From the Hype Train newsletter:
Australian precision cancer treatment, Race Oncology (ASX: RAC)
???? Company: Race Oncology is looking to revolutionise cancer treatment using Bisantrene - a chemical they believe will be able to offer treatment to a wider range of patients and result in less side effects than current options. This chemical was originally explored in the 70s and 80s but was then largely forgotten about. Race has revitalised the drug and is now hoping to use it in many more use cases than it was originally trialed in. The company is still in the R&D stages of development but their trials have shown encouraging signs, and the share price has been rising rapidly as a result.
???? Business plan: Race has a 3 pillared approach to rolling out treatment for different types of cancer. Historically Bisantrene has been known to be useful to treat AML, a type of leukaemia. However, a recent discovery in the US has given validity to using Bisantrene as a targeted treatment for many different types of cancer, and this is the focus of their approach.
The first pillar is focused on melanoma as a clinical trial of the drug’s ability to be used as an effective treatment. This type of cancer has been selected as it meets the strategic needs of undertaking such trials, and there is evidence from the 1970s that suggests it is viable for this type of treatment.
The second pillar revolves around breast cancer treatment and how Bisantrene can reduce the adverse effects of treatment for patients. Pre-clinical trials have already been conducted with promising results.
The third pillar is for the treatment of extramedullary AML which Race see’s as an area of unmet patient need, with little good options of dedicated treatment.
Overall these pillars give focus to the key areas Race plans on targeting and give structure to the process of navigating the lengthy and difficult clinical trials and approval stages.
???? Industry: The market for cancer treatment is highly diverse and complex due to the varied nature of both types of cancer, and the different approaches that can be taken to manage it. In the context of Race, the important things to note about the industry are:
Buyouts are very common, with many investors viewing an acquisition of Race being a key pathway to making huge gains from their investment.
Approval and regulation are the key barriers to success. Having previously been approved in France, many see Bisantrene as being a low risk play and expect it to get approved swiftly following good clinical results. That said, if the drug is not able to be approved, that would likely be the end for Race.
Recent news flow: The company has been on a roll recently with key news such as the pre-clinical results for their breast cancer trials.
???? Financial health and valuation:
Financial Health:
Short-term assets far exceed short-term liabilities and the company has minimal debt, giving it a cash runway of about 2 years.
Current ratio of 50 (Yahoo finance). This may reaffirm the company is not in risk of falling short on its liabilities.
Valuation:
Market cap of $493m
$3.87 from Morningstar Quantitative on 4th March 2020.
$4.50 from Strawman consensus community valuation as of 16th Feb 2020
Takeover premium: given that many investors online are forecasting an acquisition as a likely outcome, taking the company’s intrinsic value and adding a premium for control, intangibles and other factors could be an approach to develop a valuation and exit strategy.
???? Unqualified opinion:
This seems to be a pretty interesting option, and if the overwhelmingly positive sentiment about it online is to be believed, could be a multibagger. The real risk lies with Race’s ability to both deliver on its 3 pillars, and then gain regulatory approval and take their treatment to market effectively. Naturally this is no small task, but their has been encouraging signs, and the fact that their key drug has formerly gained regulatory approval is a confidence booster.
However, this type of company is quite outside my circle of competence. I’m not sure what the revenue model looks like down the track and how this will compare to other companies of this sort, and I don't have experience with how this industry operates. This is something to always be aware of when making investment decisions.
We would definitely advise doing a much deeper dive into the company and industry than what we can fit in here, but at first glance, this seems pretty interesting.
???? Disclaimer: We just do financial news with our unprofessional opinion so always make sure you do your own research. Any purchases of stocks mentioned should not be considered financial advice and you should consult a licensed financial advisor before making any investment decisions. We won’t be held liable for any losses incurred for investments or trades that mirror our strategy. Be careful out there…
???? Beast research you need to read/watch to understand this company: