Thoughts for the day. The market has struggled to value biotechs...

Thoughts for the day. The market has struggled to value biotechs and more importantly RAC.

Why is this?

Generally speaking two valuation hurdles, the science and commercial success.

Understanding this is an immense task unless you put in the hours of DD. This is not the common theme for investors or instos. Majority what it handed on a platter for them to check.

The practical issue?

What is the IP of RAC worth. We can only calculate an NPV if we know all the inputs. Total addressable market and total obtainable market, and then apply risk adjustment for likelihood of success.

AML is perhaps priced in and the main catalyst for SP movement since June 2020 (Sheba 1.0). But Cardio protect and FTO do not have any existing classes or sales data that can be used, nor KOL adoption rates. Thus anyone would be using a ‘best guess’ method. Not really appropriate if you are a fund manager.

In short, there has been no defined opportunity for cardio protect and FTO other than billions. This is speculative and just hear say. The planned reviews being undertaken IMO will help define and substantiate the potential opportunity.

Why things may change in 2023?

Recognising this the RAC team is preparing (1) Cardio protect primary market research which will put numbers to it, and (2) FTO 100+ program that will define the utility of Zantrene as an FTO inhibitor.

Using Phil analogue of a house. It is comparable to buying a house site unseen v. Grand tour!

How does this help?

Once the total obtainable market is defined then is a simple calculation for commercial risk which the biotech market is familiar with. My observation is that it will still be on the conservative side until a commercial deal is on paper. I give NEU as an example.

So I think the delays of this to date have been justified as firstly you need to understand the science and application (with data rather than speculation) and getting market analyst to define the opportunity with input from KOL. Not something that could of been done a year or two ago without data IMO.

If we know the size of the mine, resource and demand (I.e. sales potential) then the market generally takes care of the rest.

As such looking out for the following:

1. Cardio protect, primary research analysis.
2. Cardio protect, drug combo review panel.
3. FTO 100+ pan-tumour program.

It will be interesting how the above is conveyed to the market. Watch this space!

DYOR not advice.