Your request DB relates to clinical development undertaken by...

Your request DB relates to clinical development undertaken by small biotechs in general so I will respond in that context

The further along the clinical development pipeline a potential new drug can be taken successfully in-house the more it is de-risked, and consequently the higher is its fundamental value. The contributory benefits that then can be negotiated with a potential partner increase accordingly.

For small Australian biotechs generally it is only financially practical to consider in-house funding as far as Phase 1 and possibly early Phase 2 without partnering. Financial and other resources associated with later trial stages (possibly ca $100M) and eventual manufacture and commercialisation if successful are clearly beyond the scope of a small company.

The alternative is to allow the preclinical results to provide evidence for the likelihood of eventual clinical success and to then seek a partner to support clinical development going forward, which is Cellmid’s stated current approach.

Either alternative would involve shareholder value dilution.

(1) Funding the early clinical development in-house would require capital raising(s) (several $M). Result – dilution of the value of each current holding. (My reading is that the financials of the healthcare and midkine businesses are not intended to overlap); or

(2) A partner purchases a share of potential future earnings currently owned by shareholders. This could take the form of a contractual agreement for part ownership of the relevant program or part ownership of the company itself via issue of shares. Result either way – dilution of the value of each current holding. The more de-risked the development stage the lower should be the dilution effect.

The balance between the pros and cons I think lies with this last point. The further the clinical development process can be taken in-house successfully the more powerful the Company’s partnering negotiations position becomes, to the benefit of shareholders. Of course during this in-house process the Company bears the risk of lack of success until it becomes shared with a partner.

One advantage of the in-house approach relates to timing. Since patent coverage is time dependent there is an obvious benefit in clinical development beginning as soon as possible. Potential partners would be conscious of this through due diligence, and the Company’s negotiating strengths would decline with delays. Obviously it would be advantageous to be pro-active with the partnering option.

T7