Redx Pharma Plc (LON:REDX) is a drug discovery company, offering investors access to a new R&D model; not without risk, but one that is mitigated by the breadth, depth and focus given to its pipeline. It has developed a broad early stage preclinical pipeline focusing on cancer, immunology and anti-infectives, particularly microbial resistance – all considered “hot” areas of scientific and commercial interest – validated to an extent by six partnerships. Its Porcupine inhibitor has started IND-enabling studies with a view to commencing clinical trials by in the next 12 months is another example of the rapid progress of its discovery engine, and is likely to command plenty of external interest.
► Strategy: to develop potentially “best-in-class” or “first-in-class” therapeutics by focusing on well validated disease targets in therapeutic areas of significant commercial interest to big pharma/biotech. Redx is also seeking complementary assets and capabilities to accelerate growth and development.
► Porcupine (PORC) inhibitor: a 4th development candidate, recently added to its pipeline and targeting a cell signaling pathway that controls the spread and recurrence of cancer as well as resistance to other treatments, is likely to generate substantial external interest. Potentially a best-in-class PORC inhibitor.
► Valuation: Our standard DCF approach to valuing the business is inappropriate given the preclinical pipeline. Recent industry benchmarks, however, point to the fact that the median price paid by big pharma/biotech for immune-oncology preclinical assets is $17m per target, with a further $357m of milestones.
► Risks: Clearly not without financial risk: a preclinical pipeline with traditionally high attrition rates and funding needs, but its strategy and breadth of portfolio reduces binary risk seen in single product companies. Also, clear precedent that pharma/biotech are willing to pay high prices for the right preclinical assets.
► Investment summary: Although the shares have drifted below the IPO price, partly with the sector but also as the market awaits evidence of further commercial partnerships, Redx Pharma Plc offers the investor access to a highly versatile discovery engine, geared specifically towards clinically differentiating its assets to achieve potentially best-in-class and first-in-class status which in turn should translate into highly valuable assets.
