I am an independent retail investor and I like to scope growth potential of early-stage companies. I think RACE Oncology has considerable potential driven by their new strategy for their orphan cancer drug known as Bisantrene.
DYOR. Information below is based on my own research and analysis.
You are encouraged to do your own research and make your own decisions.
Last week RACE Oncology announced a new strategy that will better leverage the
strong potential of Bisantrene shown by historic trials.
https://www.asx.com.au/asxpdf/20191114/pdf/44bky02zyzcsv3.pdf
This will open up Bisantrene to a much broader treatment market and hence potential for considerable revenues. The historic focus of Bisantrene has been for Acute Myeloid Leukaemia (AML) however historically there has been promising potential in a broader range of cancers including Breast and Ovarian Cancer.
I've annotated RACE's diagram below to better show the focus on AML, Breast and Ovarian Cancers.
Scenario Results
By my calculations the annual revenue potential of this strategy is staggering:
- AML at AUD $2.5B
- Breast Cancer at AUD $8.4B
- Ovarian Cancer at AUD $0.9B
Figures are based on my assessment of revenue potential just for USA, Australia and Europe. Full explanation of method and assumptions is provided at the bottom of this post.
Trials, Approval and Patent Pedigree enhances probability of success
Historic trials and approvals significantly improve probability of success and hence reduce investment risk. This makes RACE Oncology unique among biotech peers. Most are at quite early stages whereas RACE's orphaned cancer drug Bisantrane has previously been approved for use in humans. Much more detail on this clinical pedigree is provided below.
The company identifies the following factors that I think together will strongly support the chance of a successful investment outcome (I have paraphrased to add additional information):
- Large number of historic trials: Bisantrene (a chemotherapy agent) that was the subject of more than 40 clinical studies during the 1980s and 1990s before the drug was abandoned. Bisantrene has compelling clinical data in acute myeloid leukaemia (AML) as well as other cancers including breast and ovarian.
- Strong results from historic trials: In 7 phase 2 trials, therapeutic utility was seen in acute myeloid leukemia (AML) comparable or superior to drugs currently in development. Although never marketed, bisantrene was approved for the treatment of AML in France in 1991 under the name Zantrene.
- Orphaned but still promising drug: Originally developed in the 1970s and 1980s, bisantrene is a well-tolerated and useful drug that has resumed clinical development.
Previously approved for use in humans in France.
Low cardiac toxicity.
- Strong development and commercial position: Race has successfully manufactured Bisantrene, built a strong patent position (3 granted) and has secured US Orphan Drug designation (7 years commercial exclusivity)
- FDA Rare Paediatric Disease Designation provides a path for funding: potential to win a valuable Priority Review Voucher (PRV), these are a valuable saleable commodity on a secondary market and could provide an important funding source for RACE ( sales are typically in the order of USD $75M to USD $150M )
- Potential as a combination therapy from preclinical research: Preclinical research by Race’s collaborators in the US has demonstrated that the clinical value of Bisantrene may be greatly enhanced by use in combination with other approved cancer drugs
- Previous effectiveness for treatment of AML in paediatric cases
- bisantrene has been well tolerated and shown to lack the cardiac dose-limiting toxicity of other drugs
- Historical breast and other cancer trials used sub-optimal dosing and administration of Bisantrene (but still showed good activity!)
The new 5-path strategy provides a much larger number of ways in which RACE could develop revenue streams for Bisantrene, this includes repositioning it as a combination treatment.
Revenue Scenarios
The Revenue Scenarios were developed using the following approach and assumptions:
- Determine annual number of new cases of AML, Breast Cancer and Ovarian Cancer in USA, Europe and Australia
- For AML determine percentage of cases covered by each of the 3 AML treatment paths identified by RACE (RACE responded to my questions on this here - https://hotcopper.com.au/posts/41468690/single )
- For AML I assumed that Bisantrene can capture 25% of the treatment market for each of the 3 AML treatment paths in their strategy
- For Breast and Ovarian Cancer, noting RACE are investigating positioning Bisantrene as a combination therapy I assumed Bisantrene can capture 5% of the treatment market (these cancers have a higher profile and there would be strong competition in this market)
- The average cost of oral drugs for cancer treatment was USD $135k in 2014 (source https://www.ascopost.com/issues/july-10-2018/expensive-cancer-drugs/, see calculation below). I've chosen this as a conservative cost of a Bisantrene treatment as other forms of cancer treatment can cost as much as USD $475k.
- 25% as a net after tax margin ( in 2013, five pharmaceutical companies exceeded 20% profit margins: Pfizer, Hoffman-LaRoche, AbbVie, GSK and Eli Lilly - https://www.andruswagstaff.com/blog/big-pharma-has-higher-profit-margins-than-any-other-industry/ )
I should note that my background is engineering, however my day to day work has at times required development of quite detailed estimates and cost models for engineering projects at various stages of maturity. I have used that estimating experience to develop my own scenario for determining the revenue potential of Bisantrene. It is just an estimate and needs to be recognised as such, however I have tried to set what I think are reasonable assumptions for the revenue model.
I have not provided per share calculations here as I think RACE Oncology would be the target of a takeover if they get significant runs on the board in progressing any of the 5 strategy paths through Phase I and II trials.
Here's the detailed revenue worksheet:
Incidence data below was obtained with a google search. Data is not necessarily for the same year so totals are indicative.
(20min delay)
