Huts, Good question, I had been formulating an answer to this question since about a week ago, have finally had some time to finish it off...here is my answer...
ecently scientists discovered one of the biggest black holes they have ever seen, dubbed J0529-4351 ...it is so big that it weighs about 17 billion times our sun....and between you and me, our sun isn't a light weight.
I don't want to waste too much of your time but one point...
Black Holes have so much gravity that they suck entire planets in....so strong is their gravity that even light itself cannot escape...BUT did you know that according to Einstein himself, even time gets sucked and warped! See Appendix A for a bit more on this if you are at all interested. I'll keep it to a short Mozz story in Appendix A, don't worry.
J0529-4351 is the brightest thing in the sky....so bright they thought it as a star.Relevance to you and me? While we do potentially have a funding issue, I personally don't think of it as an all consuming black hole.......yet! Read on for more of what I think about our options and why I don't think we will necessarily be sucked into a black hole of dilution...absorbing our hard earned dollars and as Einstein postulated about Black Holes... warping and eating our time too!
Please now enjoy.
INTROI'm starting to get a lot of questions about funding.
People are saying to me Mozz, we know the science works. Mate, we love the drug...really we do...we want this drug to be so prolific that people will think
Ozempic is a backyard amateur operation compared to us.
While I'm not getting squirmish yet... I know there are options we can employ to help us at this juncture. Sure it's always better to have these kinda pathways available to us when we have more cash on the books and can deal with an air of strength in terms of funds available...but tonight I leave the sci aside for a sec and I present to you my thoughts...as always, be nice...debate them and formulate your own opinions.
So where did we come from....yes we just did a raise but as our blessed share price is so low, you don't get as much bang for ya buck when you do a raise...then we ended up having a couple of hefty quarters and all of a sudden we are down to 33 mil in the bank. Quarters, one could argue, that we had to have...
Remember this guy? Paul Keating famous for the line "It's the recession we had to have".Why was our Quarterly burn so high? Well close off on the trials....There were a lot of patients that went through.
Take a look at the underlined above. We are getting clues here. The spend was big yes...but look 006 is also now done...this will be empirical evidence that iPPS is safe even in an extension environment... more clues again towards the bottom of that paragraph. We need proper close out to be able to utilise the observations for the FDA discussions in terms of what minimal effective dosing we can have going forward and the revised clinical trial protocols. This is critical.
Like you, I dont like burning up cash...I want to preserve our current outstanding share count...I want more bang for me buck....BUT it should
never be at the cost of our numero uno Global Harmonised OA Trial that will one day give us a licence to sell the most important and possibly one of the most efficacious natural based drugs on the planet (my thoughts).
So rather than cry over spilt milk, let's look forward and see why I'm not totally panicking...yet!
AVENUESOk let's tackle it via various avenues we may have...
PLAN A - DEBTLook, not a lot of people love debt...but it can be such a good tool at times....I mean as a simple example look at how one can afford to use debt leverage as a way of purchasing a house:
The thrill of a house purchase!1) Buy a $700,000 house now, pay for it via a $150,000 deposit, borrow the rest
2) Wait for err.... like 20...maybe 25 years..it should go to around $2.8 million ...call it 2 million if you want to be conservative (*)
3) Now remember back to step 1...we had borrowed the rest ...well that rest was $700 k - $150K = $550 K....plus lets add in another $50 K for expenses etc. So my debt back then was 600K....fast-forward 20 years and lets say Im a bit of a slacker and I just maintained my repayments....and I still have a debt of $600 K (**)
Mate! Me point here is that now I have a house that's worth 2 big ones (err Millions) and my debt is still 600K....2,000,000 subtract 600,000 is a whopping $1.4 mill! Sure I need to pay some tax on this...but the point is, I have leverage working for me (Not advice here!)
(*) The longitudinal average for property prices is around 6% over a 140 year history (see reference 9) though I have seen other reports where it is a fraction more..let's take the 6% in this example...That's a double every 12 years...so in 24 years , I get myself two doubles. Of course past results may not be a reflection of what's to come!
(**) Not quite true, if you were a bit of a slacker and just paid the min, you would actually reduce your principal to $331,000 but again, Im conservative and lets say I paid a bit below me minimums (shh - dont tell my dad, he wouldn't be happy I'm paying bare minimums)...and I still have that debt of $600 K... This means my value of the property has hit a conservative $2M but my remaining debt is 'just' $600 K...leaving me an ample $1.4 Mil. yes I do have to have some degree of patience...but hello, you are a PAR holder...patience is your middle name, right???
We'll cover more on acceleration and % increases later...just wait till you see my go-to example and its not theoretical, it actually happened!
After 20 years of payments how much principal would you have left?10 See red box in graphic above.Well my point here is that despite me being a slacker and not having paid ANY principal (debt) back...my assets and thus equity, has grown substantially! From virtually no where I now have real equity of 2 mil minus my original debt, 550.. thanks to leverage. It's often called 'Good debt'.
Mozz, lovely example...what has this to do with PAR?
Well what I'm inferring is that we can take on some debt to get us out of a short term 'pickle' (ok, 'need') and then pay it back when we can. A lot don't like debt as I say...but this is good debt, it's an expense..its claimable...
Yes we may need to pay a higher rate as there perhaps isn't (well for the moment) strong collateral....but this is a feasible option!
PLAN B - ROYALTY FUNDINGLess this...
No no no not this sorta royalty funding......more this...
For small companies trying to crack the world stage, this plan offers a heap of merits....we finally want to keep our IP...we want to keep control and we certainly don't want further dilution! It allows for the company's vision and long term potential to stay intact. So how does this work?
Well there can be a number of variations but generally it is the financing by some third party to give us immediate liquidity, or liquidity that can be drawn down when we need it. In return, we structure a payback system via the expected future royalty. It could be tiered and usually it will be capped at some x figure being a multiple of the initial funding amount.
This plan should always be compared to the cost of debt financing (see Plan A above). One shouldn't be giving too much of the potential upside, striking a balance here will be important.
Commercialisation is the key here and that also helps the royalty funder to gain a degree of implicit securitisation. If they see that the prospects of future revenue are real, they are more likely to take on the venture.
The good news here is that there are a number of parties that specialise in this sort of arrangement.
Indeed the mining industry has been using royalty type funding for years...(see reference 4 for more on this).
PLAN C - CORNER STONEOk this one gets a bit cute...imagine a pharma, mid sized or otherwise likes what they see...
They like the 2B data...they like what we have done with 008....and hopefully they will like what the FDA has to say....there are interesting pathways that are possible, things we haven't considered such as a Pharma wanting to take a step closer without full commitment?
This could be done by securing an agreement with Par and in exchange for some decent funding to see us through till licensing they hold us by proposing a 'First Right of refusal'.
This means that while we are free to entertain any offers from any corner of the world, we must allow the chosen Pharma/funder to trump the deal before we commit and sign any contracts.
Not impossible that this could occur, it allows for the potential Pharma to get a chance to negotiate with us and also does still allow us to partake in a little auction style bidding.
WHERE ARE WE AT?Look I'm not going to say I wasn't surprised with the last Quarter spend..I was o'seas and it was hard to follow in-between sightseeing, time differences and me phone going a bit nutty...but I also understand that these are not frivolous expenses, they are close out costs, they are done now and they also do go at least some way towards our future. The FDA won't allow us to proceed further until they are closed off. We need a clean slate, yes true it was costly and like any good medicine, had to be swallowed...we are now, in my opinion, at a very very pivotal point.
We are in the midst of FDA feedback...we hopefully will finally get some certainty on the plan going forward, when we know that, when its crystal clear....then we can sort out where we are and if any of the above are actually viable.
What will we get from the Authority?
1) Well we will know what we need to go forward
2) We will know if the 2x2 dose is acceptable, we suspect this is right up on the peak of efficacy Bell Curve, I can't see there being a problem, yes Im touching my desk made of wood as I type this.
3) We can better understand the costs involved and thus budget for this.
4) We will have a sense of final timing...we have cleared our P2...we just have the P3 to go...and do we have a few of the clinical sites ready? Well Par recently announced their expansion...yes, we are ready to boom.
I concur, its critical we get funding for the full P3...we will need that to begin in my view. However, once the final timeline is set...we are off to the races...we have already had a look through in terms of data and as I have said before, getting SS on such low
n WHILE STILL MAINTAINING the decorum of immaculate safety and showing DM rocked it.
The beautiful part was that we showed this Disease Modification not in one area but....
WET BIOMARKERS
and STRUCTURAL markers!
Those readouts from 008 were quite simply..........profound. The agency, no matter how finicky we think they are, will sit up and look at that very carefully. One must remember that finally the FDA are on our side. They too will get accolades for bringing a safe drug, new to the OA scene, to the market successfully while finally putting up a viable drug candidate to arrest the scourge of Opioids out there.
Yes we will still have to do a full P3...but I'm quietly confident that the pathway forward may not be as onerous as some think. (My spec views there).
PRECEDENCE?Mozz, I love your theories..we could get Plan A...Maybe we might have Option C....but really...isn't that all just in theory, possible only on paper? Are we really a chance?
Plans in theory? Has anyone ever done this?
Well in a word...yes.....there are companies that have done this sorta of thing in the past....I mean funding....
True, there are NO companies that are doing exactly what we are purporting to do:
Have a safe efficacious drug that's non addictive that materially reduces PAIN and improves FUNCTION in the inflammatory space and can result in some of those crazy as$ed inflammatory reduction as seen visibly on MRIs...AND it also does what? Increase cartilage?
Hellooooo, who knows that? How many scientists...how many investors...how many fund managers..how many high net worth individuals...how many Doctors know this?? As a quick aside, I hear from a lovely friend of mine, she tells me of Physiotherapists she has been visiting recently and she tells them about iPPS and what it can do...the shocked look on their face that she articulates to me...the rush to look up who is IPPS and what is Paul Rennie is simply priceless. (hmm did I get that mixed up?). These are the reverberations thats soon to come (my view).
Sorry, did I just get side tracked yet again going back over the miracle like data that is going to turn the world's heads in just a couple of years from now?????
Ok back to finance and the precedence examples...these aren't made up case examples...this actually happened!
EXAMPLE 1 - Clearside Bio
Back in Aug 2022 Clearside announced an agreement with HealthCare Royalty Partners, worth how much? $65 million. Sweet
The money was required for the furthering of clinical trials. Clearside was to receive an initial payment of $32.5 M. $12.5 Mil would be paid into an escrow account and would be held until Clearside reached a predetermined sales milestone.
After a further sales milestone, an additional $20 mil milestone would then be delivered estimated to be sometime in 2024.
What was the exchange? HealthCare Royalty would get back some 2.5 times the total price HealthCare paid under the agreement with the cap allowed to be raised in certain conditions.
WIN WIN?
Sounds like it to me.
EXAMPLE 2
In the same year as Example 1 above a company known as Opthea teamed up with Carlyle to provide some $170 million USD of non dilutive financing. This was broken up into two tranches, a $120 M commitment and a further option for an additional $50 M.
Don't forget, this example 2 isn't for company in the USA..or even Europe...its on home turf! Yep, OPT is Aussie listed. OPT developing a therapy to treat progressive retinal diseases.
So what then was in it for Carlyle? If the drug, OPT-302 was approved in a major market, Carlyle would pocket fixed success payments as well as variable success payments to the tune of 7% on annual net sales. This was then capped at 4 x the funded amount.
Obviously the benefit for Opthea was that their own Phase three trial was now able to be fully funded and they retain the worldwide commercial rights to the said drug.In addition it was stated that:
"Financing decision driven by the potential of superior visual outcomes demonstrated in Phase 2b unlike competitors who focus on extended dosing".Yeah that's a bell ringing in my ears too....superior drug out into a market where there is actually no competition? Superior outcomes?
Par HC investor guys and girls...do we not have a superior product...is there any real competition? Are we not providing some efficacy for 88% of the population seen thus far? (Anchor-man, let's agree its 82% then...that's still a stack better than NAIDS). Out of all 11 candidates at CTS in Oarsi 2023, ALL of them were interarticular...we were THE ONLY ONES that were Sub Q and not in the joint itself.
HotCoperians reading this? We have an official FAST Track designation. We have the only DMOAD evidence the world has seen, yes
n is small...but it is significant...it forms the credible basis for more data to one day broaden the label.
And while there might be pain relievers already out there, they are the scourge of society with their many unwanted and harmful effects. Ipps Is safe. No one ever has had a serious or fatal effect.
DON'T GIVE UPYes we need cash....but no we aren't finished.Far from it...there are some genuine ways to fund us and that aren't dilutive. We have seen in a few of the examples that some good financing options can be structured that help both parties. The key here is that we have potential. Well not just
some potential but a LOT of it....A few have commented here at HC, if we were to have to issue another 300 mil shares would that really be the end of the world? I of course, like most of you do not want more shares to be issued. A genuine non dilutive here, specially at these SP levels is a must. There are options...
Well while I wouldn't like it, I agree it certainly wouldn't be the end of the world, it might mean that we need to wait longer for bigger revenue streams ...I really do think it makes a heck of a lot of sense to at least entertain the possibility of something like some debt if it really proves hard to obtain some other sort of financing.
DISADVANTAGESSo are royalty deals dilutive?
One can make an argument they aren't.
Are they equity or debt?
Well neither...check out reference 14. The borrower's equity stake doesn't change while PAR's control is intact.
But I also agree that the disadvantage is that we do have to give away some revenue...if the deal is structured well, then it will be capped at a max and this will keep us in control and not have to give away too much.
If a company has solid margins and an increasing revenue base, the royalty deal shouldn't be too much of a problem in terms of pay back and not dent the revenue and thus profit lines. A small adjustment in pricing could have a very big impact if volumes are eventually achieved.
I always like to look at a somewhat comparable, my go to is Humira.
Humira started out with only RA, RA is just one tenth the market size of OA...
You want acceleration?
How's this for mass acceleration....from zero sales at the very start of 2002...they were approved on Day 1 of Calendar year 2002.
Let's take a sneaky peak at their company filings at the end of the first quarter...
Single left click on the above image if its a bit hard to read.
I'll post it here:
Worldwide HUMIRA™ sales totaled $26 million, with $24 million from the United States and $2 million in international sales from patient named basis (PNB) programs. As a result of the strong prescription growth trends for HUMIRA, Abbott is raising its 2003 worldwide sales forecast for the drug from more than $150 million to more than $200 million.Their sales were $24 mil...not bad....at that stage they were only FDA approved...by the end of 2002 they got approval for Europe...then they hit the sales runway HARD.
Lets see this is a bar chart please Mr Mozz...
Ok...next year? Acceleration remember.....what could it be? 5% increase....10%? Not 15? surely...
Mate....852 Million....My pal from the East keeps reminding me that new growing Bio P. companies should be valued at PE ratios of 50 plus...I go by 20, thats plenty for me...I love to build in a bit of conservative fat.
Guys, at $850 million USD that equates to $17 BILLION USD valuation at just 20 p/e.
HELLLLLLLooooo Aussie $124.4 million PAR market cap today. Someone please do the maths and tell me what multiple are we, even with a little more dilution?
But Humira wasn't done at $852,000,000 USD after just
two years.....
(How many of us, other than Paul and definately Scott will have a decent chunk of shares as true believers AND that are really LT on this... how many that are actually determined to keep their holdings, after our lovely SP rises to $209 AUD) (17 B x 1.53 [ex rate] / 124.4 is the calc). (If you are looking at me funny now and saying Mozz, you are so far up the stratosphere with your $209 a share...I will say one sentence at this point...BRK/A. Huh? Berkshire in 1960 was under $20 per share...it is today $629,000 USD ...yes, thats per share).
Remember, I am no hero..I had a lovely parcel of PME...I bought at 9..got out at 26...just last week it hit $111...I have like 80 shares left *pout*. I am not making this mistake with PAR...PAR has forty times the potential of PME (yes, my view).
Ok final reveal...what did Humira do in the third year then?
Actually forget that...look at it in the 17th year...mate:
Three points for you to dwell on...
1) Humira's initial target market was small compared to us (!).
iPPS addresses PAIN...Pain is larger than OA and RA combined. No one is mentioning to me about Blood Pressure either. I know at least HALF of you reading this have forgotten about Heart Failure by Preserved Ejection Fraction...That's a terribly big market yeah?
2) Humira needs to be taken monthly for life...if you are on Humira you need to carry a card in your wallet in case you collapse...its Black labellered due to fatalities...iPPS is just a booster every year, in some cases no boosters required, my pal Hapell still has had no booster and it has been FIVE YEARS PLUS....NO PAIN. Yes, he is loving life. There has been NO fatalities.
3) Layered progressive revenue along with DM. Sure DM itself is a longer more costly drawn out proposition but guys, who here in the room think that Docs won't cotton on and will understand that there are real DM connotations here. If no one else, the smart patients will...you just need the tiniest, the minutest fraction/sliver of the pie and we are so done in terms of massive explosion of revenue. OFF LABEL !
Even if we have to pay 3x or 4x of the initial funds credited to us via a royalty funding, when this thing hits the market in earnest....you and I ain't going to care about 3 to 4 times what they initially forwarded and funded to us.
Well those that are still with us of course.
My thoughts
Mozz
PS: I haven't posted any major posts for 2 and a half full months, I have so much material...I'm furiously writing down thoughts for future topics....so glad to be back ...working on some nice surprises for you guys through the year...stay tuned, hopefully at least some will pan out quite nicely!
APPENDIX AEinstein's theory and forwarding of an experiment...
Rightio, this is one of my fave stories, the guys at work are sick of me telling this one...
Good ol' Albert postulated that time itself would be warped at The Event Horizon, that's the surface of a Black Hole. Sure...good One Mr Einstein...give me some evidence and I'm all yours!
Well that's what they did!
They took a nuclear clock...this crazy clock is so accurate, it loses only ONE second every 10,000 years....mate. (Mozz note, they now have Strontium clocks
13 that lose a second once every 15 billion years).
So according to Einstein, gravity plays a big impact on time....that's why he said time is totally warped at the edge of a Black Hole as the gravity is just so immense that it is silly. So back in the early 1950;s they took a nuclear clock and put one at the base of a tower and put another replica at the top of the tower where gravity is ever so less...
Paradigmers? They found a difference within a day,
This showed that indeed the effect of gravity (which is different as you go higher and away from the Earth's core) has an effect on time...showing that Einstein's theory can be seen!
APPENDIX BLayered revenue
I thought I would include this overlay with increasing prolific accelerated revenue over layered indications.
I can't vouch for your thoughts, but I see a number of official indications coming onto the label as time passes...a few years away for sure...but with a larger R&D team with a Big P later on...I can see this coming one day...
.
REFERENCES1) https://www.outsourcedpharma.com/doc/why-royalty-financing-is-a-smart-funding-alternative-for-small-life-science-companies-0001
2) https://www.ophthalmologybreakingnews.com/clearside-biomedical-enters-into-financing-agreement-with-healthcare-royalty-partners-for-up-to-$65-million
3) https://valescoind.com/news/equity-vs-royalty/#:~:text=A%20royalty%20financing%20arrangement%20is,the%20owner%20and%20future%20investors.4) https://www.nortonrosefulbright.com/en/knowledge/publications/470758f0/royalty-finance---the-new-normal
5) https://app.sharelinktechnologies.com/announcement/asx/9a5f417bbc43d26a89e6387460669e45
6) https://www.healthonomix.com/p/the-most-lucrative-drug-in-pharmaceutical
7) https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8014989/#:~:text=Originally%20approved%20by%20the%20FDA,over%20the%20last%2017%2B%20years.7.5) https://www.sec.gov/Archives/edgar/data/1800/000104746903012491/a2107920zex-99_1.htm
8) https://investors.abbvie.com/node/8581/html
9) https://matusik.com.au/2021/07/06/140-years-of-house-price-data/
10) https://www.commbank.com.au/digital/home-buying/calculator/home-loan-repayments
11) https://globalfinancialdata.com/berkshire-before-buffett#:~:text=In%20the%20late%201960s%2C%20when,were%20trading%20at%20under%20%2420.
12) https://www.wtamu.edu/~cbaird/sq/2013/06/24/does-time-go-faster-at-the-top-of-a-building-compared-to-the-bottom/
13) https://www.popularmechanics.com/science/a45827217/nuclear-clock-closer-than-we-thought/
14) https://valescoind.com/news/equity-vs-royalty/#:~:text=A%20royalty%20financing%20arrangement%20is,the%20owner%20and%20future%20investors.
(20min delay)