Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Epistem’s H1 revenue up 90% driven by Novartis collaboration

|Includes: Novartis AG (NVS)

UK based stem-cell biotech company, Epistem (LSE: EHP) revealed the commercial progress being made through its partnership with Novartis as it reported a 90% year-on-year increase in revenue during the six months ended 31 December 2009. Revenue in the first half saw rose to £2.8m compared with £1.5m in the same period a year earlier.

Epistem broke even in the first half, compared to a £500,000 loss previously, furthermore the company said it anticipates further revenue growth over the second half, to provide an improved financial profile. The group believes it continues to provide a reduced risk business model with significant upside potential, based on the solid first half revenue performance, a breakeven profit and the recently completed placing.

As at 31 December 2009, Epistem had cash reserves of £5.6m, compared to £1.2m a year earlier. Higher staff numbers in the Novel Therapies division, supporting the Novartis collaboration, represents the company’s largest year-on-year cost increase. Contract Research Services costs remained broadly consistent with the previous year, while the Biomarker division's costs remain conservative, based on the business’ early stage of development.

Epistem’s ‘Novel Therapies’ division was the largest contributor to the improving performance with reported revenues of £1.3m, with no reported revenues for the business unit in the previous first half. In March 2009, the business unit signed the Novartis collaboration agreement, and at the first anniversary of the partnership, Epistem said it is pleased with progress being made towards advancing its first therapeutic leads.

Under the terms of the collaboration, Novartis paid Epistem US$4m in cash upfrontand will provide research funding for 2 years. Novartis also has an option to exclusively license targets for development into biotherapeutic products in exchange for license fees, milestone payments and royalties. Previously, Epistem said that each product developed from targets licensed under the agreement could generate up to US$45m in milestones, and Epistem would also receive royalties on sales of any commercialised product.

The company said its ‘Contract Research Services’ division had a resilient first half performance with marginal revenue growth, H1 revenue was £1.2m compared to £1.1m a year earlier. According to Epistem its customers continue to remain cautious over future commitments, which held back new business development. However the company noted that despite this, the quality of business and sales order book remains firm into the second half.

The Biomarker division reported revenues broadly in line with the comparative  period of £0.3m. Epistem noted the business unit continues to make technical and commercial developments, for example the company said its hair biomarker platform continues to target key oncology pathways, and it anticipates increased growth and a broadening industry take up over the coming months, inline with Epistem’s expectations.

Looking ahead, the company anticipates increasing revenues from both the Contract Research Services and Biomarker divisions, while the Novel Therapies collaboration will see the accelerated development of lead targets and therapeutics to identify key stem cell regulators. With an upbeat outlook, Epistem said it will also look to build on its platform strength by acquiring complementary technologies and groups as opportunities arise.

Epistem believes that its heritage in stem cells, growing international status and expertise will enable the company to exploit its potential within the rapidly growing stem cell and regenerative medicine industry. Furthermore the board remains confident that it is well-placed to deliver increased shareholder value in the medium term based on its current performance and on the increased value opportunities, which are now emerging.

Disclosure: The author holds no positions in the company

Disclosure: no positions