Compared to other early stage biotech projects, 3E10 project definitely has a compelling and favourable risk/reward profile because
1) the antibody has been researched, analysed, tested over 25 years with a group of ingenious experts involved, and to a large extent its pharmacology, toxicology, safety has already been proved. Thanks to the solid research foundation, the risks associated with new drug development have actually been greatly lowered
2) the newly crafted variant PAB-DX1 could eventually become a big winner and even a game changer in the highly competitive anti-cancer field
3) Yale and its talented research team has been tightly integrated into the project of 3E10 development and commercialisation
4) Well qualified management team skilled in early stage products development, industry resources integration, stock and capital management are a very important critical success factor
5) Scientific Advisory Board has been established to guide the Company through the whole process of the pre-clinical study and clinical trials, which provides a kind of double assurance of success
However, when it comes to the SP and cash flow, there are concerns as follows:
1) According to the information about the agreement between Patrys and Nucleus Therapeutics, there would be three potential tranches, with each tranche being settled in Patrys shares based on the volume weighted average price (VWAP) of Patrys shares for the 7 days prior to the completion of a milestone. Also, based on the number of shares on issue (ie, around 697 mil shares at the time of the announcement), and successful completion of a range of milestones that trigger the issue of Patrys shares to satisfy tranche payments, the vendors, including Yale University, will ultimately own approximately 14.36% of Patrys’ issued capital (equivalent to around 100 mil shares).
Frankly speaking, such an arrangement looks quite contradictory and confusing. The vendors, including Yale University, play a paramountly important role on the project so their interests should be well protected. But, but, such a protection seems to need a very low SP (equal or less than 0.7c) prior to the remaining two milestones to ensure Nucleus holders can ultimately own 100 mil shares. Since 14.36% is a kind of promise to Nucleus, why not just grant them options at a fixed price (say, 0.7c, or determined by the VWAP at the time of agreement)? Had this been the case, there should have been no conflict of interest and both PAB holders and Nucleus holders would have been very happy to see the SP rise.
2) Management are now "working diligently to maximize other non-dilutive capital inflows including insurance recoveries". But the real financial challenge will come when the project enters clinical trial phase I & II. It is a well-known fact that clinical trials are not only time-consuming but also cost-intensive. If everything goes smoothly and IND is approved in 2nd half year of 2018, the optimistic estimate for then cash reserve is around 1 mil, plus a few small amounts of non-dilutive inbound cash flow, may not be sufficient enough to afford the trials. At that time, fundraising through institutional placement or the share market might be a must and the only option.
3) Nevertheless, given the foreseeable super low SP in the next 18 months (at least), it wouldn't be worth the effort to raise money through CR. In view of the current cash burn rate, if capital bottleneck can't be proactively resolved, the holders' confidence in the prospect of the project would be affected and the Company may soon run out of cash and put itself in a tight corner.
Hope to see the next positive finance update soon.
PAB Price at posting:
0.6¢ Sentiment: Buy Disclosure: Held
(20min delay)