Assessment of the financial position of Imugen
EXECUTIVE SUMMARY
This report is focused on assessing the financial position of Imugene. It is a biopharmaceutical company in Australia that is focused on developing new ways of identifying and removing cancerous cells from the body. To achieve this, the company has significantly invested in acquiring properties, plant and equipment for its operations. On the same note, it has invested heavily in research and development. In the area of research, it is seeking new discoveries in products and services that can aid identification and removal of cancer cells from the body. On the side of development, it is improving existing products and services within its sector. Its operations are rooted in the mission of providing better living for the society. Part of the financial analysis shows that it has a market capitalization of $994,295,614 and ranked 13th in the sector. It is also operating in the fastest growing market within its sector. Projections for the sector is 7.32$ CAGR from 2019 to 2027 and it is a significant growth for a sector that is presently valued in billions of dollars. While maintaining corporate governance that is convergent with best practices, the financial position indicate that it is not presently a viable investment option because it has not reported any revenue or profit, nor paid any dividend to investors.
INTRODUCTION
This report seeks to analyse the financial position of
Imugene, a biopharmaceutical company in Australia that is focused on developing
new methods for identifying and removing cancer cells from the body. The
analysis starts with industry and business descriptions, followed by a review
of its corporate governance structure. Furthermore, the capital structure
practices, and capital expenditure and investment practices are analysed,
together with analysis of the company’s distribution policy. The analysis will
breakdown each component and critically review it in relation to the company’s
latest annual report. Where necessary, references are made to their competitors
within the same sector. Finally, the report concludes with a summary of
findings. Essentially, the overall purpose of this report is to provide
investors with a critical review of the company’s present financial position,
one that will guide their investment decisions.
INDUSTRY AND BUSINESS DESCRIPTION
Industry
background
Biopharmaceuticals are among the most elegant and
sophisticated achievements of modern science. The complex, huge structures of
these drugs do not just look amazing in the 3-D modelling systems that are used
to design them; as they also perform exceptionally well, offering few side
effects and higher efficacy (McKinsey & Company,
2014). This why the industry is continually growing.
Figure 1: biopharmaceutical industry analysis
Source: Mordor Intelligence
(2022).
The figure one shows that is the fastest growing
marketing in the industry and this presents significant opportunities for
Imugene. Furthermore, the compound annual growth from 2019-2027 is 7.32% (Mordor Intelligence, 2022), a significant value for
the multi-billion industry.
Firm’s
description and core business
Imugene is a clinical stage immune-oncology company
that is developing a wide range of new treatments that can be used to activate
the immune systems of cancer patients in order to identify and eradicate
tumours (Imugene, 2022a). It has a market
capitalization of $994,295,614 and ranked 13th in the sector (Market Index, 2022).
Company’s
business model
Its business model is founded on its mission of
developing transformative cancer medicine that can improve the lives of
patients and establish value and trust with the stakeholders (Imugene, 2022d). The model is one of continuous
research and discovery, offering opportunities for scientists to express
themselves and develop new treatments for different illnesses.
Key
risks and opportunities
The main challenge in the industry relates to
patenting and trademarking of products and services. This is because different
government policies regulate such actions across different regions of the world
and it increases chances of company losing out to imitators in economies where
their patents and trademarks are not established. On the same note, there are
operational and technological challenges as some of the machines are relatively
new while existing ones require advancements, all at exorbitant costs. However,
being in a market considered the fastest growing in the sector, Imugene has the
opportunity of establishing a solid brand that can be recognized across the
globe. Additionally, it has a significantly high market capitalization and
funding, which it can use to pursue new discoveries as pioneer for products and
services that are needed, but not yet available, in the market.
CORPORATE GOVERNANCE STATS
Corporate
governance practices
The board is structured to accommodate executive and
non-executive directors, and a minimum of three directors. Members of the board
are listed in the company’s annual report. The independence of the members of
the board is determined as being free from any interest, relationship or
association that is capable of yielding material influence, or that can
reasonably be viewed as being capable of yielding material influence, the
capacity of the direct to independently exercise their judgment on issues
before the board, and act in the best interest of the company and its
shareholders. Thus, non-executive member of the board as viewed as independent
when they are directors that are not members of the senior management in the
company and not a substantial security holder in the company. The independence
of each of the board members are reviewed on an annual basis, based on the
indicia set out in their regulatory system. The annual report states whether a
non-executive member is independent or not, and the reason for making such
statement.
Compensation
practices and potential agency concerns
The corporate governance statement has it that a
discloser or any other person that have suffered a detriment as a result of the
company’s failure to take reasonable precaution and exercise due diligence to
prevent the detrimental conduct could be entitled to compensation other legal
remedies through the court. However, such person will have to seek independent
legal advice as the company does not and will not provide such.
Board
remuneration and audit fee
The remuneration is overseen by the remuneration and
nomination committee, appointed by the board from the members of the directors
of the company, and they shall consist of not less than three members with at
least one director being an independent non-executive director. The maximum
term for such appointment is three years (Imugene,
2022c). They are charged with overseeing the remuneration of the boards,
increasing or decreasing based on the actual performance of the company. The
elements include fixed remuneration, STI rewards, and LTI rewards. Overall, the
remuneration and compensations for the board increased from $2.45 million in
2020 to $2.88 million in 2021. Additionally, auditor’s fee increased from
$67,000.00 in 2020 to $79,090.00 in 2021 (Imugene,
2022b).
Divergence
from best practices of corporate governance.
PWC (2020) laid down the key practices in corporate governance
and measuring that against the provisions made by Imugene, it is stated that
the company’s activities does converge with best practices of corporate
governance. This is because disclosures are made in their right forms and as
necessary. Where no disclosures are made, the company also provides reasons for
such and ways analysts can mitigate such loopholes.
CAPITAL STRUCTURE PRACTICES
Financing
sources and changing patterns of financing
Over the years, majority of the company’s operations
have been financed through equity. As Banton (2022)
pointed out, equity financing is the process of raising capital by selling a
company’s shares. Companies raise money because they might have the need to pay
bills on short-term or a long term goal which require funds to be invested
towards their growth. Through the sale of shares, a company is effectively
selling its ownership to the shareholders in return for their cash. The annual
report shows that this has been the main source of funding for the company, but
a declining trend is also noticeable as proceeds from the issuance of shared
decreased from $24.6 million in 2020 to $18.05 million in 2021 (Imugene, 2022b). This decline is accompanied by a
change in the pattern of financing as 2021 was the first time the company
recorded proceeds from borrowings in its financial book, standing at
$144,000.00 (Imugene, 2022b). Therefore, it
could be stated that the company is shifting from selling its shares to
sourcing for other means of funding their business activities. This is
understandable as the sale of shares does undermine overall control and
ownership of the company, which can affect its defined objectives.
Historical
analysis of leverage
The company minimizes risks by investing surplus funds
in the financial institutions that maintain a high credit rating and this has
been its strategy over the years. On the same note, they invest in subsidiaries
with the intention that they can leverage their overall performance with
returns being made by the said subsidiaries. However, it is imperative to point
out that their annual report does not contain any detailed breakdown of either
the surplus invested or the returns made from such investments (Banton, 2022). Therefore, it is difficult to determine
or analyse the historical data relating to how the company leverages risks of
its operations.
The
effect of leverage on accounting and market performance
Considering that there exist no details analysis of the
amount of money the company has invested, where it invested it or the returns
being made from such investments, it is difficult to determine the effect of
their investments on accounting and market performance. This could lead to the
conclusion that “risks are not being properly leveraged against in the
company”, and the implication is that it poses a shadow of doubt about the
long-term sustainability of the company. It does seem that they are existing
for the moment and have no clear plan as to what can be done or should be done
when it faces funding risks.
CAPITAL EXPENDITURE / INVESTMENT
PRACTICES
Historical
analysis of capital expenditure
Historical data show that the company’s capital
expenditure is focused on acquiring property, plant and equipment. This is
detailed in their historical costs and depreciation, which include expenditure
that is directly attributed to the acquisition of the items. Secondly, the
company spends so much on research and development activities, which are
undertaken with the prospect of obtaining new scientific or technical knowledge
and understanding, and it considers the consolidated statement of profit and
loss and other comprehensive income as expenses when incurred (Imugene, 2022b). For development activities,
expenditure come in the form of application of research findings or other
knowledge to a specific plan or design for the production of new or sustainably
improved products or services prior to the start of commercial usage or production,
and it is capitalized in cases where it is probable that such product or
service can technically and commercially be attained, capable of generating
probable economic benefits, adequate resources are available for its completion
and the costs can be reliably measured.
Changing
the nature of investment (tangible vs. intangible assets)
The nature of the company’s investment is still that
of advancing scientific discoveries and improving existing products and
services through research and development. They continue to invest significant
amount of their funding towards this direction. Additionally, there are visible
investments in tangible assets like property, land and equipment, but the
intangible assets (discoveries) still take higher proportion of their
investments. Over the years, this has not changed, a reflection of little or no
changes evidenced in all aspects of the company’s operations. Therefore, it is
expected that this trend could continue for some visible years into the future
(Imugene, 2022b).
Investment
efficiency and the performance effect of investment
The efficiency of their investments and impact on
performance is also visible in their annual report. For instance, the asset
value of their property, plant and equipment increased from $155,624.00 in 2020
to $466,045.00 in 2021 (Imugene, 2022b). On the
same note, the intangible assets (representing discovery from research and
development) increased in value from $30.5 million in 2020 to $34.9 million in
2021. Therefore, it can be stated that the investments being made by the
company are yielding positive influence on their overall performance as it
continues to increase the asset value of the company. In any case, further
discoveries could enhance the value of the company and return “much needed”
funds for the investors, enticing the shareholders to contribute more funds
towards the company’s growth and advancement of set corporate goals.
DISTRIBUTION PRACTICE – 400
Historical
analysis if dividend policy
The financial statement for 2021 reveal that no
dividends were declared or paid to the members for the year ended 30 June 2021.
This is because the directors did not recommend that a dividend be paid in
respect to the financial year under consideration. The historical records show
that the company’s earnings have remained negative since inception because of
the nature of their business. The wealth of shareholders is a reflection of the
volatile and speculative market the company maintains presence in. Therefore,
since inception, the company has never declared, nor paid dividends as it
continues to focus on research and development of its intellectual property
portfolio with the central aim of attaining vital growth and commercial
milestones in order to advance shareholders value. Generally, the effect or no
dividend or poor dividend pay-out is that it decreases the intention of
existing investors to pump more money into the company, while discouraging
potential investors from joining the company (Boyte-White,
2021),
Types
of dividends and evolving trends
The only type of dividend employed by the company is
cash-based, where ordinary shares entitles the holders to participate in
dividends, and to share the proceeds of winding up the company in proportion to
the number of shares they hold and the amount of money they paid to purchase
such shares. This is understandable as the company does not currently pay any
cash dividends, and its stream of dividends can only increase following full
servicing of the cash dividends.
Announcement
effect
As pointed out by Boyte-White
(2021), when a company pays no cash dividends or reduces the amount of
cash dividends it pays, the value of its stock price drops in reflection to the
amount dividend scenario. Additionally, paying dividends as stocks, instead of
cash, can dilute earnings and this can have negative impact on the share price
in the short-term. Therefore, announcement of dividends have direct impact on
the value of the company and its share price. The absence of dividend
announcement is visible in the company’s stock price as the value of its shares
has decreased from $0.4000 in inception to $0.1700 (Imugene, 2022a)
as at the time of filing this report. Therefore, it is expected that the
company’s stock value can only increase following positive announcement of dividend
pay-outs for shareholders. This will also be a source of encouragement for
investors to pump more funds towards advancing the company’s goals and
attaining new targets.
CONCLUSION
This report presented the financial standings of
Imuegene, a new biopharmaceutical company in Australia that is focused on
developed new ways of identifying and removing cancer cells. Findings indicate
that the company, as at the time of filing this report in 2021, does not have
any revenue or profit and does not pay any dividend to the investors. It is
presently focused on making new discoveries and advancing products and services
in the sector. Majority of its expenditures are toward acquiring plants,
properties and equipment for its operations as well as in areas of research and
development. When it has surplus funding, it shifts it in the form of
investment to financial institutions with proven positive credit ratings. While
the financial elements of the company shows that it is presently not
sustainable, it must be pointed out that its market capitalization has
continued to increase over the years. Presently, it has a market capitalization
of $994,295,614 and ranked 13th in the sector by capitalization (Market Index, 2022). Its share price has decline from
$0.4000 from initial listing to $0.1700 at the time of filing this report, and
this is its all-time lowest. Therefore, it does present positive opportunity
for optimistic investors willing to take the risk.
REFERENCES
Imugene (2022b). “Imugene Limited Annual Report: 2021”. Imugene Limited. https://static1.squarespace.com/static/5b63d41b3e2d09b1f56bf483/t/615be8fec824823f47e96967/1633413409172/02430755.pdf
McKinsey
& Company (2014). “Rapid growth in
biopharma: Challenges and opportunities”. McKinsey & Company. https://www.mckinsey.com/industries/life-sciences/our-insights/rapid-growth-in-biopharma
Mordor
Intelligence (2022). ”Biopharmaceuticals Market - Growth, Trends, Covid-19
Impact, and Forecasts (2022 - 2027)”. Mordor Intelligence. https://www.mordorintelligence.com/industry-reports/global-biopharmaceuticals-market-industry
Market Index (2022). “Imugene Ltd (IMU)”. Market Index. https://www.marketindex.com.au/asx/imu
Imugene (2022c). “Imugene Limited: Corporate Governance Charters and Policies 2021”.
Imugene Limited. https://static1.squarespace.com/static/5b63d41b3e2d09b1f56bf483/t/615279cf1ffbfc49dc6f52a9/1632795090678/IMU+Corporate+Governance+Charters+and+Policies+2021.pdf
Imugene (2022d). “Mission and Values”. Imugene Limited. https://www.imugene.com/mission-and-values
PWC (2020, January 17). “The eight key effective corporate governance
practices”. PWC Ireland. https://www.pwc.ie/services/human-resource-services/insights/the-eight-key-effective-corporate-governance-practices.html
Boyte-White,
C. (2021, September 29). “How
Dividends Affect Stock Prices”. Investopedia. https://www.investopedia.com/articles/investing/091015/how-dividends-affect-stock-prices.asp#:~:text=After%20a%20stock%20goes%20ex,prices%20in%20the%20short%20term.
Banton, C. (2022, February 20). “Equity Financing”. Investopedia. https://www.investopedia.com/terms/e/equityfinancing.asp
Imugene
(2022a, May 20). “Home Page”. Imugene
Official Website. https://www.imugene.com/
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