Written by 11:30 Analys

SIMRIS ALG: Cyano deal jumpstarts venture into Biopharma | See interview with CEO Julian Read

With the successful completion of the acquisition of Berlin-based Cyano Biotech GmbH, Simris Alg is now set to accelerate their entry into the high-value biopharma space, with a new inhouse R&D capability and a world-leading library of cyanobacteria. As Cyano is already profitable, we expect this acquisition to add to Simris’ bottom line from the outset. The main objective is to push into novel Antibody Drug Conjugates (ADC) for cancer treatment; we estimate a SEK 0.11-0.15 per share impact on valuation for each platform license deal, in which case it would transform the company and dominate the combined business in a couple of years.

Johan Widmark | 2022-09-07 11:30

This commissioned research report is for informational purposes only and is to be considered marketing communication. This research report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and Emergers is not subject to any prohibition on dealing ahead of the dissemination of investment research. This research does not constitute investment advice and is not a solicitation to buy shares. For more information, please refer to disclaimer.  
Acquisition to accelerate entry into Biopharma

Cyano Biotech GmbH. hold what is probably one of the world’s largest libraries of cyanobacteria, comprising more than 1,100 producer strains. Having identified more than 5,000 novel, natural, compounds, the acquisition is right in line with Simris’ long-term objective to accelerate revenue generation by selling high-value, high-margin biological products to the Biopharma, Cosmetics and Nutrition industries.

In addition to accelerating Simris’ entry into pharma and providing Simris with its own internal R&D capability, the acquisition is expected to deliver a number of synergies for cost efficiency. Cyano Biotech have had an average turnover of over EUR 0.5m over the past two years and is expected to deliver an EBITDA in the region of EUR 100k in 2022.

Interview with SIMRIS ALG CEO Julian Read and CYANO BIOTECH Co-Founder Dan Enke
Two-fold deal

Overall, there are two parts to the deal:
1. Payment for the ADC platform: Total max value of EUR 10.24m
• EUR 1.0m in cash + EUR 120k in shares paid on the day of closing
• EUR 1.0m in cash + EUR 120k in shares paid 12 months after the day of closing
• Earn-outs paid at a rate of 10% on net revenue from sales of the ADC platform, up to a maximum of total value of EUR 8m more
2. Payment for revenue from the non-ADC business:
• 10% of revenue from sales, through to 2025, converted quarterly into Simris shares and a quarterly basis

In relation to the earn-outs, these will only be triggered by revenue generated from the ADC platform. For example, if Simris secures a contract with a Pharma company and they pay EUR 1.0m to reserve a target antigen exclusively for a specific toxin, then Cyano Biotech’s sellers will receive 10% of that value. A further 10% would be paid from any contract research project associated with the reserving of the antigen and then of any milestone payments. So, to put in context, Simris will need to make EUR 80m in sales from the ADC platform to reach the maximum cap of EUR 8m in earn-outs.

USD 1.9-2.4m implication on valuation per ADC license deal

Cyano Biotech has developed and patented a platform technology for the generation and production of novel Antibody Drug Conjugate (ADC) payloads. These are advanced treatments that can couple linkers and monoclonal antibodies (mABs) to proprietary cytotoxins in order to form ADCs that are non-toxic to healthy tissue but lethal to certain tumor cells. The strategy for the ADC platform is to make paid R&D collaboration agreements with pharma companies to jointly develop novel cancer drugs. Beyond payment for the development and optimization of a payload, Simris will receive additional payment at each major milestone e.g., successfully completing pre-clinical development, for the production of the payload in its photobioreactors, and eventually royalties on the sale of any compounds that are market approved and used in the treatment of cancer patients.

To get an idea of what this would mean for Simris we’ve made some broad assumptions. Benchmarked against similar licensing deals, we estimate contract research revenues for the pre-clinical stages of an ADC development project to be around EUR 1m per year, with milestone payments of EUR 1m for entry into phase I, EUR 2m for entry into phase II, EUR 3m for entry into phase III, and another EUR 5m at approval plus a 1-5% royalty fee on sales. Discounted with a WACC of 15% we get the present value (PV) of these future cash flows. We also risk adjust these PVs with the statistical probability of success of each stage of development, based on statistics for oncology development provided by the Biotechnology Innovation Organization for 2011-2020.

Based on an assumption of USD 100,000 per treatment today, 10% peak market share for a cancer indication with 80 000 patients in the 7MM (USA, Japan, France, Italy, UK, Spain, and Germany), this suggests a discounted risk-adjusted rNPV of USD 1.9m (at 1% royalty) to USD 2.4m (at 5% royalty) for each future ADC license deal, after deducting the performance related earn-out to Cyano’s sellers.

With an estimated 4m new shares (EUR 120k in shares paid to Cyano’s sellers at close), we expect this translates to 0,11-0,15 SEK per share.

Adding to the significant revaluation potential

Cyano Biotech has been profitable since 2020, meaning the acquisition is immediately accretive to Simris, and there’s good reason to believe that the patents and advanced discussions with ADC and Pharma companies will enable Simris to accelerate revenue generation in the coming years.

Combined with Simris’ downstream processing capability, we expect the deal to accelerate Simris’ long-awaited entry into the biopharma space. The signs are that this will comprise 1/3 of the business in the next couple of years, alongside the microalgae biomass and food supplements businesses already in scale-up phase. In the longer term, the Cyano vertical has the potential to dominate the business. Supported by only a fraction of listed peer multiples we find support for a fair value of SEK 170m in 2023 and SEK 230m in 2024, noting that each ADC platform license deal might boost potential even further.


This commissioned research report is for informational purposes only and is to be considered marketing communication. This research does not constitute investment advice and is not a solicitation to buy shares. Information provided here or on Emergers’ website emergers.se is not intended to be financial advice. This research shall not be construed as a recommendation or solicitation to invest in the companies described. Emergers cannot be held liable for either direct or indirect damages caused by decisions made on the basis of information in this analysis. Investors are encouraged to seek additional information as well as consult a financial advisor prior to any investment decision.

This material is not intended to be financial advice. This material has been commissioned by the Company in question and prepared and issued by Emergers, in consideration of a fee payable by the Company. Emergers charges a standard fee for the production and broad dissemination of a detailed note following by regular update notes. Fees are paid upfront in cash without recourse. Emergers may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained herein represent those of the research analyst at Emergers at the time of publication. The company has been given the opportunity to influence factual statements before publication, but forecasts, conclusions and valuation reasoning are Emergers’ own. Forward-looking information or statements contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Emergers shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained in this material.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Emergers’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in this material may not be eligible for sale in all jurisdictions or to certain categories of investors. Investors are encouraged to seek additional information as well as consult a financial advisor prior to any investment decision.

Investment in securities mentioned: Emergers has a restrictive policy relating to personal dealing and conflicts of interest. Emergers does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Emergers may have a position in any or related securities mentioned in this report, subject to Emergers’ policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Incirrata AB (Emergers)

United Kingdom
This document is prepared and provided by Emergers for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ”FPO”) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States
Emergers relies upon the ”publishers’ exclusion” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Emergers does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Read Less Read More

For new research on growth stocks, sign up to our newsletter