DYOR. Not advice. Analysis is speculative but based on extensive research.
I must emphasise the potential outcomes explained in the below analysis rely upon RACE achieving success in both their clinical and commercial strategy.
The #RACThreePillarTrifecta is my description for the significant risk-reward opportunity driven by Bisantrene - a drug once forgotten, formerly approved with impressive historic safety and efficacy (particularly in AML and the much bigger Breast Cancer segment of the oncology market).
Bisantrene has been trialled in over 2,000 patients historically and there were > 40 Phase II and III trials in the 1980s and 1990s ( Read this thread for some background on the abandonment of Bisantrene in the 1990s ).
The end game for RACE is a buyout transaction or future partnership with Big Pharma.
A partnership could be a stepping-stone to a future buyout up to 5 years after a partnership is initiated. Partnerships can have upfront milestones ranging from USD $55M to hundreds of millions and total milestone values over USD $1B. A partnership would drive a significant rerate on the back of strong trials results.
RACE have pivoted their strategy to maximise commercial returns by focusing on the highest areas of revenue potential for Bisantrene.
The goal is outsized rewards for RACE and its shareholders
RACE in their AGM update have pivoted their strategy to maximise potential for both pharma spend and investor sentiment. Precision Oncology is the area that is the focus of investment.
A diversion for a discussion of risk
Bisantrene worked well in the past for AML and Breast Cancer. So what are the risks?
Their might be an unexpected side-effect, although I think this is unlikely. Bisantrene was historically trialled in over 2,000 patients so potential side affects are well known.
RACE can successfully manufacture the drug and scaling it will be Big Pharma's task give transaction or partnership is the end game.
I think risk is mainly to the upside. RACE will continue maturing their clinical data and they have been doing a great job so far. If a Big Pharma approached too early then an optimal transaction might not be achieved but I still think would be rewarding for shareholders.
RACE to date has been below the radar amongst it's peers. Maybe Big Pharma will eventually notice and try to buy up stock. That will be difficult given the tight register and their activity will certainly be noticed.
COVID could delay start of trials, particularly in the US. Australia has done a great job of stopping the spread so it means that there should be limited impact to trials in Australia (and plans are to run a Breast Cancer trial here). The rollout of the vaccine in the US will take months, however it might be possible to initiate trials for AML in H2 2021.
Competition for trials. Well we know from the recent Israel trial that Bisantrene still works. We know from the historic trials that Bisantrene worked effectively for AML and Breast Cancer. A key to achieving successful (and fast recruitment) is doctors and patients (and their families) knowing the drug works. Breast Cancer is a big indication with large numbers of cases each year so there should be a good population of potential trials participants.
Regulatory risk. RACE have taken great care in preparation of the IND they plan to resubmit (currently on clinical hold). They have a regulatory advisor and engaged a second regulatory advisor to conduct a review of their clinical plans. RACE have use this to inform their strategy and their clinical plans and are conducting further feasibility studies that will guide trial design. All this is designed to take the highest quality external FDA regulatory advice on board to setup a clinical trials program that will be suitable for approval and also optimised for accelerating approval. RACE should where possible design their trials for fast-track approval as this will be more attractive to Big Pharma.
RACE have multiple pillars that are independent, so if one is delayed, suspended or fail the others could still be thefocus of a commercial transaction or partnership.
So what's fair value now?
My assessment of fair value is $16.40 based on average of the peer analysis below:
(I explain this further later in this post)
So what is the range for the extreme value of a buyout transaction?
Extreme value of a buyout transaction could range between:
(although Bisantrene has revenue potential that could blast a transaction through this ceiling)
Revenue potential similar to Keytruda at USD $25B as a cancer inhibitor that could make the big PD-1 inhibitors like Keytruda and Opdivio work better
Pillar 2 = Breast Cancer:
Potential for Bisantrene to take a major position in the front-line treatment of Breast Cancer, with similar performance to key drug Doxorubicin but much safer for the heart. RACE recently published strong preclinical results that will guide the design of a trial to start in Australia in 2021.
Revenue potential = ~ USD $14B.
Pillar 3 = AML and Ovarian Cancer:
In historic trials Bisantrene was a very effective drug for treating Relapse/Refractory AML. It was historically approved in France for this indication. RACE's recent investigator-lead trial of Bisantrene achieved a 40% Overall Response and particularly impressive results in tumour regression for Extramedullary AML. Bisantrene historic trials showed efficacy in Ovarian Cancer.
Revenue potential = ~ USD $4B (combined for AML and Ovarian Cancer).
Background to these Bisantrene revenue estimates are summarised here:
That's the potential.
This is RACE's plan to demonstrate potential.
In parallel to the above activities RACE are also carrying out internal feasibility studies for AML MRD and Ovarian Cancer. These studies will enable them to better understand trial design and I also think assess market, revenue and NPV potential to use in future discussions with potential buyers or partners.
Pillar 2 - Breast Cancer - massive potential as a safer front-line chemotherapeutic
I discuss Pillar 2 first since it has significant value and should be a comparatively easy win for RACE due to the historic trial data that yielded strong results against standard of care and the impressive results in the preclinical study recently completed at the University of Newcastle.
In historic trials for Breast Cancer, Bisantrene achieved strong results in heavily pre-treated Breast Cancer patients. Note here that Bisantrene achieved similar results to Doxorubicin in heavily-pretreated patients. Complete response was actually slightly better for Bisantrene (22% versus 20%) in this group of heavily-pretreated patients.
Bisantrene results were similar to Doxorubicin, achieving similar cumulative survival in one large Phase III trial.
Doxorubicin is one of the key drugs currently used in front-line Breast Cancer chemotherapy regimens and hence why Pillar 2 is an valuable part of the strategy.
One of the main issues for Doxorubicin is cardiac toxicity ... so this is one of the main opportunities for Bisantrene ( replacing one of the mainstream treatments used in chemo for both AML and Breast Cancer ).
https://canceraustralia.gov.au/site...-for-advanced-breast-cancer_504af030defd3.pdf
Even
at low dose Doxorubicin is toxic for the heart.
https://ascopubs.org/doi/pdf/10.1200/JCO.2016.70.5400
Pillar 1 - Blockbuster potential as an Inhibitor of the Fat- and Obesity- associated Protein 'FTO'.
Recent preclinical studies also show that Bisantrene has massive potential as an inhibitor of the Fat- and Obesity- associated Protein 'FTO'.
This places Bisantrene into the field of precision oncology and provides a massive commercial opportunity to Big Pharma that are RACE's market.
RACE's product is the company and valuable IP for Bisantrene
in partnership or a future buyout transaction.
To establish a fair value RACE we need to look at among precision oncology peers with strong efficacy. This is my "houses in the same street" analysis. RACE's peers are not here in Australia. They are overseas.
Recognising that Bisantrene has strong Phase II and III data I have used an average of a selected group of Preclinical, Phase I and Phase II oncology peers, although this still doesn't recognise Bisantrene's pedigree as a drug that was previously approved in France for AML. Fair value of RACE and Bisantrene now, using this method is ~ $18.00 per share.
A further look at value, the continuing rerate and the reasons behind it
I made the observation some time back ( Post #:46124135 ) that RAC's re-rating was following a trajectory confined to a channel on the log chart. An unusual continuous re-rate in action and now underway for 17 months.
In H1 2020 there was a long period of consolidation as the market waited for the completion of recruiting and then results of the investigator-lead R/R AML trial that was running in Israel. The re-rate continued with strength from mid-June 2020 after the trial in a group of extremely ill multiple relapse patients achieved an impressive 40% overall response. The trial also confirmed showed strong performance treating Extramedullary AML.
Then just after these AML results were reported an independent study by City of Hope identified the potential for Bisantrene to be used as a potent inhibitor of FTO.
https://www.researchgate.net/public...ncer_Stem_Cell_Maintenance_and_Immune_Evasion
RACE then spent a few weeks reviewing the implications and provided the following in an Investor update in mid-July 2020.
FTO has a key role in the regulation of cancer growth
... and Bisantrene is very, very effective at inhibiting this activity
Bisantrene works at both a high dose (to kill cancer)
and a low dose (to inhibit the growth of cancer)
in cancers where the FTO protein is over-expressed.
So Bisantrene kills cancer and also works at a lower dose to stop it growing. The low dose mechanism of action is also interesting since it may mean that very sick or very elderly patients may be able to better-tolerate treatment. This low does mechanism of action still needs to be confirmed in Phase II Proof of Concept clinical trials (remember that we already know Bisantrene is safe at high dose so unlikely to be problematic at low dose). The FTO Proof of Concept trials can focus on efficacy (although will of course need safety aspects in the trial design).
By October 2020 the market was getting bored, waiting for further news and the AGM (where an update on strategy was anticipated).
Then in November a paper was published in the European Journal of Haematology
https://hotcopper.com.au/threads/an...-journal-of-haematology.5746577/#.X8xwSqozZBw
... with this impressive image showing tumour regression of Extramedullary AML after a single dose of Bisantrene (and normal dosing is usually 2 doses ). The market could see just how well Bisantrene works for AML. I think this was a strong driver of the rerate in early November, although I think someone pointed out it took about a week for the market to digest the news.
The following Leukaemia-related transactions point at the potential value for AML (or Pillar 3).
Juno Therapeutics IPO: USD $2.2B = current fair value for RACE at $14.81
I think from a value to "pharma" perspective Bisantrene's tumour regression in Extramedullary AML is comparable to if not more valuable than Juno's position in ALL at the time. The EM AML indication could drive revenues around USD $1B assuming ~ 3000 patients pa treated in just US, Europe and Australia. ALL is also a much smaller commercial opportunity than AML.
Forty Seven Buyout: USD $4.9B = value $32.99 for RACE on the basis of AML approval
(although less potential that Bisantrene's broader application to multiple AML indications)
Immunomedics Buyout: USD $20B = indicative blockbuster buyout value at $141.38
At current consensus peak Trodelvy sales of less than $4 billion, Gilead would only break even with the $21 billion it’s paying. “The purchase price requires heroic revenue assumptions to create value,” Porges wrote in a Monday note.
The key observation here is the revenue multiple. Immunomedics was bought for USD $21B based on a revenue multiple of 5.25x peak sales estimated at $4B.
Bisantrene's total revenue potential for all 3 pillars exceeds USD $40B. Breast Cancer alone would be USD $14B and if Bisantrene is confirmed as an clinically significant FTO inhibitor then potential revenue for FTO ~ USD $25B (based on Keytruda sales).
M&A Trends
Importantly for RACE and investors in RACE, over 85% of oncology buyouts occur at Preclinical, Phase I or Phase II. Around 50% of oncology buyouts occur in Phase I or Phase II. The drug doesn’t need the depth of clinical maturity of modern Phase III trials for an M&A transaction to occur, but it does need to show promise from an efficacy and importantly a safety perspective through Phase I/II trials (and importantly we already know Bisantrene is safe and effective). 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.
https://www.evaluate.com/vantage/articles/data-insights/ma/following-ma-money-phase-and-therapy-area
In 2016 and 2018 over 60% of the Oncology M&A dollars were for Phase II assets (40% for 2017). So RACE are in the sweet spot for M&A with multiple Phase II Proof of Concept trials planned to start over the next 12 months.
For the last 3 years Cancer M&A has been the growth area for Biopharma deals. 60% of M&A dollars were for Cancer in 2019. The average of the 5-year period is around 50% of M&A funds focused on Cancer.
So if you're investing in RACE your investing in the hottest segment of Biotech.
https://www.evaluate.com/vantage/articles/data-insights/ma/biopharmas-big-bet-cancer-laid-bare
... and given the pivot to Precision Oncology RACE investors are investing in the hottest subarea of the hottest segment of Biotech ... and given the historic success of Bisantrene you have an unusually high probability your investment in RACE will be a successful one.
The Big Picture
For the big picture we can look at RACE's planned activities to demonstrate value. These activities together with feasibility studies underway can be looked at like feasibility studies in mining. RACE are doing feasibility analysis, market studies, test work and trials that ultimately enables them to get a picture of future commercial market and NPV along with proving the capabilities of the drug through Proof of Concept Phase II trials.
All this work arms RACE with the information needed to demonstrate significant commercial value (i.e. future revenue value) for potential buyers.
Remember that the aim is outsized rewards.
The Roadmap
So now I can map out a roadmap of what could lay ahead.
Could we remain on the trajectory on the log chart I initially posted above - yes!
For how long? - maybe 2 - 3 years (a buyout).
In the partnership scenario we would move to a point and maybe consolidate a further 3-5 years, before a buyout transaction occurring (or RACE continuing independently - I think unlikely given their strategy).
On the bottom part of the chart I have mapped out RACE's preclinical and clinical activities as well as feasibility studies. These are all required for RACE to demonstrate potential value to Big Pharma.
Looking at the Phase II Proof of Concept trials, we don't necessarily need the trials complete. We just need readouts from primary of secondary endpoints that demonstrate that Bisantrene works well.
The Breast Cancer trial is really the key one for achieving blockbuster levels of valuation. If RACE pull off a Breast Cancer trial successfully then that sets up revenue potential of around USD $14B (historic trials and recent preclinical study suggests there is a very strong chance they will). Keep in mind that Immunomedics was bought out for USD $21B on the basis of USD $4B in revenue.
So Breast Cancer alone could take race through the current transaction ceiling of USD $21B.
Then we have FTO which, if Keytruda is anything to go by could setup a peak revenue potential of around USD $25B.
I think AML and Breast Cancer trials could achieve first readouts in H1 2022. At the moment I am assuming these trials will start around May.
I've mapped onto the trajectory on the log chart the following peer valuations:
- Juno Therapeutics IPO at USD $2.2B is an fair value for Bisantrene and RACE now, i.e. around $14.81
- Forty Seven transaction as a peer for a buyout based on AML, i.e. around $34.30
- could be achieved based on AML readouts
- Immunomedics as a peer for a blockbuster buyout, i.e. around USD $126.38
- could be achieved bast on Breast Cancer readouts
- strong FTO preclinical data could supercharge a transaction
One thing I would certainly like to see is RACE optimised the design of their clinical programs for achieving fast-track approval or breakthrough therapy designations as this will be of immense potential value to Big Pharma (they would like pipelines they can rapidly progress through registration and into marketing).
(20min delay)
