Abingdon Health - Some Key Thinking

One thing I very much like about Abingdon Health is their confidence.

In their interims results, announcement dated 8th March 2021 the company had this to say,

"The Company also has additional automated equipment on order to support increasing its manufacturing capacity and remains on track for total production capacity of 3m units per week by the end of the calendar year."

As a stop off on the journey there, the company is due to complete its next stage of operational expansion this month.

"Stage 2 of York and Doncaster capacity expansion builds underway and planned for completion by April 2021"

That being the case, what does the company have in its locker to fill all this capacity because if it can, then current valuations surely fall considerably short of what they are capable of.

First up is their lead role in the development and roll-out of their AbC-19 COVID-19 rapid antibody test.

"The Company's Tier 1 order pipeline for AbC-19TM continues to grow and this gives the Board the confidence in the Company's ability to achieve market expectations for the year".

"the roll-out of vaccines has highlighted the potential to use AbC-19™ as a companion test and this is proving of high interest to many of our potential UK and international customers."

"The Company has identified customers in seven countries that are being prioritised internally as Tier 1 commercial targets where, following registration of AbC-19™, the Company anticipates significant sizeable orders, ahead of the end of Abingdon Health's financial year."

This confidence for orders to come through is built on the following belief,

"As a result of this, and the leading accuracy of Abingdon Health's test,the Company anticipates an increased demand for rapid antibody tests that can be used as a companion to COVID-19 vaccines."

Leading accuracy indicates market leader, which means if there is indeed a market to be had for such products, then the AbC-19 has every chance of selling in high quantities. Great.

In March 2021, Abingdo Health resubmitted data to the FDA for an Emergency Use Authorization ("EUA") process, which showed that AbC-19™ meets the sensitivity and specificity guidelines of the FDA.

Whilst I have reservations over the timeframes currently needed for the FDA to approve such tests, it is nevertheless another positive given the success of the US vaccine roll out and its market size.

To this avenue, we of course need to add the Avacta AffiDX® SARS-CoV-2 rapid antigen lateral flow test, whose market introduction should come any day now. Currently, Avacta is signalling that the combined manufacturing capabilities of Mologic, BBI and Abingdon,

"can scale up to several million tests per month and potentially much higher with further investment."

That guidance was also mentioned in their RNS of 8th February 2021, which came c. two weeks post the Abingdon Health half year trading update dated 26th January 2021. There the company had this to say about manufacturing expansion,

"The Company expects a number of key items of automated assembly equipment to come on-line over the coming months and these will increase significantly its automated manufacturing capacity."

In my experience, good companies don't tend to factor in developments until they have been confirmed. Therefore, Avacta's references to "several million tests per month" were about what was known and not what was due to come to pass. Meaning that my belief lends itself to the next phase of Abingdon's expansion, being toed to the "much higher with further investment" element of that statement.

"Laboratory testing suggests that the AffiDX™ SARS-CoV-2 Lateral Flow Rapid Antigen Test could be the most sensitive spike antigen test so far available."

Final clinical numbers have yet to be published but if that statement indeed holds true, then in this current climate of heavy government spending on lateral flow tests for their populations with no foreseeable end, it's highly likely that demand for the Avacta test will be high.

If so then in Avacta, Abingdon Health potentially has a very strong outlet for all of its next phase of expanded capacity, which just happens to complete in the very month that Avacta's test is supposed to go live. The question is, with so much belief in their higher-margin AbC-19 test, how much capacity will Abingdon Health commit? As an investor, that's a great headache to have because it reflects an ability to fill that expanding capacity.

However, there's more. Also from those ABDX interims,

"Completed delivery of 1m units of our PCRD device, a nucleic acid lateral flow immunoassay (NALFIA), to a customer in the U.S."

This contract is for a customer that is using Abingdon Health's PCRD product as a component to their COVID-19 rapid molecular testing solution and is currently going through the FDA EUA process. If and when this process completes (reservations on said FDA timeframes aside), Abingdon anticipates further orders to come through. So yet more potential competition for their manufacturing capacity.

In February, the company also announced a strategic partnership with Abcam, designed to,

"enable both parties to identify and maximise opportunities for the provision of their products and services to one another."

Early days on that one but yet another potential feather in the Abingdon manufacturing demand cap. In addition, they have two further Covid test partnerships in play, one CE marked, one in tech transfer as of February 2021. That brings the total to five customers plus Abcam and other non-covid based opportunities, which the company has been encouraged by. More on that later.

On the financial side of things, the gross margin for H1 2020/21 was 40.1%, which led to a c. £1.4m operating lost against c. £7.7m in revenues for six month period. However,

"As the business continues to invest in automated equipment and integrate manufacturing efficiencies as capacity scales up, the Board expects that margin will continue to improve in line with these advancements."

It remains to be seen just how large a step up in manufacture phase 2 (completion this month) will bring but to hit 3m a week by December 2021, surely a significant step towards it has now been made. So said margins should improve substantially, which when coupled with expanding demand for their services, stands them in good stead to move into profit. On top of all that, the company had £16.5m in cash at the end of 2020 and is fully funded to deliver the expansion through to 3m tests a week.

So multiple avenues of opportunity over the coming months, driven by a new and intense interest in lateral flow tests.

One last point.

As discussed in part in my set of Twitter posts from 6th March, Covid has delivered two major things for the diagnostics industry,

1. A mass marketing campaign for the whole direct to consumer approach, beyond anything they could ever have mounted themselves.

2. A recognition and acceptance by consumers that regular use of lateral flow tests can be employed, in order to monitor and take responsibility for their own health.

In my view, the landscape for how we approach our health and employ self testing to monitor it, has changed forever. Additionally, governments with stretched health care systems such as the one in the UK, aren't going to allow the opportunity to keep the responsibility and indeed the cost with the consumer. That horse has bolted and simply isn't coming back.

In that sort of scenario, an expanded Abingdon Health capable of securing larger lateral flow contracts because of their increased automation and size should only flourish further.

This was very much touched upon by Abingdon in their interims when they said,

"The Company is encouraged by the sales pipeline of non-COVID-19 products and believes that this growth is in part a consequence of the impact that the pandemic has had on increasing the profile of lateral flow tests, and the recognition of their perceived benefits in terms of cost and ease-of-use."

Fully combined Abingdon makes for a very interesting story with a great deal of potential, the start of which should now start to be witnessed, as Avacta brings its long-awaited test to market, and Abingdon delivers on its next significant manufacturing expansion.

I look forward to hearing and writing about it all in due course.

Note - This article represents the opinion and research of the author only and the author currently holds a position in one or more of the stocks mentioned. Nothing shared in this article is to be deemed financial advice. Where possible all facts have been checked and references provided, however it is the responsibility of the reader to check all details for themselves before making any financial decisions. Please also refer to the disclaimer policy


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