Something to ponder.
I made the observation yesterday that the price trend of RAC is emulating that of APT ... both have been following a strong uptrend on the log chart.
Will RAC achieve legendary unicorn-like status in the Drug Development Biotech space in a way that parallels the stunning run of APT in the fintech space?
Log Chart for APT
Let's look at a simple log chart for APT. Other than the correction in March 2020 (from which it quickly recovered), APT has maintained consistent share price growth on the log chart for 44 months.
APT was at $3.49 in August 2017 ( the same as RAC's closing price today). APT took about 42 months (3 years 6 months) to go from $3.49 to first hit $120.
Log Chart for RAC
My projected price channel for RAC is below with expected timescales for catalysts laid out horizontally at the bottom of the chart. The time period to upper end of my estimated RAC buyout range at ~$130 is 12-18 months (versus the 42 months for APT to run from $3.49 to ballpark $120+), so about 1/3rd of the time.
(that's 1/3rd of the time if share price catalysts in terms of progress to buyout match my expectations - which does rely on precision execution of strategy/plans by RACE management)
For context my peer buyout valuations for RACE cover a price range similar to the max price achieved by APT and it was this drove my observation of the similarities in the price trend channel of the RAC and APT log charts.
For context Forty Seven transaction was for buyout of a Leukaemia drug and the Immunomedics buyout was for a Breast Cancer drug.
It's very important to understand that around 50% of oncology buyouts occur in Phase I or Phase II ... so RACE are entering the sweet spot for M&A. Many oncology M&A transactions occur midway into trials, after key outcome measures and associated readouts occur, so the
trials don’t need to be complete for a transaction to occur. The following article provides some important insights on this:
https://www.evaluate.com/vantage/articles/data-insights/ma/following-ma-money-phase-and-therapy-area
A
buyout during Phase II is essentially RACE's focus, either without or with a drug approval. Buyouts and partnerships can also occur during the preclinical phases before trials have started.
That means that for 2021 and 2022, based on RACE's announced strategy
a buyout or a partnership could occur at any time. The further RACE get in progressing trials, the greater the value they will be able to readily demonstrate to Big Pharma (and the more likely there will be a knock on the door).
A bit more on what my log chart is trying to show:
- (as explained above) timescale for trials (from slide above) mapped onto the horizontal scale. The further RACE progress the more value RACE will demonstrate to Big Pharma.
- Values of peer buyout transactions for Leukaemia (USD $4.9B) and Breast Cancer (USD $21B value) indications and where these would sit in the timescale if the price stays in the uptrend channel on the log chart. A preclinical buyout is also shown (USD $2.5). You can see that the buyout window aligns with the time period when trials for Breast Cancer and AML area expected to be reading out.
So what are some of the drivers of RACE's stunning run?
The original strategy of RACE prior to mid 2019 didn't maximise the potential of the drug. Fresh perspective from new management helped to reinvigorate the strategy and additional focus on Breast Cancer was added.
The clinical maturity and unique low risk profile of RACE has always been compelling. I explained in
this post that Bisantrene is a 1 in 260,000 drug. A drug that historically successfully transitioned through all phases of the drug development process - to the point of approval in France around 1990.
Bisantrene has done it all before (through to approval - in France in 1990, cured patients) and it will do it again.
Then in June 2020 the result of an investigator-initiated trial in Israel were released. This significantly derisked RACE since it showed that Bisantrene works in the modern clinical setting ... and in a very, very difficult to treat group of patients (each patient had relapsed from other treatments multiple times). Dosage was also only a single course of treatment (in the historic trials, patients received a consolidation course). The tumour reduction in EM AML from a single course is impressive (see below).
Less than 2 weeks later we had the stunning news that Bisantrene is a potent of inhibitor of the FTO protein. After several months of evaluation, RACE decided to establish the FTO as the strategic priority.
RACE's reasoning for the shift of focus is the new strategy pivots RACE from being a boring old cytotoxic drug to the world of precision oncology and cancer protein/checkpoint inhibitors.
Based on my extrapolation of peer peak sales data ( see
https://hotcopper.com.au/posts/51302365/single ), the change in strategy and the addition of FTO effectively doubles the potential of the drug (for simplicity, for both sets of data I have assumed EM AML indication would have been added into the set of AML indications).
The peak sales potential of Bisantrene to a Big Pharma at over USD $44B dwarfs the peak sales potential associated with any of the transactions below. The top end of peak sales for examples below ranges from USD $4.7B to USD $6B, compared with the USD $44B potential of Bisantrene.
At buyout multiple say 5.0x the buyout potential is up to USD $220B
( 5.0 x USD $44B ). Will that be achieved ... unlikely. I would be happy with 5% to 10% of that value.
