Channelling expertise in CNS drugs

Bionomics (BNO) is an Australian biopharmaceutical company specialising in ion channel drug discovery for central nervous system (CNS) disorders such as anxiety, post-traumatic stress disorder (PTSD) and Alzheimer’s disease, and in oncology. In addition to developing four proprietary drug candidates, BNO offers contract and partnered drug discovery based on its proprietary technology platforms: MultiCore and ionX. The sales model includes fees-for-service, licensing income, and royalties from successful partnered products. BNO is in a growth phase, with its strategic focus on commercialising BNC210, its lead CNS drug candidate in PTSD.

• Strategy: Bionomics’ recently refined strategy is to focus on development of its ion channel drug candidates, particularly allosteric modulators. It intends to partner its priority CNS drug candidate for late-stage development and commercialisation, and to monetise its non-ion channel candidates.
• Sales: BNO performs contract research on behalf of customers and partners on a fee-for-service basis. It receives ‘other income’, which includes licensing fees from partners (upfront payments, milestones, incentives) and research grants. Out-licenced drugs will also deliver royalties to BNO if commercially successful.
• Valuation: A sum-of-the-parts valuation of the group has been undertaken using EV/sales for the service/CRO business (A$59-62m) and risk-adjusted DCF of the royalty streams for out-licensed products (A$619m/$492m). This generated a group valuation of A$696-729m, or A$1.44-1.51 per share.
• Risks: There are inherent risks in clinical development and commercialisation of medicines, particularly in neurology and with new drug classes. BNO’s current strategy is contingent on partnering its candidates for late-stage development and commercialisation and on monetising its clinical oncology assets.
• Investment summary: BNO has a clear strategy to invest in developing its drug candidates to a stage that both interests big pharma and generates good potential returns for shareholders. Of note is the number of times that companies developing novel CNS therapies have been acquired by major pharma in order to access the product(s) and/or technology.