Q. Why doesn't RAC raise more capital and run more trials?

This is a question that comes up on fairly regular basis, so I thought I would answer it in a dedicated thread. Quite a number of ASX listed biotechs raise and spend huge amount of capital running multiple clinical trials as once (and issuing billions of shares in the process), so why doesn't RAC do the same if it has so many great opportunities? There are a number of reasons for this:

1. Raising and spending more than 10% of your market cap per year is unsustainable. Companies that spend more than this quickly end up in a death spiral of a falling SP with ever more shares being issued just to keep the spending going. If you have a MC of around $400m and you are spending $150m a year this can't be sustained for any length of time. While many shareholders don't understand all the science, even those investors that failed Year 7 science understand the effects of massive dilution on the SP.

2. Biotech spending rises as clinical programs progress. Preclinical research is cheaper than a Phase 1 trial and Phase 1 trials are cheaper than Phase 2, etc. If you start out with a very high rate of spending then this will only grow over time as your IP progresses down the clinical pipeline. If your programs are successful and your SP rises then you can sustain higher spending, but if you let your spending rise faster than your SP you will end up in trouble at some point.

3. Biotech is very cyclical. If you spend like the good times will last forever you will run into trouble. You can't put biotech programs on care & maintenance like you can with a mine when the market turns, once you start a trial you must have the funds to finish it. More than one biotech company has fallen into the trap of starting a trial without having the cash to finish and ended up broke.

4. Biotech in Australia will only mature if investors make a return commensurate with the risk. Many investors in Australia won't touch biotech companies because they have been burnt by companies that have failed to deliver a return. If you run a biotech company here in Australia and selfishly don't worry about generating a return for your investors, you are ultimately damaging the whole sector. When investors make money investing in biotech they will invest in new biotechs, if they lose money they will avoid the sector altogether. The major limiting factor in the Australian biotech sector is a lack of patient capital and this can only be fixed by generating real returns for investors.

At Race we are unapologetic in making our investors a good return our primary commercial focus. Yes we want to help patients and bring bisantrene back to the clinic as soon as we can as we think this will help many, many people, but if we do this in a selfish way we will just damage the whole biotech sector and prevent other amazing drugs and treatments from being funded. Sometimes the fastest way to a good outcome involves considering the wider picture. We are going as fast as can be sustained over the long term.