DYOR. Analysis is highly-speculative. The analysis assumes RACE are successful in their strategy to prove up value of Bisantrene/Zantrene in terms of clinical safety and efficacy for a range of cancer targets.
Do your own research and analysis.
Seek independent professional advice and make your own investing decisions.
Do your own research on the safety and efficacy of Bisantrene.
Do your own research on clinical risk.
Do your own research on previous M&A transactions.
What is RACE's goal? - what will could drive the value inflection point for shareholders? - Listen to from approx 38:54 in this video
So there's a question here, obviously the one on everybody lips - so when are we looking to have a discussion with big pharma can you just talk your timing around that please Phil.
Yeah sure yeah it's a question we hear very often I think people are excited about what that means.
My answer is simply that the better our data and the more data we have that will guide the quality of a discussion with Pharmas so we will start a a program we'll start it likely later in this year.
But that campaign if I may call it that to market our company should be concentrated should be focused and should be deliberate and so when we started it will be exactly that a little bit like selling your house you don't want to sell your house over 12 months you need to do it on a concentrated basis and we'll do so later in the year.
RACE are focused on generating the preclinical and clinical data over the next 12-24 months that is necessary to achieve a buyout transaction and maximise transaction value for shareholders.
A Big or a Large Pharma could approach RACE for a Buyout or Partnership at any time. As occurred for Synthorx.
The Synthorx transaction occurred 16 months before the Phase 1 trial reported results.
Summary of some other key points from my research
Potential probability of success is driven by the historic track-record of Bisantrene
The focus of Big Pharma M&A Spend is most certainly on cancer
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RACE are focused on the market (cancer) where Big Pharma spend most of their money on M&A.
RACE is approaching the sweet spot for a buyout transaction to occur
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85% of buyout transactions occur before Phase 3
RACE are focused on generating the preclinical and clinical data over the next 12-24 months that is necessary to achieve a buyout transaction and maximise transaction value for shareholders
Cancer drug buyout multiples are typically around 5x peak revenues
A partnership could occur at any time.
This could also be a stepping-stone to a future buyout.
More on these below.
RACE have a strategy focused on sale of Bisantrene/Zantrene to Big Pharma. Their approach to this is to use low cost proof of concept trials and preclinical programs to generate the data to prove that Bisantrene/Zantrene has immense potential for Big Pharma.
Using peer analysis techniques I have analysed previous buyout transactions to determine their value, determine their revenue potential and determine value per share of each transaction in equivalent terms. My analysis allows for additional dilution of the capital structure including all outstanding options as well as a buffer of an additional approx 8.5M shares.
To show the immense potential of Bisantrene I have mapped other drug transactions into each of RACE's 3 Pilars.
The smallest opportunity AML has a value based on peer transaction of USD $4.9B, the larger pipelines have a potential value of USD $21B based on peer transactions.
1. https://www.gilead.com/news-and-press/press-room/press-releases/2020/3/gilead-to-acquire-forty-seven-for-49-billion
2. https://www.investors.com/news/technology/biotech-company-gilead-buy-forty-seven-ftsv-stock-soars/
3. https://www.fiercebiotech.com/special-report/immunomedics-top-10-takeover-targets-biopharma
4. https://www.cancer.org/cancer/breast-cancer/understanding-a-breast-cancer-diagnosis/types-of-breast-cancer/triple-negative.html
5. RACE Oncology AGM 2020 (see RACE youtube channel)
6. https://www.reuters.com/article/us-loxo-oncology-m-a-lilly-idUSKCN1P10YZ
7. https://www.fiercepharma.com/marketing/array-s-colorectal-cancer-data-shows-why-pfizer-splashed-11b-for-biotech
8. https://xconomy.com/national/2015/03/05/abbvie-snaps-up-pharmacyclics-pays-whopping-21b-for-cancer-drug/
9. https://endpts.com/gsk-bags-tesaro-for-5b-as-it-leaps-into-commercial-oncology-and-beefs-up-cancer-drug-pipeline/
Potential per share value of a partnership using a median of transactions for peer drugs is $17 per share or a total partnership value of USD $2.24B.
1. https://www.gilead.com/news-and-pre...-acquire-tizona-therapeutics-for-$300-million
2. https://www.biopharma-reporter.com/Article/2020/02/25/GSK-signs-partnership-deal-with-Immatics
3. https://www.biospace.com/article/su...ion-agreement-to-advance-immunotherapy-agent/
4. https://www.gilead.com/news-and-pre...nse-agreement-for-novel-immunotherapy-program
5. https://pharmaphorum.com/news/merck-cuts-1bn-deal-with-janux-for-cancer-t-cell-therapies/
6. https://www.prnewswire.com/news-rel...or-targeting-the-ilt2-receptor-301206200.html
7. https://www.fiercebiotech.com/biotech/accent-astrazeneca-take-aim-at-rna-modifiers-55m-cancer-pact
8. https://ir.cytomx.com/news-releases...-therapeutics-and-astellas-announce-strategic
9. http://ir.blueprintmedicines.com/ne...-announces-global-collaboration-roche-develop
10. https://www.gilead.com/news-and-pre...ialize-next-generation-cancer-immunotherapies
11. https://ir.genmab.com/news-releases...-abbvie-announce-broad-oncology-collaboration
12. https://www.businesswire.com/news/h...nnounce-Two-Strategic-Oncology-Collaborations
13. https://www.fiercebiotech.com/partn...al-to-buy-into-juno-s-pipeline-of-car-t-drugs
14. https://www.fiercebiotech.com/biotech/celgene-confirms-9bn-juno-buyout-sees-3bn-sales-for-jcar017
15. https://www.amgen.com/newsroom/pres...ash-with-future-contingent-milestone-payments
Using peer analysis for revenues I have used a discounted cashflow technique to calculate a risked valuation for Bisantrene at USD $12.9B. This equates to $99 per share as a risked value of a potential buyout transaction.
I've used aggressive risk factors to tune down input revenues to the analysis (to make the analysis more conservative). To avoid double-counting risk I've used a low discount rate or 3% to 4% as this recognises the favourable bond financing rates that big pharma can achieve in the bond market ( see this J&J finance deal ).
Remembering the below timeline ... it is all about the data that will be generated by the preclinical activities and proof of concept clinical programs. It's this data that RACE will start shopping to Big/Large Pharma from the end of 2022.
For the moment at least RACE have a "below the radar" approach, waiting for the earlier activities to generate modern clinical data (recognising Bisantrene was originally developed in the 1980s). They won't start "shopping" bisantrene/zantrene until they have this data. We can expect that data will also be a trigger for RACE to make their programmes more widely known to smart money overseas biotech investors.
We will start to see readouts or progress updates for the open label proof of concept trials as they progress over the next 6 months, with other news flow driven by preclinical programs ( first news anticipated in the next few months ).
With the above timeline in mind associated with RACE proving up value through data I have mapped peer transactions and other analysis onto the FA chart below.
- Firstly the channel on the log chart. This shows the progressive rerate that is occurring as RACE achieve successes. The initial channel I defined was stepper (on earlier versions of this chart), however the price has been in a slow consolidation phase, battling to move above prior resistance - however with the news flow driven by the activities in the timeline above I think RACE will soon push back above all-time high at $4.23.
- Some key FA events on the chart in mid 2020 are the result of the Israel trial last year and the surprise news from independent research that Bisantrene is a very potent inhibitor of the FTO protein ( which is critical for formation of many sub-types of cancer ). This new research shows Bisantrene has significant potential well beyond AML where it's strength was historically.
- I've highlighted that Dr Tillett elected to exercise is 9.9c options around 6 months early (significant as he identified this was for tax planning purposes in the relevant Appendix 2A announcement ). This is significant in the context of potential CGT burden if an M&A transaction occurs ( as noted RACE intend to start shopping Bisantrene/Zantrene at the end of this calendar year ).
- The chart shows where a 12-month CGT window sits relative to the current day of trading as at 13 August 2021 (keeping in mind that RACE strategy is focused on M&A).
- I've added the following peer-based valuations as indicators to the chart:
- $17 per share as target per share value of a partnership (based on USD $2.2B)
- $19 per share as an indicative value of an early Phase 1 transaction (based on USD $2.5B)
- $37 per share as peer value of an AML drug buyout transaction (based on USD $4.9B)
- $61 per share as bottom-end value for a "blockbuster" cancer drug (based on USD $8.0B)
- $99 per share based on risked valuation using discounted cashflow (based on risked post-tax NPV USD $12.9B)
- $160 per share based on peer value of a large "blockbuster" cancer drug (based on USD $21.0B)
Ultimately value in a transaction will depend on any offers RACE receive and any offers that the shareholders accept. The above numbers summarise my thoughts on various value points. This of course will depend on and be impacted by dilution of the share registry (hence I have used fully-diluted registry with a buffer of approx 8.5M shares).
At this point RACE have a cash balance of around AUD $9M and a potential ~ $30M expected from options conversions over the next 10 months ( subject to $4.50 hurdle being achieved ).
(20min delay)