Allergy Therapeutics plc (AGY) — Investment Research Note

Executive summary

Allergy Therapeutics is a UK-based specialty biotech selling subcutaneous allergen immunotherapies (SCIT) across nine European countries, with its largest market in Germany and a high-conviction pipeline focused on Grass MATA MPL / Grassmuno® (approved December 2025) and VLP Peanut (Phase I/IIa). The headline trajectory across the period covered is operationally bumpy and financially extreme: revenue has hovered around £55–60m, the company has been continuously loss-making, capital structure has been refinanced repeatedly (£40.75m equity rescue in October 2023, Hayfin facilities scaled to £63.1m drawn by February 2026, plus 1.375bn warrant-driven share issuance), and shares have been suspended twice for late accounts. The single most important valuation question is whether the Grassmuno launch can ramp revenue meaningfully past £75–100m before the SONIA+9.5% Hayfin debt becomes a covenant problem, and whether VLP Peanut delivers a Phase IIb that justifies the current £500m market cap. 2026-03-31 interims; 2025-12-11 prelims

Fair value estimate

Fair value range: 5p – 10p per share → implied market cap £317m – £633m (on 6.33bn shares).

• Methodology: blended EV/sales multiple on a peak-revenue case, cross-checked against risk-adjusted pipeline NPV. The current commercial business at ~£70–80m post-Grassmuno run-rate revenue, valued at 3–5x EV/sales (typical specialty pharma with ~60% gross margin and a launching SCIT franchise) = £210–400m EV. Subtract net debt of ~£53m (post-period £63.1m Hayfin minus ~£10m cash) and pension liability ~£8m = £150–340m equity, or 2.4p–5.4p per share. Layer on pipeline optionality (VLP Peanut Phase I/IIa biomarker data supportive, but Phase IIb/III still to fund and US registration adds G307 trial) of £150–300m risk-adjusted = total £300–640m equity, or ~5p–10p.
• Comparison to current £500.3m market cap at 7.9p: the share price sits roughly at the midpoint of my fair value range.
• Absolute upside/downside: midpoint ~7.5p vs. 7.9p price = ~5% downside to fair-value midpoint, but a wide range with material downside (-37%) and upside (+27%) scenarios. View: fair.

Sector context

ICB Health Care is correct. Quality / growth profile is below typical specialty pharma peers: persistently loss-making (£40m FY25 loss; £20m H1 FY26 loss), heavy debt at >14% all-in coupon, repeated dilutive financing rounds, history of late accounts and a trading suspension (January 2024 and June 2023). Listed peers for context: HAL Allergy (private), Stallergenes Greer (private), ALK-Abelló (Copenhagen — the closest comparator: profitable, ~10x larger revenue, fortress balance sheet). AGY's profile is far weaker than ALK-Abelló on quality and balance sheet.

Investment thesis (3 bullets)

1. Grassmuno launches into a market clear-out: German PEI approved Grassmuno® in December 2025 — the first SCIT grass immunotherapy approved under TAV, just as competitor unregistered products are forced off the market in 2026. AGY is positioned to capture meaningful share in its largest market with a launched, registered short-course product. 2026-01-19 trading update; 2026-03-31 interims
2. VLP Peanut has differentiated potential: PROTECT Phase I/IIa met its primary safety endpoint at 2000x dose escalation with consistent immunomodulating biomarker response — a short-course injectable peanut therapy in an $8bn worldwide market currently served by chronic-dosing oral or monoclonal options. 2026-03-31 interims; 2025-12-11 prelims
3. Capital structure cleaned up post-period and balance sheet rebuilt: Warrant exercises in October 2025 converted £55m of shareholder debt to equity, and the February 2026 £40m Hayfin top-up gives ~£42m cash at end-February 2026 with no near-term repayment if HK listing completes by Dec 2026. Twelve-month going concern signed off. 2026-03-31 interims

Key risks (3 bullets)

1. Hayfin debt at SONIA+9.5% is expensive and covenanted: £63.1m outstanding post-period; covenants on minimum liquidity and quarterly gross sales targets. A weak FY26 Grassmuno ramp could trigger the cure mechanism — and if shareholders don't fund the cure, the loan becomes repayable on demand. 2025-12-11 prelims, Note 16; 2026-03-31 interims
2. Dilution risk remains acute: share count went from 679m (June 2023) to 6.33bn (mid-2026) — a ~9x increase. The £50m Renewed Shareholder Facility plus future capital raises (Hong Kong listing being explored) imply further dilution is the funding mechanism of choice. 2025-12-11 prelims; 2026-03-31 interims
3. Binary R&D outcomes with no monetisation backstop: VLP Peanut still needs Phase IIb funding, US registration requires a fresh G307 trial, and G308 paediatric readout doesn't arrive until Q4 2026. Pipeline failure or delay sharply impairs the equity bull case. 2024-07-22 trading update; 2026-03-31 interims

Operating leverage

The fixed-cost share of AGY's cost base is significant but not overwhelming. Gross margin sits at ~59–61% (61% H1 FY25, 59% H1 FY26 — fell on inflation/mix), indicating ~40% variable COGS. Sales/marketing/distribution costs (£19.2m FY25) and admin (£19.1m FY25) plus the R&D fixed envelope of £15.4m are largely fixed — implying that of the £58.7m FY25 total admin/distribution/R&D cost base, perhaps 80%+ is fixed. Incremental Grassmuno revenue should therefore drop at close to gross margin (60%) to contribution. A 10–20% revenue beat over current £75m run-rate (i.e. £7.5–15m extra revenue) would plausibly add £4.5–9m to operating profit — meaningful against an adjusted EBITDA loss of £9m. But this leverage is undermined by (a) the variable interest expense on £63m of Hayfin debt at SONIA+9.5% (£8–10m p.a. of finance cost), and (b) continuing strategic investment in R&D and pre-launch marketing that absorbs operational gains. Net: moderate operating leverage (50–60 on the 0–100 scale), genuine but constrained by debt service. 2025-12-11 prelims; 2026-03-31 interims

Value-trap signals

• Repeated trading suspensions for late accounts (January 2024 and January 2023) — governance/audit red flag.
• Persistent dilution as funding mechanism: 9x share count increase since 2023; warrants at 4p strike vs current 7.9p.
• Going concern qualifications repeatedly cited (FY23, H1 FY24).
• Adjusted EBITDA worsening despite strategic narrative: -£7.6m FY24 → -£9.0m FY25.
• High-cost debt (SONIA+9.5% = ~14% all-in) — a sign that conventional debt markets were not open.
• Hong Kong listing exploration is mechanically tied to debt repayment dates — feels like a financing necessity rather than a strategic choice.
• Net liabilities at FY25 year-end of -£28m before the warrant conversion restored equity to +£4m.

Earnings vs. expectations

The filings don't disclose detailed analyst consensus but track record vs. management's own guidance is mixed-to-negative. FY24 trading update (July 2024) promised "slight" sales growth in H2 — delivered. FY25 trading update (July 2025) promised broadly flat revenue and growth in H2 FY25 — delivered (£55.0m vs. £55.2m). The H1 FY26 update (Jan 2026) and interim (Mar 2026) showed 7% reported growth — modest beat against the prior FY25 guidance. However, the company has missed the bigger picture: operating losses have widened, debt has spiralled, and accounts have been delayed twice with shares suspended. Pattern: meets short-term revenue guidance, misses long-term strategic/balance-sheet expectations.

Conviction

Conviction: 2 (low).

• Anchors: I have audited FY25 prelims and H1 FY26 interims with consistent revenue series; commercial run-rate is well-disclosed; the Hayfin debt structure is fully laid out.
• Limits: Fair value is dominated by binary pipeline outcomes (Grassmuno ramp, VLP Peanut Phase IIb/III, G308 paediatric readout) that are not yet observable in numbers; the warrant/dilution accounting is non-trivial and could affect ownership materially again; SONIA-linked finance costs and HK listing optionality create wide outcome dispersion. A different methodology (option-style risk-adjusted NPV on the pipeline alone) could produce a substantially different number.

Driver scoring

For this investor (AI-receiver, operating leverage, valuation discipline, downside protection), AGY is a poor structural fit. No AI exposure, weak balance sheet, dilution history, and pipeline-binary outcomes outweigh the Grassmuno commercial story.