Europe's Edison Investment Research values Bionomics at twice current valuation

Edison Research Investment summary:

"The investment case for Bionomics (ASX: BNO) centres on its two lead candidates, BNC105, a vascular disrupting agent in Phase II studies for mesothelioma and kidney cancer, and BNC210, an anxiolytic/antidepressant compound in Phase Ib studies.

Licensing deals for both compounds are possible on completion of the current studies and a deal for either or both – possible by 2012 – should generate Bionomics a significant economic return. Bionomics is funded to complete these studies and may seek to engage with potential partners based on interim data, due later this year.

BNC105: Phase II studies underway

BNC105 is a vascular disrupting agent differentiated by a dual mechanism of action with direct anti-tumour activity and a high level of selectivity for tumour vasculature.

Phase II studies are targeting two orphan indications (renal cell carcinoma and mesothelioma) which have potential for fast-track registration. Studies should render interim results this year and final results in early 2012. Studies in other indications could be pursued by a partner.

BNC210: Anxiety is first target

BNC210 is an early clinical candidate with an attractive profile for the treatment of acute and chronic anxiety, including with co-morbid depression. Animal studies suggest BNC210 may offer a number of advantages over established treatments.

Financials

Following a A$15m fundraising last year, Bionomics is funded to complete the ongoing Phase II studies of BNC105 and Phase I studies of BNC210.

Valuation: Risk-adjusted NPV of A$175m

We are indicating a value of A$175m based on a risk-adjusted net present value of key programmes. This is derived from our assessment of the potential economic reward and timelines associated with the successful development.

Sensitivities

The ability to partner BNC105 and/or BCN210 is crucial to the investment case and is therefore a key sensitivity. While BNC105 is likely to be, in our view, a very attractive asset, BNC210 addresses a market that has seen less innovation and may be considered by major pharmaceutical companies to be well-served by existing treatments (despite their limitations) and is now largely generic.

The compound is nonetheless attractive, although its early stage of development may place greater uncertainty over the ability of Bionomics to partner BNC210 on attractive economic terms. As with many biotech firms, funding is a sensitivity, although following its recent capital raise Bionomics has funding for the next two years.

Valuation

We are indicating a value of A$175m, based on the risk-adjusted NPV of the key R&D assets, namely BNC105, BNC210 and the Kv1.3 programme, which compares with Bionomics’s current enterprise value of A$85m.

The probability of securing a development/commercial partner and the potential commercial terms of any such licensing arrangement (in terms of upfront, milestones and royalties) and peak sales are difficult to estimate. This is especially true for BNC210, because the anxiety market is now largely generic and has seen little in the way of new innovations in drug development.

A partnership for BNC105 could generate substantial economic return. Antisoma’s VDA ASA404 was partnered with Novartis, when in Phase II, in 2007, in a deal with a value of up to US$890m including a US$75m upfront and double digit royalties.

Recent licensing deals of cancer products are listed in Exhibit 8 to provide an indication of the value that may be achieved in a licensing deal for BNC105."