An opinion on the commercial prospects of RHY

I want to preface that this is my opinion formed from a little over 5 hours of research on RHY. It of course can't be complete, but I think I have covered the important areas in enough depth to reach an informed(ish) opinion.

Background
I am working my way through reviewing the long term commercial potential of all ASX listed biotech companies. My background is in molecular biology and I have worked in the biotech industry for the last 20 year. Until recently I have avoided investing in ASX biotech companies, but of late I have become more interested in this area and have even found a couple I like.

Science
While the concept of using standard off-the-shelf ELISA to identify proteins in the blood specific for bowel cancer is scientifically sound, the problem is it is not very original. As the IPO prospectus points out there are a large number of competitors in this area already.

From earlier trials the ColoSTAT test appears to be little more sensitive than the standard FIT test, let alone the more recent molecular tests on the market.

More worrying is the large scale trial of ColoSTAT (Study 5) failed. RHY blame the reagents for this failure (which may well be true), but it means they really have no good scientific support that the test will be any better than what is on the market already. The data from Study 5 appears to not have been published and none of the unpublished data was included in the prospectus. There is a very real risk at this stage that the test may not be successful went trialed on a large number of samples.

The detail on the science is very limited in the prospectus.

IP
Not much in the way of protectable IP. The problem is it is not really possible for them to protect the protein markers thanks to the way the US patent system works. The IP report in the prospectus is really one of those nothing reports that patent attorneys love to charge top dollar to tell you "who knows" so the IP competitive landscape is unknown. I suspect given the number of players in this area that there will be issues.

Market
The weaknesses in the science and IP really do not matter if the commercial potential is very strong. Unfortunately RHY faces three major commercial hurdles.

1. The test is not significantly superior to the large number of existing tests on the market.
2. An untested assumption is made that there will be significant patient demand for ColoSTAT.
3. The use of sales strategy based on being the "lowest cost" test provider in the market.

The last is the most worrying. For a small company to try and compete against the large players in the healthcare market on the basis of cost is a losing proposition right from the start. Any large competitor can simply kill RHY by dropping their prices on a case-by-case basis every time they try to acquire a new customer - basically the big boys have deeper pockets and can and will win in any price war.

I should add RHY have presented no data that they will have any competitive edge on the basis of cost so this is an assumption can't really be explored.

Funding
The amount of work required to both create and validate the ColoSTAT test to a sufficient standard to obtain regulatory approval will in my opinion require more cash than they currently have in the bank (~$5 million as of Dec. 18). A significant CR would appear to be needed in 2019 and this may be before the results of study 7 are available. Dilution could be an issue in this case.

Conclusion
I will not be investing in RHY.