Wednesday, September 27th 2023

Fusion Antibodies PLC

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With the surging interest in the application of AI to biotech, is Fusion Antibodies in the right place at the right time?


“…The company is positioning itself to ride a wave of investment in biotech AI applications which promise to transform the notoriously slow process of drug discovery…”


Like the wider small cap biotech sector Fusion Antibodies (AIM:FAB) has had a challenging 18 months, its price tumbling from more than 150p to less than 10p today. But with signs that the high interest rates that have been so damaging for growth shares may have peaked, and a business model oriented towards the AI technologies set to sweep through the biotech sector, now may be the time to take a fresh look at a share that was riding high not so very long ago.

FAB is a Belfast-based Collaborative Research Organisation (CRO) company designing antibodies tailored for use by clients developing therapeutic drug and diagnostic applications. The company has successfully sequenced and expressed more than 250 antibodies over the past decade, and completed over 200 humanisation projects for an international customer base which includes eight of the top 10 global pharmaceutical companies by revenue. FAB is targeting an antibody therapeutics sector that is growing rapidly, valued at $135.4bn in 2018 and forecast to be worth more than $300bn by 2025, a CAGR of 14.26pc. The company is led by CEO Adrian Kinkaid, whose previous experience has encompassed senior management positions in drug discovery, reagent technology and diagnostics.

FAB’s restructuring


FAB is looking to move beyond the tough market conditions that have hit the tech sector over the past couple of years. The company’s most recent interim results, for the half year to 30 September 2022, acknowledged a ‘commercially challenging’ six months, during which revenues fell from £2.44m (H1 FY 2022) to £1.86m, leaving a closing cash balance of £1.198m. A later trading update said that revenues and earnings for the full year 2023 are ‘now expected to be significantly behind current market expectations’, estimated to come in at just under £3m. FAB attributed the slowdown to ‘a small number of valuable projects that have been suspended by clients due to delayed investment into those businesses’, and the chilling effect of Covid restrictions on contact and lead generation.

But the company says clients ‘have suggested that we should expect these projects to recommence once their funding is secured’. And it has high hopes for its new Integrated Therapeutic Antibody Services (ITA) framework, a comprehensive restructuring of its various offerings to present ‘a continuous service from target discovery to a final stable cell line ready for larger scale production.’ Mr Kinkaid said: ‘By integrating our current Discovery, Engineering and Supply services into one integrated end-to-end service we aim to enhance the client journey with the development of high performing antibodies to their targets.’

FAB’s OptiMAL initiative is at the heart of the restructuring, a bold plan to develop ‘a fully human antibody library to capture the human antibody repertoire’. FAB announced the first commercial service from the OptiMAL programme in February, Mammalian Display, targeted at ‘high volume mammalian cell surface expression and screening of antibodies’. Intriguingly, the company says the service is ‘particularly suited’ to companies using AI or Machine Learning (ML) to identify therapeutic antibodies from focused libraries of sequences.

ML allows computer programs to learn from, and adapt to, new information without being specifically programmed to do so: algorithms detect patterns in data and make predictions or recommendations without explicit instructions from humans. FAB’s new service is ideally presented for the expression and screening of small libraries of tens of thousands of antibodies. Mr Kinkaid said: ‘As our industry rapidly turns to find new ways to hasten the development of better bio-therapeutics to the clinic, we … anticipate deploying these capabilities to bring AI generated antibody sequences out of world class computer algorithms and into a world class antibody laboratory.’

The following month the company was able to announce that engagement with ‘leading Artificial Intelligence and Machine Learning companies as potential partners’ had led to an MoU with ‘a leading biotech company, based in the USA, focused on AI & ML to generate de-novo antibody sequences.’ The partnership is expected ‘to enable the derivation and evaluation of AI generated antibodies and offer clients a new route to market’. Mr Kincaid said: ‘We are particularly enthusiastic about our newly announced Mammalian Display capabilities being matched so well with the exciting potential of Artificial Intelligence and Machine Learning approaches to antibody design.’

FAB expects the evolving ITA framework to generate stronger revenue streams in the next financial year and position the company for a sustained period of growth. It said that although revenues from ‘a significant order for an integrated service contract’ would not materialise in the time for this financial year, they will be recognisable next year. FAB concluded a fundraise of £1.672m in support of its new programmes earlier this summer.

AI comes to biotech


The company is positioning itself to ride a wave of investment in biotech AI applications which promise to transform the notoriously slow process of drug discovery. New products can take a decade to emerge, can cost billions of dollars, and fewer than one in ten succeed. But AI promises much more efficient techniques for processing biological data, ML making it possible to swiftly sift mountains of information, from clinical patient data and genome sequences to images of body scans.

The possibilities opened by AI penetrated the market’s consciousness last year when DeepMind, Google’s AI lab, said its AlphaFold system had developed the capacity to predict the structure of almost all proteins, which may one day help identify which molecules have therapeutic potential. Generative AI, discussed in our recent article on StreaksAI, can suggest new chemical and biological structures for testing, just as ChatGPT can process text. AstraZeneca, GSK, Moderna and Sanofi have reported AI’s capacity to revolutionise the rapid iteration of molecular combinations that seed new drugs. Morgan Stanley has suggested that by 2030 the pharmaceutical industry may be spending some $50bn a year on AI to speed up drug development.

Last month Fortune Magazine reported that stock in Recursion Pharmaceuticals, which uses machine learning to discover new medicine, had more than doubled with a 78pc gain, on the back of a $50bn investment by AI-chipmaker Nvidia. Peers using algorithms to find novel targets were also surging, Exscientia and AbCellera Biologics by 12pc, Relay Therapeutics by 7.1pc, and Schrodinger by 3.6pc.



As our StreaksAI article noted, small caps offer AI investment opportunities beyond the somewhat overloaded big tech plays. FL Putnam Chief Market Strategist Ellen Hazen, speaking to Yahoo Finance Live, observing that the top five or 10 stocks accounted for the vast majority of S&P performance, said her company had ‘been slowly increasing … exposure to small caps over the last several months.’ She said that price to earnings ratios showed that small caps ‘are at a six point discount to large cap. That’s pretty much as large as that discount usually gets. So we think it looks interesting from that perspective.’ Noting that small caps typically do well at the beginning of an economic cycle Ms Hazen suggested that ‘if we see a slowdown for the next couple of quarters and then the market and the economy reaccelerates after that, small caps could do very well.’

Time will tell. After so many tough months and false starts it would be unwise to predict just when small cap growth shares might start firing again. FAB is, however, positioned to benefit from two possible catalysts: an easing of economic conditions, and surging interest in the application of AI to biotech. The £4.6m market cap’s shares are currently priced at 7.5p, down nearly 90pc over the past year. Perhaps now, at last, the tide may be turning in the company’s favour.