From ther report Always exciting science, now it’s becoming...

From ther report

Always exciting science, now it’s becoming commercially
relevant.
Investment case
After a decade of development PYC are now close to entering preclinical trials
for an in house oncology drug that aims to target and inhibit “Myc”, a gene
which when over active is seen as a “driver” of most human cancers. The prize
should this program ultimately be successful is huge. We see the progression
of PYC’s Myc inhibition (iMyc) oncology program to the preclinical phase of
development as a key inflection point for PYC. We believe that towards the
back end of the preclinical period, if the in vivo efficacy and toxicology data is
positive, it could be catalyst for a potential partnership deal with Pharma Co that
could underpin multiples of the current share price.
We initiate coverage on PYC with a Spec BUY recommendation and a price
target of $0.075/sh.
It has been a long slow road but we are coming to the pointy end
PYC has been a listed entity for more than 10 years and has from a science
perspective made considerable advances in both identifying promising new
drugs and improving drug delivery to the inside of a cell. Over the journey
~$100m has been sunk into PYC’s platform and the company has formed
partnerships with the likes of Roche, AstraZeneca, Pfizer and Johnson &
Johnson. While the company has been able to achieve funding to pursue
particular drug programs they have not been far enough down the development
path to attract material Pharma Co dollars. Taking the iMyc program into and
then through preclinical trials is a paradigm shift in our view.
The potential of PYC’s in house oncology program is massive
If you are talking about potentially impacting 7 out of 10 human cancers the
market for a successful drug is huge. Despite the inherent risks of bringing a new
drug to market, due to the size of the prize we see PYC as being in a position to
attract Pharma Co interest at multiples of PYC’s current valuation well before
commercialisation. Namely we see this being an option the company could
explore after key hurdles are met during preclinical trial period (late CY’18). We
see a partnership with Pharma Co for an upfront payment of US$50-150m plus
back end payments of US$200-400m+ as being achievable upon success. PYC
listed peers who have managed similar licensing deals at or during the preclinical
phase trade at valuations of A$400m+ vs PYC’s current A$64m market
capitalisation. We think this is a good risk/reward proposition.
More than a one hit wonder
PYC’s drug discovery platform could yield significant value beyond the iMyc
program. PYC’s core asset is their propriety ownership of a Phylomer® peptide
library which comprises of billions of biologically active molecules. PYC have
refined a technique to actively and efficiently screen this database for potential
new drug targets and intracellular drug delivery candidates. PYC currently has
programs in place targeting other cancer targets (aside from Myc), antibiotic
resistant bacteria and genetic diseases with various Pharma Co and academic
partners. These programs are early stage but demonstrate PYC’s long term
potential and underpin a baseline value proposition in our view.

Valuation
We value PYC at $0.075/sh with a Spec BUY rating.
Due to the early stage nature of the iMyc program we choose to value PYC
based on a risk weighted potential outcome of a license deal with Pharma Co
post successful preclinical trials.