BioInvent International BI-204 Trial: Phase II Fails To Show Effects

BI-204 is not formally dead, but Edison expects the funeral once the Genentech (DNA) inquest concludes. No primary endpoint efficacy was seen. The investment case now rests in BI-505. As a Phase I cancer candidate in a crowded development space, this is risky but, in Edison’s longstanding view, this has the best chance of ultimate success. Management will be tempted to partner too early for immediate cash, but investors should either back the internal development project or sell the business. BI-505 only has value if sold direct or at least partnered after Phase II efficacy.

Primary hopes on BI-505
Dose data is expected later this year but this does not attempt to give any efficacy indication. If BI-505 can be developed and directly marketed, it would be very valuable given its orphan indication (multiple myeloma). However, as a partnered product, any current deal on the imminent Phase I data would yield a poor royalty and minimal upfront cash even if the back-end weighted milestones looked juicy. Investors need to support this project though Phase II to gain any value.

Secondary hopes: Picking over the BI-204 carcass
BI-204 was experimental but the science did look robust; Genentech signed up with a good deal. But the 147 patent Phase II data in stable angina failed to show any effects on the primary endpoint of reduced plaque inflammation imaged by FDG-PET. Maybe the current standard of care is too good, maybe the antibody could not get into the plaque or maybe the theory was wrong. Secondary endpoints especially the MCP biomarker might offer a development niche, but realistically BI-204 is dead. Once the relevant Genentech committee has gone through the full data, we expect the funeral.

Valuation: Pre-dilution indicative value of SEK7-14/share
The run of poor results has no technical impact on the success chances of BI-505. BioInvent (BOVNF) is now trading at less than its forecast Q2 cash of SEK200m. The value on BI-505 direct sales of SEK14/share was arrived at using a multiple of 10x before any additional dilution. This multiple reflected the strong pipeline at the time. However, even on a low-growth scenario using an arbitrary multiple of 3x, the model inculcates SEK6.67/share based on current issued equity. This value is not apparent if BI-505 is licensed early. BioInvent is currently in the legal process of shrinking to 68 staff to save SEK15m annually from January 2013. The headcount may fall further, but the company still needs to invest in BI-505 and support n-CoDeR and linked research collaborations. Management estimates there is cash until Q313.

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