RACE Oncology Valuation - June 2020, page-79

@DeltaVee - just adding the below.

The keys tests from a risk perspective when looking at Biotechs are the following - does it work in patients?, is it safe in patients?. So in general only determine how much to and how you will invest after you have assessed progress against these key aspects of clinical maturity.

Some thoughts on approach for pre-clinical (has not yet been tested in humans) - well you could short-term trade or use a free-carry strategy as a way of managing risk. I would put pre-trial Phase I companies in this bucket also (trial is approved or underway but not complete) as safety and efficacy in humans is not known until the trial readouts have occurred.

For Phase II and Phase III stage companies you determine the amount to invest based on your own assessment of both safety and efficacy in patients ( but you meed both for a drug to succeed ). So look at previous trials data and any other evidence available.

Some other things to consider:

• Go as deep as possible into the background of in-licensed pipelines - what is the history, what is the earliest evidence you can find, has the treatment or drug been renamed at any point ( why rename if something works ). So you need to investigate beyond what a company tells the market in their announcements to find background information.
• How long has trial recruitment been underway? (be careful if recruitment is taking longer than 12 months for a small population trial, doctors become aware of what works and what doesn't so recruitment slows down )
• A stop during a trial and the protocol is changed in the middle of a trial ( usually an FDA direction to halt a trial )
• Look for pipeline churn ( periodic in-licensing of new pipelines, could be a sign of a Biotech lifestyle company )
• Look for ratio of admin / staff expenses relative to R&D spend and also compare with quarterly and annual spending for companies at similar development stage.

This info is also helpful, but the ASX is not very good at enforcing it. Unfortunately we don't have anything as rigid as the JORC.

https://www.ausbiotech.org/programs/best-practice-for-biotech-companies