biotech company (PDS Biotech: PDSB), along with an increasing number of promising unquoted businesses in the UK, US and Israel.
Shares in the company have traded over a wide range, with a 52 week low point of 43p against a high of £2.02p, perhaps suggesting that they may not be for the faint hearted.
Indeed, following my purchase, the company received positive comment from Simon Thompson of the IC, which saw the shares jump to £1.16p.
The company, which was at one time something of a penny share laggard was revamped some eighteen months back, with a new board and strategy installed and where it now looks extremely good value at the current price, with the market cap standing around £25m. To find out more about the operations there, prospects for exits from investments and the potential upside for investors, I have been able to chat with the CEO, Dr. Ilian Iliev.
Before touching on that though, it is perhaps worth running over the immediate attractions here, which suggests that the shares should arguably be trading significantly higher than at present and somewhere near the broker valuation of £1.80p plus per share.
Looking at the current market cap, it isn’t difficult to spot the hidden or ignored value on offer, as its main NASDAQ-quoted investment alone, along with the net cash accounts for a combined circa £17m.
This suggests that the remaining holding and portfolio company investments, which at present total 17 account for a current valuation of just £7m, which looking at the progress of a number of these appears distinctly low.
One in particular, Edinburgh based Sofant Technologies a business focused on Antennas for Satellite and 5G has just last week announced some important and perhaps significant news.
This sees it securing a €7.3m euro contract with the UK and European space agencies to support commercialisation of its low-cost power satellite communications platform.
The advantage and key unique selling point for Sofant being that it solves key power consumption issues, along with heat problems that are associated with phased array antennas, which sees the removal of what are complex and highly expensive cooling systems.
That, in itself, given the current focus on climate change appears to offer sizeable upside and no doubt could see further progress announced in due course. As I speak with the CEO and before touching upon Sofant and other investments held by NSCI, he duly fills me in on his arrival at the quoted company.
Having undertaken and completed his PhD at Cambridge University’s renowned Judge Business School, Iliev went on to found CambridgeIP (an IP strategy specialist), and subsequently EMV Capital which was acquired by NSCI last year.
He informs me, “EMV Capital had excellent deal flow sources across the UK and Israel which was combined with access to corporate and venture capital and family office investor networks for investment”.
The CEO adds, that when he met with the then NSCI board, he recognised that there was a similar approach, with a strong backing of Science and IP-intensive companies coming out of Universities with a focus too, on the US and international growth.
“Last year we combined the two into NetScientific, where we ended up with NetScientific as an active holding company platform and EMV Capital its fully owned subsidiary, providing the venture capital and corporate finance side of things. So, NetScientific is the plc with the balance sheet and working as an active holding company and it now has an active portfolio of eighteen companies and that includes our investment in Cambridge- based Martlet Capital".
The portfolio of investments as it stands is split effectively in half, across sustainability and healthcare which Iliev believes are two of the major areas that are hot and attracting sizeable investment, not only currently but for the next few years as a major investment theme. As a capital light business the CEO sees the operation as less risky to other models in the space with the investment approach being to use the plc’s balance sheet money to anchor and secure the deals, identifying the opportunities and locking them in.
Then EMV Capital, leverages its EIS and family office investment practice to their network to complete the deal with Capital Under Advisory (and a profit share/carried interest with investors).
The combination provides much more flexibility than a fund would have which enables them to be quite creative working with what Iliev describes as “exciting stuff”.
And on that front, there appears to be plenty on offer to attract investors where it seems apparent that shares in NSCI are looking increasingly attractive as a medium-longer term investment.
Turning the attention and spotlight on its investment portfolio, we touch on Belfast-based ProAxsis, which is a wholly owned subsidiary of NSCI, focused on respiratory and other diagnostics, which whetted investors appetites earlier this year when it announced the signing of a global in-licensing agreement with Astra Zeneca relating to a Covid antibody test.
“When we first came to ProAxsis what we found was something that was rather like an ugly duckling which was largely doing its own thing out of Belfast. But, what really excited us, was that there was a great team with a good platform in the middle of this massive industry move to diagnostics from a healthcare perspective, with post Covid acceleration of that and investment into it. And what we found with ProAxsis was a company that had developed a raft of capabilities in the respiratory diagnostics space but just didn’t have the right resources to grow”.
As a result of what they saw, NSCI took complete control, restructuring the business and providing much more in the way of resources.
The fruits of that are now clearly coming through and the CEO tells me that there are now five new offerings that are close to launch that fit in well to the emergence of the UK as a growth powerhouse across the diagnostic space Internationally. In relation to the specific tie up with Astra Zeneca, Iliev says, “right now we are in the process of validating and operationalising the test internally and once that is complete we will be announcing the commercialisation path of that particular offering”.
However, whilst that appears to be exciting and potentially lucrative for the future and where news on that front should not too far away, the CEO says that the link with Astra Zeneca is also very exciting, as there are a number of other companies within the NSCI portfolio that fit with the focus of Astra and other UK Pharmaceutical companies on diagnostics, oncology, regenerative medicine and other areas. Given that ProAxsis which is already generating revenues and has a licensing deal with Astra Zeneca is only at present valued at just £3.5m on the balance sheet the upside potential here alone could really be huge.
Iliev says the plans now are to grow it and consolidate and then look at options to realise value for NSCI shareholders in the future. “We are in no particular hurry though, as we are well funded and know what our plans are, but absolutely in the future, in due course, we may well look at realising the value.
With ProAxisis already looking like a potential star in the portfolio, the Sofant investment as touched upon at the outset also has great promise. Iliev says that this is a great story validating the group’s investment philosophy. EMV Capital backed the company a few years back at what appears to be an early stage of what is now fast moving and providing significant opportunities.
He describes this as a truly transformative opportunity, with Sofant right in the middle of the accelerating and evolving broadband space, spanning telecoms and logistics.
Sofant looks set to embark on its next scaling up with a funding round and the CEO says that within this process NSCI is able to play a part and protect its position through continuing to participate.
Aside the two aforementioned private businesses, NSCI also has a significant stake in Nasdaq quoted PDS Biotech, which already accounts for a large chunk of the current market cap and Iliev is happy to expand.
"Once upon a time" he says, "PDS was a University spin out that nobody had really heard of, but NetScientific’s due diligence was able to identify it is developing a really promising platform".
By all accounts, it took them a while to get where they wanted to be, which led them to another level and subsequently saw NSCI becoming involved through providing an anchor for a placement in 2021.
Since then, the story has been one of ongoing success and the shares have, over the last year, moved from $2.00 each to at one point close to $17.00 and are presently around the $11.50c mark (valuing the company at $350m).
The result has been an extremely positive one for NSCI, which begs the question regarding timelines in the context of an exit for the company.
Iliev says that at every point of time they have to look at the situation with a fresh set of eyes, but here, they have concluded that fundamentally, PDS has the potential of being a billion dollar plus business and possibly more.
Exciting stuff for investors, but perhaps highlighting that this is really about the longer term and the potential for real gains further down the line.
Another interesting investment within the portfolio is Glycotest which is focused on the area of liver disease and liver cancer. Although the business was affected by Covid induced disruptions which impacted on the timing of clinical trials.
The 64% owned business is now back on track with good data being gathered and the CEO says that results there are due in the first half of next year.
With lots of undoubted moving parts across the business and the investment portfolio, there has also been plenty going on within the EMV Capital subsidiary.
In September of this year it co-led with £1m of a £12m investment into Martlet Capital of Cambridge which has an extensive Deeptech portfolio.
The CEO, having spent so much time in Cambridge (where we touch on the Eagle Pub) and being involved with and aware of major movers and shakers across the high tech cluster embraced the opportunity to become involved with Martlet.
He says, “What Martlet is doing is very exciting, as the Cambridge eco system has grown massively beyond anyone’s imagination”. The association sees Martlet acquiring the investment portfolio of the renowned Cambridge based Marshall Group (of Marshall Aerospace and Marshall Motors fame) which have had involvement in many Cambridge success stories such as Abcam and Frontier Developments.
And Iliev is well aware of the intricacies of how the Cambridge cluster works and the association and collaboration that is required to nurture businesses and sees EMV as a result of its involvement as being very well placed.
But, within the Martlet deal though, there is, he says, a bonus, in that some of the investments being acquired are now very mature which creates a good climate in terms of exits.
As part of the process EMV is also going to be involved in a new vehicle titled MarQuity which will additionally see involvement from Saranac and Martlet itself, which provides for a further scaling of the opportunities ahead.
Although it is only two months since the Martlet deal was announced Iliev says that there is a lot going on in the background and they are very bullish on the prospects, which with EMV’s involvement allowing companies to scale up will also be beneficial to NSCI.
Looking ahead, there should be no shortage of news for investors to tune into and it may be a case of watch this space, with potential for updates to emerge at any time.