Yourgene Health (LON:YGEN) is an international molecular diagnostics group that uses the latest advances in DNA sequencing technology for non-invasive prenatal screening tests (NIPT). Its flagship IONA test uses complex statistical analyses to determine the likelihood that a fetus is carrying a genetic disorder, such as Down’s syndrome. YGEN has been held back by a patent infringement case and a complicated balance sheet. However, settlement of the patent case with Illumina and repayment of debt to Thermo Fisher (TMO) have transformed YGEN, allowing it to focus entirely on the enormous global growth opportunity for prenatal screening tests.
Strategy: Yourgene is focused on the global commercialisation of NIPT, which use the latest DNA analysis technology to predict certain fetal abnormalities. This technology also has the potential for expanded use in other aspects of reproductive health.
Illumina: YGEN has settled its patent infringement case with Illumina by taking out a licence for territories covered by Illumina’s patents and agreeing to develop its IONA test to work on the Illumina platform. This has removed the handcuffs from YGN and allow the company to focus on the growth opportunity.
Debt-free: Exercise of 43% of TMO’s outstanding warrants and the complete repayment/cancellation of loans have transformed the company’s balance sheet. Moving forward, YGEN has a major supportive shareholder in TMO, with 9.0% of the enlarged equity, and net cash of £1.5m (est.) to support operations.
Risks: Both of the uncertainties that have caused the stock to severely underperform have been removed over the last six months, and the company can now focus on the global growth opportunity. Further capital will be required, but this can now be raised from a position of strength.
Investment summary: Despite two years of patent uncertainty, YGEN has continued to expand the availability of its NIPT tests and services. With the handcuffs removed, management can now focus on making these tests available on the two largest sequencing platforms in the world. YGEN looks set to become profitable and cash-generative in fiscal 2021. The stock should command a prospective EV/sales multiple of 5x-10x, suggesting an EV of £60m-£120m.
