First Berlin – 4basebio AG Research Update (15/07/2020)

First Berlin Equity Research has published a research update on 4basebio AG (ISIN: DE000A2YN801). Analyst Christian Orquera reiterated his BUY rating and increased the price target from EUR 2.20 to EUR 3.30.

On 2 January 2020, 4basebio (previously called Expedeon) sold its immunology and proteomics business to its distribution partner Abcam plc for €120m (€106m due at closing and the remaining €14m to be held in escrow for two years). Considering that 4basebio previously paid about €40m to acquire these assets, management achieved an excellent ROI of 200% with the deal. 4basebio retained the genomics business including its core patent-protected TruePrime technology, which will be the base to build up a DNA manufacturing facility. Due to the recent success of new gene therapeutic drugs (e.g. Luxturna, Kymriah Yescarta or Zolgensma), demand for DNA manufacturing capacity is on the rise. The existing production process based on bacteria fermentation in a bioreactor has significant shortcomings (e.g. inefficient, expensive, high contamination risk) and is working at its technological limits. 4basebio's novel TruePrime technology allows for a fast, highly accurate, cost-efficient and reliable synthetic process of copying DNA (amplification) which has the potential to disrupt DNA manufacturing. The company has a very comfortable financial position which allows it to buy the required expertise for engineering and scaling-up production, as well as building up the needed infrastructure. 4basebio is on track to become one of the few companies worldwide capable of offering synthetically produced DNA. Following the Abcam deal and the change in business model, we have updated our DCF model and arrive at a price target of €3.30 (previously: €2.20). We reiterate our Buy rating.