22 February 2022

Spotlight on Yourgene Health plc – February 2022

Written by Ivan Sedgwick

We recently visited Yourgene Health plc (YGEN) at their headquarters in Manchester. The company has been transformed over the last three and a half years since Lyn Rees was appointed CEO, yet the share price at 8.35p is just about back where it was then.

Rees took over a heavily indebted single-product company, losing an IP court battle with Illumina and indebted to Illumina’s rival, Thermo Fisher. He sorted out the battle, managed to convert most of the debt into equity, and started to turn the company into a serious diagnostics player, with acquisitions as well as their own IP.

 

Financials

Revenue is up approximately six-fold, and they should be EBITDA positive this year. They have made decent money from Covid diagnostics and now employ roughly 300 people running around 100 genomics tests. They increased guidance in January. The consensus forecast (from Stifel and Singers) is that sales will hit £37m to March from £18.3m, drop to £29.1m in March ’23, then recover to £32.2m to March ’24; EBITDA is forecast to reach £3.7m this year (from -£2m last) then rise to £4.8m and £7.1m.

This has not been reflected in the share price. As well as sector weakness, some of this relates to overconfidence in 2020, and there has been poor messaging from the company since then. The unrelated failure of Omega Diagnostics to commercialise lateral flow tests has not helped – despite Yourgene’s success in PCR and sequencing and the sceptical retail bulletin boards.

 

Company Growth 

Management believe they are on a growth track and should be able to provide further comfort at their year-end trading statement (expected in March). Irrespective of that, £7.1m EBITDA puts them on 10x their current enterprise value. They will be holding a capital markets day in London in April, after the trading update. We are therefore in an information gap, but the risks at this level seem more upwards than downwards.

Whilst PCR testing has slowed they are one of only four sequencing labs which is longer term, higher margin business. The equipment they have paid for from Covid revenues can all be used to run other tests, which is what they are doing.

Other successes include their DPYD test for chemotherapy toxicity. They will add other oncology tests, and another toxicity test for an antibiotic which can cause deafness in certain genetically susceptible patients. The NHS is increasingly aware that testing early can save money. Home testing for Covid has opened up the direct to consumer market for home testing generally in markets such as the UK where it was not commonplace.  

Their original proposition was the offer of Non Invasive Pregnancy Tests (NIPT) as safe replacements for the amniocentesis test for birth defects, which clinics and smaller hospitals could run quickly without having to pay outside labs. NIPT is increasingly becoming the standard of care, but the rollout has been much delayed by Covid. Nonetheless, Yourgene are confident they are now in a good position. They are extending the scope of the tests. They can sell into all territories and have agreements with both Illumina and Thermo Fisher, and their local agents. In the USA they have recently signed a distribution deal with EKF and have agreements with some of the hospital groups.

 

Yourgene Health plc has demonstrated impressive growth and a recovery from a difficult position since current management took over. They company has an increasing range of tests and its position in sequencing, and creation of new tests such as DPYD, demonstrates that the company does have real scientific IP, and is starting to generate profits from this.

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