2015 An exciting year ahead!

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Column 1 0 Bionomics BNO - 2015 An exciting year ahead! Current Price - $0.50 Target Price $1.20 Bionomics is a fully integrated biotechnology company that own proprietary drug discovery technology platforms that have been validated by successful licence transactions with global pharmaceutical companies. Bionomics’ diversified drug candidate portfolio sets its self apart from the majority of Australian listed biotech companies with a drug pipeline focused on Oncology (Cancer), The Central Nervous System (Pain & Cognitive impairment) and Immune Disease Therapeutics. Bionomics recently completed a $503 million transaction with Merck for their Alzheimer’s drug BNC375, cementing the largest commercial transaction ever achieved by an Australia biotechnology company for a single line drug. The deal included a $20 million upfront fee, raising the companies cash levels to $39 million, leaving Bionomics well funded for the next few years. We believe additional near term milestone payments in the range of $30 to $50 million could potentially be received late this year as a function of the progression of a phase 1 trial. Despite the large transaction size and market leading position of the partner, this deal did not result in a sustained lift in the share price and we believe in this partnership alone there is substantial value not reflected currently in the share price. In March last year, the company released results from its pivotal Phase II Renal Cancer trial. The trial was conducted using Bionomics’ BNC105 drug candidate in combination the current gold standard treatment Afinitor (made by Novartis). Median Progression Free Survival (PFS) data for all patients achieved underwhelming yet meaningful results, with a 15% increase in progression free survival vs Afinitor alone. On that basis the trial did not meet its primary endpoint for the entire population and the market incorrectly interpreted the results as a failure with the share price falling from 75c to a low of 37c. The company continued to analyse the results post-trial and recent additional data shows some exciting findings. Through the use of blood biomarkers, Bionomics have shown that certain patients using BNC105 & Afinitor in combination have a Progression Free Survival rate at 6 months of 89%. Progression free survival is measured as the time length in which there is no growth in the size of the tumour. In oncology terms a 89% PFS is very significant. Approximately 20% of patients with Renal Cell Carcinoma show these ‘baseline’ blood biomarkers. Personalised medicine is the identification predictive biomarkers which are used to select patients who would benefit the most from a particular treatment. Big Pharma and Governments that fund expensive treatments are becoming increasingly interested in personalised medicine as it promises to be a cheaper and more effective way of treating diseases on a limited budget. Afinitor is currently the gold standard for Renal Cancer but its Progression Free Survival rate after six months is only 30% when not used as a combination therapy (i.e. with BNC 105). If Novartis can utilise the biomarker indications discovered in the Bionomics trial it will achieve higher patient outcomes, extend the effective patent life for Afinitor (expiring in 2019) while potentially allowing them to charge more for the combination treatment. This gives Novartis a compelling reason to licence BNC105. A new trial using the recently discovered blood biomarkers is currently being designed by Bionomics and we expect it will be funded by a global pharmaceutical company. In our view a re-rating will come from the market’s realization that the new trial, using biomarkers, will likely achieve a successful result and thus a licensing deal. Although the previous BNC105 trial did not meet its primary end point, Deborah Rathjen (CEO) believes that the biomarker data makes the drug more valuable to Big Pharma than it was before the original trial. Prior to the trial Baker Young expected that a BNC 105 licence transaction could be as large as $700m making any upcoming deal extremely lucrative to a company that has a market capitalisation of $200m. In addition to BNC105, the company has a diverse portfolio of drugs in the pipeline at varying stages of development. Management have highlighted that they are in late stage discussions with a number of large pharmaceutical companies. BNC420, a pre-clinical cancer drug and Kv1.3, an auto immune compound are subject to potential licensing this year. BNC210 (anti-anxiety) and BNC101 (cancer stem cells) both have trials occurring this year and will be heavily sought after by global pharmaceutical companies if these are successful. In the longer term we feel this stock has substantial upside and is one of the best plays in the Australian biotech sector given its diverse drug candidates and history of closing deals with large pharmaceutical companies. The reality is that almost all the drugs in Bionomics pipeline are potential blockbusters, meaning they could have revenue of over a billion dollars p.a. Therefore any successful drug would be enough to increase Bionomics valuation by many multiples of the current valuation.

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