Selvita (WA:SLVP) offers a two-pronged strategy with steady double digit growth from its drug discovery business coupled with potential upside from drug development within its broad R&D pipeline. Recently the company introduced a new strategy for 2017-2021 focused on continuing growth in the Services business and ramping up investment in the internal R&D pipeline. While this has been overshadowed somewhat by the clinical hold on the lead asset SEL24, our investment thesis for Selvita is based on supportive long-term company-specific and macro trends and we increase our valuation from PLN577m to PLN1.04bn or PLN75/share.
2017-21 strategy: Organic growth and boost for R&D
Selvita has achieved rapid organic growth in its drug discovery business in recent years (2012-16 CAGR of 43%). As a result of this success and its growing in-house R&D capabilities, in August 2017 Selvita announced a new strategy for 2017-2021. The company will continue to grow the Services business and will also significantly ramp up investment in the internal R&D pipeline. Selvita estimates that the total investment over 2017-2021 will be around PLN360m, which will be financed from internal reserves (PLN78m), public grants (PLN136m), bank loans (PLN6m) and a planned share issue (PLN140m). The timing of the share issue is uncertain currently, as according to Selvita the pricing depends on the outcome of the interaction with the FDA regarding the clinical hold.
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