Tim Boreham: Money will flow when the biotech drought ends

userAugust 19, 2022

Essendon’s Ben Rutten knows the feeling Just like football coaches are as safe as the last game, biotech is doing more to fund clinical trials that burn cash. You will survive only if you can collect capital.

Fortunately, the sector’s funding shortfall proved to be temporary, like a summer rain, and a flurry of funding brought a sector that had been in 12 months of global scare to life. I got

ASX- and Nasdaq-listed eye care company raises the largest ever in the sector Optea (ASX:OPT) This week, we announced a huge injection of at least $300 million through an equity issuance and a new non-dilutive transaction with US life sciences developer Launch Therapeutics.

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The recently founded Launch is an offshoot of global investment giant Carlyle and acquired life sciences franchise Abingworth.

Stem cell innovator listed on ASX and Nasdaq despite serial capital raiser Mesoblast (ASX: MSB) It has raised an impressive $45 million ($64 million) to commercialize a treatment for graft-versus-host disease.

When Paradigm Biopharmaceutical (ASX: PAR) Handed out a massive $66 million cap to promote a drug repurposed for an unstable soccer player’s knee.

But it’s the Opthea deal that will change the funding paradigm for this sector, given the level of risk Launch is willing to take for the ultimately limited return on its investment.

Typically, in the biotechnology sector, funders agree on upfront payments and milestones related to the progress of a drug application, and may distribute it in certain countries if the drug is approved.

Optea is conducting an advanced (Phase 3) clinical trial of its OPT-302 drug candidate for the treatment of wet age-related macular degeneration (wet AMD), a difficult-to-treat disease behind the eyes . This study is expected to support regulatory filings with the U.S. Food and Drug Administration (FDA).

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Launch is so confident in its approval that it has agreed to offer $120 million in three unconditional installments, with the option to add an additional $50 million.

If OPT-302 is approved in the primary market (US), Launch will receive six installments and a semi-royalty of 7% on annual net sales for six years.

What’s unusual is that these payments are capped at 4x your investment in total. If Launch puts him in full $170 million, in the end he will make a profit of $510 million.

However, this assumes that OPT-302 is (a) approved and (b) commercially successful. OPT-302 boasts treating a much broader cohort of wet AMD patients than current therapies, serving an $8 billion annual global market that is expanding as the population ages. .

What if the drug is not approved or fails commercially?

It’s a case of “Thanks for coming to our table, Launch – best of luck next time.” Opthea retains full rights to the drug and is obligated to repay the funds only if successful. Let’s call this a quasi-debt.

“(Launch’s) investment commitments are in full jeopardy,” said Dr. Megan Baldwin, CEO of Opthea. “They only make such deals if they assess the company’s risk profile as particularly low.”

Baldwin said these so-called structured finance royalty deals are fairly common in the United States, but are virtually unprecedented here.

Opthea shares fell 15 cents (11%) after Monday’s announcement, with local investors seemingly baffled.

Another reason for the sale is that the $90 million placement, a prerequisite for the launch involvement, hit at $1.15 per share, a 12.5% discount from the 10-day average price.

Baldwin says the negotiations took 10 months and he has never set foot on US soil.

The pandemic meant that negotiations would take place virtually in “back-to-back meetings across multiple time zones.”

With extensive due diligence completed, we expect trial results to be released in mid-2024 (after 12 months of dosing) and commercialization by late 2025.

But at least management has the cash to pursue their vision of bringing a groundbreaking eye drop to market.

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This article is not financial product advice. You should consider obtaining independent advice before making any financial decisions.