Recruitment

Shares in recruitment specialist Hayes (LSE: HAS) have faded over the past 12 months. I’m not surprised, with such a gloomy economic outlook.

But results released Thursday were anything but disappointing. For the year to 30 June, net fees rose by 30%. And operating profit soared by 121%.

The company more than doubled its ordinary dividend, to 2.85p per share. That’s only a 2.4% yield. But thanks to strong cash generation, it added a special dividend of 7.34p and lifted its share buyback programme to £75m.

Chief executive Alistair Cox spoke of “long-term structural opportunities, acute skill shortages and strong markets.” It seems there’s some significant upside when we’re in times of economic turmoil. And Hayes might be just the kind of investment to profit from a recovery.

We’re looking at a modest trailing price-to-earnings (P/E) ratio of around 13.

Biopharma

PureTech Health (LSE: PRTC) recorded a loss in 2021. And, at the halfway stage in 2022, it’s still very much a biotechnology company working towards sustainable future profits.

The share price has been picking up in the past couple of months, and barely moved on results day.

The year so far has all been about clinical development. In the words of chief executive Daphne Zohar, “the first half of 2022 has been an exceedingly strong period for PureTech.”

Phase 3 trials of schizophrenia treatment KarXT appears to have gone very well, without the serious side effects that apparently come with existing treatments. Zohar adds: “It is now poised to potentially be the first new class of medicine in over 50 years for patients living with schizophrenia.“

The balance between long-term potential and current liquidity is key. Though PureTech recorded a loss again, it had $341m cash and equivalents at 30 June. That looks good enough to me.

Building

CRH (LSE: CRH) is my final pick of companies reporting Thursday. And its share price gained a few percent in response to interim results.

Chief executive Albert Manifold said: “CRH has delivered another strong performance with further growth in sales, EBITDA and margin despite a challenging and volatile cost environment.“

The firm reported a 14% rise in sales and a 21% jump in EBITDA. What’s more, the EBITDA margin improved, and bottom-line earnings per share increased by 36%

The company lifted its interim dividend by 4%, and it’s now set for a new tranche in its share buyback programme.

The one thing that concerns me is net debt of $4.3bn. That is down by $1.7bn, though, and looks easily manageable.

Thoughts

This is my first look at a single day’s reporting from these companies. I see attractions in all of them, but they all have their own individual risks too.

I’d never buy a stock based on just one update. But I’ve seen enough here to want to investigate all three further.

In fact, some scientists have described biotech as the future of medicine. And consequently, analyst forecasts predict the biotech sector alone will grow by an annualised rate of 15.8% until 2028, reaching $2.4trn! That’s more than three times bigger than the current $752m market size.

Needless to say, this presents a massive growth opportunity for those willing to invest in biotech stocks. But this growth doesn’t come without its risks. So, let’s explore exactly how these businesses work and the threats a biotech investor needs to know about.

What are biotech stocks?

Biotech stocks are a small but rapidly expanding segment of the healthcare industry. These businesses operate similarly to pharmaceutical companies. They both research new treatments and medicines for diseases, run clinical trials to prove efficacy and safety, and then eventually bring their product to market after regulatory approval.

However, the key differential in biotechnology is the approach to developing new treatments. Traditional pharmaceuticals use chemicals as the basis for new drugs, whereas biotech uses living organisms such as bacteria and enzymes. As crazy as that sounds, it’s opening many new avenues and solutions for treating genetic diseases and developing highly effective vaccines.

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The development pipeline for biotech stocks

The drug development pipeline for biotech stocks has five steps:

1. Discovery

Scientists identify a potential drug candidate for treating a specific disease. Typically, firms prioritise treatments with ample market opportunities and little competition on the market or in development.

2. Preclinical trials

Once a candidate is selected, non-human lab testing begins. This can be done using in vitro (in test tubes) and/or in vivo (in animals such as mice) testing. 

3. Clinical trials

If preclinical trials show encouraging results, human trials begin with qualifying patients recruited from hospitals and other medical institutions. This is the longest part of the process and where most drugs fail. 

• Phase 1 – Initial small-scale study where, on average, 60 closely-monitored patients receive different doses. The goal is to determine the highest effective dosage that does not cause severe side effects.
  
• Phase 2 – Assuming Phase 1 is successful, Phase 2 expands the study to around 120 patients. The goal is to uncover evidence of the drug candidate actually working while simultaneously isolating the optimal dose.
  
• Phase 3 – This is the longest part of the clinical trial process and can take years to complete. The goal is to prove the effectiveness of the treatment compared to existing drugs. Studies are expanded to include an average of 600 patients. However, patient numbers can venture into the thousands depending on the drug. Phase 3 trials are most commonly run as randomised, double-blind studies. Some patients receive an existing drug and/or a placebo, while other patients receive the new treatment being tested. 

4. Regulatory approval

If Phase 3 trials reveal strong evidence of high efficacy and safety, biotech stocks then file for approval from drug regulators such as the MHRA in the UK and FDA in the US. This process can take anywhere between 6 and 10 months and may require the company to perform further clinical trials if insufficient evidence is provided. If the regulator grants approval, the firm can offer its product on the open market and begin Phase 4 trials.

• Phase 4 – Drugs with regulatory approval still need to be monitored when offered to patients. The goal is to determine whether any long-term health impact occurs that would not have been detected during Phase 3 trials.

5. Commercialisation

After regulatory approval is granted, biotech groups still need to convince doctors and health insurance companies to offer the new drug to patients. This is where sales representatives come into the picture. And dethroning an existing treatment even if it’s not as effective can be a challenge.

This product pipeline can span decades. And statistically speaking, over 90% of drug candidates never make it to market. That’s why most biotech shares develop multiple drugs at the same time. Like prudent investors, these companies are diversifying their investments.

But running multiple trials at the same time is a highly capital-intensive process. Consequently, most young biotech businesses have to continuously issue new shares to raise the necessary funds. This causes significant equity dilution. It’s also common to see larger players acquiring younger companies when a drug candidate shows a lot of promise.

Top biotech shares in the UK

Here are the top biotech stocks on the London Stock Exchange in order of market capitalisation:

AstraZeneca

AstraZeneca is one of the largest pharmaceutical companies and healthcare stocks in the world. Given its access to vast resources, the group develops new treatments for a wide range of diseases. The list includes cancer, cardiovascular, renal, respiratory, immunology and other rarer conditions. 

The company already has a diverse portfolio of products on the market and its vaccine against Covid-19 made it a household name. Looking at the current project pipeline, AstraZeneca is researching 183 drug candidates, with 16 in late-stage development and two under regulatory review.

Key Metrics:

• Market Cap: £156.3bn
• Average Daily Volume: 2.33m
• HQ: Cambridge, UK
• Cash/Debt: $6,398m/$30,781m
  

GlaxoSmithKline

GlaxoSmithKline is a global leader in vaccines and pharmaceutical treatments targeting cancer, HIV, immuno-inflammatory, and respiratory diseases. The company has established research teams and manufacturing facilities worldwide, providing a global distribution network, particularly across the US, Europe, and Asia.

With over 1,500 active partnerships with external pharmaceutical organisations and governments, GlaxoSmithKline stands out among the crowd of healthcare stocks. It’s worth noting that the group also has a consumer healthcare division for over-the-counter products. However, Glaxo is in the process of spinning this off into a standalone entity, enabling the group to become entirely focused on developing new treatments. 

Key Metrics:

• Market cap: £88.5bn
• Average daily volume: 9.02m
• HQ: Brentford, UK
• Cash/debt: £4,335m/£24,173m
  

PureTech Health

PureTech Health is a mid-stage biotech business with a focus on creating new therapies for diseases with limited or no existing treatment options. The firm specialises in medicines related to the brain, gut, and immune system. It has two drugs with US and European regulatory approval, along with a further 16 in clinical trials and 27 candidates being investigated.

Beyond researching and developing its own treatments, management has built up a significant equity interest in other biotech groups. In total, it has a stake in eight different companies, three of which have commercial products and a further three in the final round of clinical trials.

Key Metrics:

• Market cap: £492.9m
• Average daily volume: 267.4k
• HQ: Boston, US
• Cash/debt: £468m/£52m
  

Oxford BioMedica

Oxford Biomedica is a rising gene and cell therapy business specialising in viral vectors. In oversimplified terms, the company re-engineers existing viruses to deliver improved genetic material into patients’ cells.

Management is using this technology to develop its own treatments. However, management also outsources its capabilities to other drug developers via its LentiVector platform. 

This drastically reduces the cost of developing gene and cell therapies. So, it’s not surprising that pharmaceutical titans like Bristol Myers Squibb, AstraZeneca, and Novartis are all active customers. These customers pay ongoing milestone fees throughout development, as well as a royalty on sales for any drug that makes it to market. However, it’s worth noting that most of the current drug pipeline using LentiVector remains relatively early stage.

Key Metrics:

• Market cap: £466.9m
• Average daily volume: 223.76k
• HQ: Oxford, UK
• Cash/debt: £109m/£9.34m
  

Avacta Group

Avacta is an early-stage biotech firm specialising in the fields of diagnostics and therapeutics. Its diagnostics division created a proprietary platform called Affimer. This is a portfolio of reagent proteins that can be used to detect specific infections within a given sample. Traditionally, this process uses antibodies. However, manufacturing antibodies is a complex, time-consuming process that Affimer reagents don’t have to go through. 

On the therapeutics side of the business, the company is currently testing its flagship AVA6000 chemotherapy drug in clinical trials. This treatment is being developed with the group’s second chemical platform called pre|CISION. Unlike existing chemotherapy treatments, AVA6000 is highly targeted. As a result, fewer healthy cells are caught in the crossfire, which reduces the severity of side effects.

Key Metrics:

• Market cap: £311.4m
• Average daily volume: 1.46m 
• HQ: Wetherby, UK
• Cash/debt: £26m/£1.7m

Investing in the US biotech industry

As with pharmaceutical and healthcare companies, investing in American biotech stocks comes with the same degree of regulatory risk. All treatments need to approval from the Food & Drugs Administration (FDA) for commercialisation in the US.

The list of US biotech stocks is significantly longer than here in the UK, as the American healthcare market size is enormous by comparison. With that said, here are some of the largest biotech shares available across the pond in order of market capitalisation.

1. Regeneron Pharmaceuticals (NASDAQ:REGN)
2. Vertex Pharmaceuticals (NASDAQ:VRTX)
3. Exelixis Inc (NASDAQ:EXEL)
4. Novavax Inc (NASDAQ:NVAX)
5. Twist Bioscience Corp (NASDAQ:TWST)

Are biotech stocks right for you?

Investing in a biotech company is a high-risk move. Drug development is notoriously challenging and expensive, with most drug candidates failing to get past regulators. In fact, a failure in a clinical trial can often be a death sentence. After all, most pre-commercialisation biotech stocks rely on external financing, which isn’t easy to raise when promoting a failing product.

But, this sector has a lot to offer investors despite its high-risk nature. And an easy solution to reducing risk exposure is to only invest in the firms that already have a product on the market with a sizeable revenue stream that can help fund future developments. 

Having said that, even the largest biotech shares can still be volatile, especially when bad results emerge from ongoing clinical trials. Therefore, the biotech sector is not suitable for everyone. And taking a diversified approach is, as always, a prudent strategy when investing in biotech stocks.

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essensys provides software-as-a-service (SaaS) platforms and cloud services to the flexible workplace industry. And it said that revenues rose 2% in the 12 months to July 2021 at constant exchange rates, to £22.4m. It noted that adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to be in line with market estimates.

Recurring revenues at essensys represented 87% of total revenues in fiscal 2021, it said. That’s up fractionally from 86% in the prior financial period. Sales continue to “grow strongly” in the company’s US marketplace too. And in the last financial year, turnover there came in at £12.2m, up around 20% from a year earlier. The UK share finished the year with 474 live Connect customer sites, up 13% year-on-year.

essensys said that it was “pleased” with its performance in financial 2021 “given the continued challenging environment relating to the global pandemic.” It said that this demonstrated the “continued resilience of the business and the relevance and value of its software and technology to an expanding group of customers globally”.

Another UK share making headlines!

The PureTech Health (LSE: PRTC) share price has also hardly moved after it released fresh trading numbers of its own. At 335p per share, it was just 0.5% higher from Monday’s close, meaning it remains 24% higher on a 12-month basis.

This UK pharma and biotech share develops medicines for what it calls the ‘Brain, Immune and Gut’ (otherwise known as ‘BIG’) axis. And it said that it swung to a net loss of $75.4m in the first half of 2021. This compares with the $124m profit it carved out in the same period last year.

PureTech Health was hit by a sharp rise in costs versus the corresponding 2020 period. It was also struck by a big sales fall as revenues dropped 15% year-on-year in the first half, to $5.8m.

Gains on investments held at fair value, meanwhile, plummeted to $74.4m between January and June. That’s down from $276.9m in the first half of 2020.

On the bright side…

In better news PureTech Health said that it should have enough cash to finance its activities into the first quarter of 2025. It had cash and cash equivalents of $439.8m on its balance sheet as of June.

Chief executive Daphne Zohar described the first half as “another strong period” for the UK share with “exciting clinical progress across both our Wholly Owned Pipeline and our Founded Entities.” She noted that work across the company’s Wholly Owned Programs had grown rapidly and that it now has six therapeutic candidates in development.

Why is the stock surging? And should I add this company to my growth portfolio? Let’s take a look.

FTSE small-cap: a biotech stock with hidden potential

PureTech Health (LSE:PRTC) discovers, develops, and commercialises new treatments for diseases that affect the brain, immune system and gut.

A common problem with young biotech companies is finding the necessary funding to develop new medicines. After all, the process is long and expensive, with a high chance of failing to deliver a viable product. But this FTSE small-cap stock has found an intriguing solution.

The business comprises two pipelines. The first is called Wholly Owned, which, as the name suggests, develops new drugs entirely owned by PureTech. The second pipeline is where things get interesting, in my opinion.

It’s called Founded Entities and is essentially a portfolio of nine independent businesses of which PureTech is a major stakeholder. What’s more, some of these businesses, such as Karuna Therapeutics, are actually listed on the stock exchange themselves. So, whenever PureTech needs to raise additional capital to fund its own drug development, it can sell some of its shares.

Combining both pipelines, PureTech has 23 product candidates in its portfolio, 14 of which are already in clinical trial phases, with another two on the market today.

Drug development is risky

The biotech stock has an extensive portfolio of products in its pipelines. And while most have either entered or are entering clinical trial phases, there’s a considerable level of risk to consider.

Firstly, none of the drugs in its Wholly Owned pipeline have been FDA approved as they are mostly in phase 1 trials. And given that the typical drug development cycle lasts around 10 years, it could be some time before any of these products yield tangible returns. And that’s assuming they don’t fail along the way.

Today, the firm generates all of its profits from Founded Entities through stock sales and royalty income on two FDA-approved medicines. The remaining products are once again at various clinical trials stages, although there are two in their final phases.

The highly regulated nature of the drug development industry protects the health of patients. But it also makes it incredibly difficult to release new treatments. Even if a new medicine is approved, there’s still the chance that it won’t be economically viable. For example, PureTech’s new drugs may not be covered by health insurance policies or government health authorities.

The bottom line

This FTSE small-cap biotech stock undoubtedly has a significant level of risk attached to it, especially since the business is currently structured more like a holding company, as opposed to a regular biotech stock.

But over the long term, PureTech looks like a solid business in my eyes. It has a vast portfolio of potential products and is set to continue receiving royalties from treatments designed and developed by other firms. This is one biotech stock I’d add to my growth portfolio.

PureTech’s share price has suffered a knock during the Covid-19 slump. But with many investors rushing for safety these days, I do think the stock market crash has thrown up some nice small-cap growth stock buys. PureTech looks like one to me.

PureTech describes itself as “a clinical-stage biotherapeutics company dedicated to discovering, developing and commercialising highly differentiated medicines for devastating diseases, including intractable cancers, lymphatic and gastrointestinal diseases, central nervous system disorders and inflammatory and immunological diseases.”

My attention was caught this morning by the company’s plans to list on NASDAQ, the US growth stock and technology market. The firm intends to retain its London listing too, and its PRTC ticker will remain unchanged. The new launch is not for cash-raising purposes, which encourages me. The announcement said: “In light of the company’s strong cash position, the US listing will not include the issuance or offering of any shares of the Company.“

Tricky to value

Valuation is hard to determine, as PureTech is the kind of growth stock that doesn’t have any profits yet. But it does seem to be well funded through its past equity issues. At 30 June, the company had a cash position of $310.5m. And it raised an additional $101m from the sale of shares in NASDAQ-listed Karuna Therapeutics in August.

The new listing should bring it to the attention of American investors, and I reckon that could give it a boost. The immediate effect is likely to be short term. But I think PureTech Health has definite long-term growth potential.

Another growth stock buy?

I confess, I picked out my second FTSE 250 growth stock candidate for today by typing the PureTech ticker wrong. I hit on Playtech (LSE: PTEC) by mistake, but it’s also a company I’m bullish on. PlayTech provides software for both financial trading and gaming, and first-half results released in September looked good to me.

My Motley Fool colleague Kirsteen Mackay has examined the figures, so I won’t go over all that again. But I do agree with her take: “Its cutting-edge gambling software is gaining ground, and with the gaming sector booming like never before, I think it’s well placed to cash in on this.”

The Covid-19 lockdown did hurt PlayTech, and its share price took a seriously big tumble in the early days. But it’s recovering well and currently stands just 6% down so far in 2020.

Analysts predict an earnings crash of more than 50% for the full year. But even with that, we’re looking at a P/E of 19. If 2021 forecasts for a return to growth come good, that would drop to under 14. I reckon that’s a bargain price for PlayTech’s growth stock potential.

PureTech shares climbed 20% at one point Tuesday, after the share price of Karuna Therapeutics multiplied more than five-fold overnight on the back of a positive clinal trial result. Karuna’s KarXT treatment for schizophrenia is in phase II trials and has reported above-average results, and that’s expected to help clear the way for regulatory approval.

PureTech shares responded with their own gain because the company owns 31.6% of Karuna. PureTech’s holding in Karuna is now worth around $580m, up from $130m last week. To me, it doesn’t look as if the PureTech rise fully incorporates the jump in Karuna’s valuation.

Not to be missed?

Analysts appear to agree, and have been wasting no time in reaffirming their buy ratings on the stock – with Liberum Capital and Peel Hunt among those getting in on the bullish optimism.

According to the perfect markets theory, it’s impossible to get ahead of the market because all new information is instantly available to all players and is immediately factored into share prices. In the wider sense, the theory ignores all sorts of factors that drive share prices, but in this case there could well be a short-term anomaly that hasn’t worked its way through yet.

In the short term, we’ll have to see what happens to the PureTech share price over the next few days, but looking at the bigger picture it seems possible that this could be the breakthrough that puts PureTech on the road to profit – current forecasts for further losses make it otherwise very difficult to value.

Safe cash

If I ever did invest in a blue-sky biotech prospect, it would only be a small amount of cash and it would be alongside a bigger investment in an established pharmaceuticals company like GlaxoSmithKline (LSE: GSK) – to sort of balance the overall risk of investing in the medical field.

Glaxo, in fact, is one of those perpetual Buy stocks that I’ve always seen as a great long-term investment, but I’ve never actually got round to picking up any shares.

Over the past five years I’ve missed a fairly modest 24% gain as the company has really only just started back on the road to earnings growth after having to invest heavily to rebuild its drug development pipeline. But that’s still around twice the performance of the FTSE 100, and Glaxo has been paying annual dividends yielding more than 5% for the period.

Still cheap?

Though the share price has appreciated strongly over the past two years, I still reckon we’re looking at very good value with forward price-to-earnings multiples of around 14 being pretty much bang on the Footsie’s long-term average.

Under the leadership of current chief executive Emma Walmsley, the company is well on its way to transforming itself with a long-term plan to separate its pharmaceuticals and consumer businesses, and I think that’s a sound way forward.

To be fair, there’s not much to choose between Glaxo and FTSE 100 rival AstraZeneca, but I think either should provide great long-term rewards.

Expected Losses

Puretech finds potential treatments and provides support for getting them from the lab through clinical trials and ultimately to patients. Funding is initially small, around $300,000 on average, and increases as effectiveness and practicality hurdles are overcome. Each intellectual property is housed in its own business, with its own incentivised management team, and technology is quite different. Puretech keeps its eggs in different baskets.

Investments, therefore, make up 69% of total assets, and a cash pile of $149.2 million stands ready either to support the existing affiliate companies or to found a new one around the next promising treatment. Puretech holds varying equity stakes in the affiliates because they can raise funds independently, often through forming partnerships with other pharmaceutical businesses.

In effect Puretech has a portfolio of shares and its value increases as the company’s potential treatments move along a path from clinical trial success to regulatory approval to sales for patient use. Puretech is also entitled to royalty payments from affiliates and may potentially receive dividends.

Two monoclonal antibodies are being developed internally for treatment of solid tumours, along with an oral drug delivery method that harnesses the lymphatic system and avoids the liver. The later project has attracted collaborations with Roche and Boehringer-Ingelheim, with all in the pre-clinical trial stage at present.

The promise in the pipeline

A little over $4 million in revenue was recorded for the half-year ending on June 2019, against an operating loss of over $70 million, yet in April 2019 Puretech shares started to climb from 163 pence to hit an all-time high of 292 pence four months later. The reason was that Plenity — for which Puretech is entitled to royalties as a percentage of sales — was approved for use for overweight US patients in April 2019, with sales expected next year.

That is one successful investment. Another was the sale of an undesired project to Bose, for a $4 million gain in 2019, and further potential catalysts for share price appreciation are in the pipeline. Akili, an affiliate, has a patented treatment for attention-deficit/hyperactivity disorder in the approval process, with applications for other cognitive and neurological disorders in the later stages of clinical trials. Other affiliates have treatments for Parkinson’s disease, alopecia, psychosis, allergies and cancer all making towards approved status.

I have measured an average decline in revenues of about 50% by the third year after patent expiry. Puretech will enjoy protected affiliate revenues, and therefore royalties for up to 20 years, on any treatments brought to market.

The chairman of the board was recently removed after some improprieties regarding donations to the MIT Media Lab, which he directed. He was not involved in the day-to-day running of the business, and an experienced interim replacement has been found with a former CEO of Sanofi. The share price has recently moved from 272 pence to 286p, as investors shrugged this off, and with the pipeline potential, I think the odds are in their favour.

However, one industry which seems to offer upbeat growth potential for the long run is healthcare. It could benefit from an ageing world population, as well as a larger number of people on this planet in future years. With that in mind, these two companies could be worth buying today for the long term.

Future potential

Reporting on Tuesday was advanced clinical-stage biopharmaceuticals company PureTech (LSE: PRTC). The company released a positive trading statement that sent its share price around 5% higher. It seems to be making good progress with its strategy, with positive clinical results from two pivotal stage affiliates that are now filing for FDA approval. This is expected to take place in the first half of the current financial year.

In the 2017 financial year, progress was made across the company’s advanced pipeline of seven clinical and seven pre-clinical programmes focused on the crosstalk and biological processes associated with the brain-immune-gut (BIG) axis. And with the recent IPO of its affiliate, resTORbio, having progressed as planned, the prospects for the company’s financial performance appear to be positive.

Certainly, PureTech is a relatively risky investment opportunity. It remains lossmaking and this situation could continue over the medium term. However, with the company having made strong progress with its pipeline, it could prove to be a highly rewarding stock for the long term. As such, it may be of interest to less risk-averse investors.

Resilient growth

Also offering the prospect of capital growth within the healthcare industry is Smith & Nephew (LSE: SN). It offers a relatively diverse business model which has historically proven to be resilient. It has delivered more consistent growth than the boom/bust cycle of the pharmaceuticals industry, and this could mean that it is worthy of a higher valuation.

Looking ahead, the company is expected to report a rise in earnings of 4% in the current year, followed by additional growth of 7% next year. This shows that its strategy appears to be working well, and this could prompt a rapidly-rising dividend over the medium term.

In fact, Smith & Nephew is expected to increase dividends per share by around 14% in the next financial year. Although this puts the stock on a forward dividend yield of just 2.5%, dividend payments are due to be covered 2.4 times by profit.

With the stock being relatively mature, this suggests that there could be a fast-paced rise in shareholder payouts over the coming years. This would be unlikely to hurt its financial standing, with its cash flow and balance sheet strength indicating that it has the capacity to deliver sustained growth in the long term.

Keep it Pure 

PureTech’s shares are up almost 3% today after it published its half-yearly report to 30 June, which showed a combination of rising revenues but bigger losses. That’s not unusual in the famously risky biopharma sector, as the group advances more than 20 late and mid-stage clinical programmes and pre-clinical products.

Today it reported significant progress across its pipeline and said it expects to pass a number of key milestones over the next 12 months. The London-listed, Boston-based firm, which has a market cap of £322m, posted a pre-tax loss of $67.2m, up 40% on last year’s $44.5m loss. Most of this went on research and development, which is exactly how a company like this should be spending its money.

Tech boom

Revenue jumped an impressive 92% year-on-year even though its operations do not yet generate consistent product revenues, as is customary with pre-commercial biopharma companies. These revenues related primarily to passing milestones on collaborations with third parties. PureTech expects to earn future revenues from growth stage programmes under both existing and new license and collaboration agreements, which may include non-refundable license fees. 

PureTech is now sitting on cash and equivalents of $247.5m, a drop of 12% on the $281.5m over the year. Chief operating officer Stephen Muniz said this leaves the group well-positioned to fund the upcoming clinical trials and ongoing pre-clinical development.

Bought the pharm

If you want a risky turnaround play, this is it. You are gambling on the company’s success in generating more revenue than it spends on R&D. Its valuation and earnings per share forecasts can give you no indication either. The pipeline looks rich, with PureTech well-positioned to deliver novel medicines and drive major value for shareholders. It remains a punt, but biopharma usually is.

With a far larger market cap of £2.24bn, FTSE 250 power generation specialist Aggreko (LSE: AGK) should be easier to assess. Its share price trades a whopping 65% lower than five years ago, as it has felt the heat from the oil and gas industry downturn and Latin American slowdown.

Heat is on

Earlier this month it posted a healthy 16% rise in first-half group revenue to £792m, excluding exceptional items, but this was disappointingly flat after excluding fuel and currency fluctuations. A 10% drop in profit before tax and exceptional items to £63m was a further blow, although an 84% leap in operating cash flow to £184m partly made up for that.

Chief executive Chris Weston reckons Aggreko is making good progress in boosting its product offering and reducing its cost base, with £100m of cash savings targeted. However, the turnaround has some way to go. Earnings per share are forecast to fall 8% in 2017 for what will be the fifth successive annual drop, but there is light at the end of the tunnel with City analysts suggesting a 12% rise in 2018.

Growth hope

Trading at 13.9 times earnings with a PEG of -1, there is value in this stock. The current yield of 3.3% will keep you warm while you wait for Aggreko to power on again.

Shares in N Brown Group (LSE: BWNG) have lost 65% of their value since their peak in February 2014, and a look at the firm’s declining earnings per share since 2012 makes that look like a reasonable market reaction — or does it?

While EPS has fallen by 17% over that time, the much bigger share price fall has dropped the P/E to only around nine, and forecasts suggest the earnings fall is bottoming out. So what’s behind it all?

N Brown is a home shopping retailer, operating a number of brands including JD Williams, Jacamo and Simply Be — essentially catalogue shopping, and targeted mainly at women aged 30 and above. Catalogue shopping is declining in popularity as folk switch more to the internet to buy their fashionable rags — why settle for one photo in a heavy (and quickly out of date) paper book when you can see multiple views together with video footage?

But the company is increasingly moving towards online retailing too. It’s just been a bit tardy doing so, but it clearly already has the warehousing and distribution systems in place. 

Results for 2016 are due on 27 April, and N Brown’s January trading statement looked good to me, showing a 4.1% rise in third-quarter revenue, with 77% of new customer demand generated online. Chief executive Angela Spindler told us that “All key brands and categories grew in the period“, after some had declined in the first half.

The dividend has been maintained through the tough patch, and forecasts suggest a steady yield of around 6.7%. Even being pessimistic, that leaves room for a cut while still providing a good payout.

At today’s 209p share price, I’m seeing a bargain.

Blue sky

My second choice, PureTech Health (LSE: PRTC), is a very different prospect, and it’s not for those who don’t like a bit of risk. In short, it’s a biopharmaceutical research firm that is not making any profits yet, and is not expected to do so in the next couple of years. So we can forget all the usual fundamental measures like earnings, dividends and ratios, as they’re all negative, zero or “n/a”.

But the company has just announced a licensing and equity agreement with US giant Novartis, “to initially focus on aging-related disorders“. And a Phase 2b clinical study of something that sounds very clever to me is expected to start in 2017 — it will target “diseases related to immunosenescence, an age-related decline in immune function“, they say.

We’ve also seen a steady stream of positive results from various other trials coming through in recent months, in cooperation with a number of other pharmaceuticals firms including Pfizer. In fact, at the interim stage, PureTech spoke of a pipeline of more than 20 clinical studies in progress.

And although the company recorded an adjusted loss of $26.92m, it was sitting on consolidated cash reserves of $297.4m. During the first half of 2016, the group raised $83m, with $50m coming from Vedanta Biosciences and a further $30 million from Akili — so there appears to be plenty of serious outside interest here.

Full-year results should be with us on 6 April, and the financials are likely to take a back seat to news on pipeline progress. At this stage, I’m really starting to think PureTech is looking like an attractive, if very uncertain, investment.