Although Redx Pharma Plc (LON:REDX) has only been in operation since late-2010, it has already created several valuable drug candidates that are about to begin clinical development. Progress into the clinic will enhance significantly the value of these drug candidates as well as providing further technical validation of the company’s approach. Redx plans to partner these programmes with big pharma for late-stage development and commercialisation. Industry precedent indicates that deal values for clinical stage assets are much higher than for pre-clinical programmes and consequently these assets have the potential to secure superior returns for shareholders.
► Strategy: To discover ‘best-in-class’ drugs in therapeutic areas of significant commercial interest and, on a selective basis, to take those assets through early clinical development. Redx is focused on licensing out assets to drug major(s) for late-stage development and commercialisation to secure optimal returns.
► Delivery: Redx is a robust company that has performed strongly in terms of executing its strategy of delivering new drug candidates. It has managed this process faster and cheaper than industry norms – emphasising the strength in its core research and discovery capabilities. As a result, it now has multiple valuable drug candidate stage programmes as well as several attractive research programmes.
► Valuation: Redx has established itself as a well-run company, building a broad portfolio of pre-clinical assets. Out-licensing at the pre-clinical stage generates on average $17-20m in up-front payments and milestones. Taking some of these assets into early clinical development moves the asset up the value chain significantly, where up-front payments of $40-50m are common, accompanied by better milestones and higher long-term royalty streams.
► Opportunity: Redx is well managed and has strengthened both its management team and Board in keeping with its rapid progress. Redx has identified important areas upon which to focus its R&D efforts and built a valuable IP estate to support its programmes. Continuous management of the portfolio, to focus resources on the highest value programmes and eliminate others, has kept R&D efforts focused, as well as ensuring that cash is carefully invested.
► Risks: Clearly not without financial risk, however, Redx’s strategy and breadth of portfolio reduces the binary risk seen with single product companies. Also, timing of licensing deals is difficult to predict, but management has established already a track record of securing deals (including AstraZeneca, NHS, Horizon, Pierre Fabre). There is clear precedent that pharma/biotech is willing to pay high prices for assets, reflecting the level of de-risking undertaken by the developer.
► Investment summary: Redx Pharma Plc offers investors access to a successful discovery and development pipeline. Redx plans to commence clinical work in early-2017 which will enhance significantly the value of the company. Additional capital will be required to support this important advance in the company’s strategy. The company will also continue to strengthen its Board and management team to ensure that it continues to build on its existing capabilities.
