Almost Antisensible

I don’t fully “get” Antisense Therapeutics (ASX : ANP). Some fairly challenging disease areas, a lot of irons (too many) in the fire and a slightly awkward ownership and partnership structure. I haven’t decided yet how I feel about their clinical candidates (and need to brush up on my endocrinology) but to be fair, the company seems to do some things fairly well. It’s managing a significant clinical development program with relatively meager financial resources. It has some good people. The fundamental technology is probably ok, though the company is far from being another ISIS and this is definitely another company where shareholders have been waiting a long time for something significant to happen.

I’ve been watching with interest the discussion around the deal between ANP and Cortendo AB. We’ve obviously had hints for 6 months or more that something was cooking away and I think the build-up of anticipation has resulted in a somewhat muted to negative reaction from shareholders now that the deal is out on the table. It’s sort of understandable but there are a few different facets to consider.

On the positive side, at least the company is trying to build partnerships for its technology. I’m not sure Cortendo was a really stellar choice for ANP (more on that in a minute) but it is at least some kind of progress. The ATL1103 program is fairly challenging – I would like to have seen a bit more initial indication specificity in the deal rather than just “blanket” endocrine diseases, but then it’s a tough space to develop and at the very least ANP may have achieved some degree of risk sharing for the program (again, depending on how the deal is really structured). It’s also positive in that it marks a departure, albeit a very small one, from the ISIS shadow that – in my opinion – casts a very long pall over this company.

To be practical, the disclosed details are not really enough to know whether this is a good deal or not and so it might be worthwhile for shareholders to see how the communication strategy from the company unfolds beyond this initial announcement. For example, the royalty rate was not disclosed, in my view the critical data point, nor the specific performance required of Cortendo under the agreement. We’ll probably also never know if the agreement has effective (and temporally proximal) performance milestones that enable the program to be cleanly taken back. But presumably since ANP had some reasonably sophisticated transaction advisory and knows they are also doing a deal with a fairly undercapitalised company, they would cover their backside a little bit.

We can only hope, right?

I’m not wowed by the up-fronts on the deal considering that it is a Phase II asset, but then I am not sure up-fronts are really the biggest issue here. They could have done a great deal with no up-fronts, it all depends on the deal. However, at the risk of sounding obnoxious I think there are probably three major problems with the deal. The first is that I think the deal structure is wrong given the partner. As I said, we will never know all the intricacies, but it would have been a lot better if the $2m up-front had been structured as an option with trigger on reaching a certain clinical delivery milestones by Cortendo within a period of time. The economics would have been the same but it would have given shareholders comfort that one baby biotech company doing business with another baby biotech company was actually going to yield something on a risk managed basis. More importantly, it would have somewhat obfuscated the valuation issues for ANP because deal terms for an option could have been disclosed very differently. Now everyone understands how they value their technology.

i.e. Low.

Also given the trivial up-front financial burden of the Cortendo deal, I guess its reasonable to say that nobody else was interested… hmmm…

The second issue is that Cortendo doesn’t have the financial chops to pay those commercialisation milestones anytime in the near future. Again, this is why an option would have been better from a communication credibility vantage. The disclosure of those downstream milestones could probably have been deferred to a point, say 18 months down the track, when the positioning might be a little more realistic. Therefore from an ANP shareholder vantage, those downstream milestones probably have a risk-adjusted value of $0. That kind of sours the situation.

The third issue is the equity deal. This was a huge strategic mistake and if I were a shareholder I would have even preferred to see the deal as it is, without this “sweetener”. All it does is tell us that the partnering company doesn’t have much cash (it doesn’t) and puts a spotlight on risk (i.e my second point). The result is simply that ANP shareholders are now investors in not one, but two undercapitalised, risky, illiquid publicly traded biotech companies operating in non-mainstream markets.

[I note with apology that this last point was an incorrect interpretation of the release and that I did not read the 3B filing. My appreciation to readers for the feedback – I have posted a correction]



Awesome Photo Credit: Ryan McGuire.

5 thoughts on “Almost Antisensible

  1. “Under the terms of the agreement, Cortendo will provide Antisense Therapeutics with an initial
    upfront payment of $5 million (AUD $6.2 million), consisting of $3 million (AUD $3.7 million) in
    cash and a $2 million (AUD $2.5 million) investment in Antisense Therapeutics equity”

    Do you need to check your figures and understanding of the deal, as it’s different to mine?


    • Ah… I see your point, my apologies. You are right. For some reason I had it in my head that it was a cash/stock deal. Actually, I like this deal even less, which shows that I really do have rose-tinted glasses ;-).

      Thanks for correcting! I will address…


  2. Pingback: Almost Antisensible : Correction | The Long Tail

  3. Pingback: Well played, Rhinomed, well played… | The Long Tail

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