Biodexa Pharmaceuticals — Acquisition of Varian Bio to bolster pipeline

Biodexa Pharmaceuticals (NASDAQ: BDRX)

Last close As at 21/05/2024

USD2.33

1.06 (83.46%)

Market capitalisation

USD6m

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Research: Healthcare

Biodexa Pharmaceuticals — Acquisition of Varian Bio to bolster pipeline

Biodexa has announced that it has signed a non-binding letter of intent to acquire Varian Biopharmaceuticals, a privately held US-based biopharma company developing a small molecule atypical protein kinase C iota (aPKCi) inhibitor for treating cancer. Varian’s pipeline comprises lead candidate VAR-101 (basal cell carcinoma, BCC) and VAR-102 (solid tumors), both in preclinical development. The proposed acquisition is in line with Biodexa’s strategy to expand its oncology-focused pipeline following its recent repositioning as a therapeutics company. The proposed terms include issuing 10m American depository shares (ADSs) as an initial consideration (which translates to c $3m at Biodexa’s current share price), resulting in Varian stakeholders owning c 34% of the combined business, post consolidation. A further 6m ADSs will be issued based on meeting predefined clinical and regulatory milestones pursuant to the deal, Biodexa also plans to raise a minimum of US$7m in net proceeds to fund the Phase I study for VAR-101, expected to start in Q124.

Written by

Arron Aatkar

Associate analyst

Healthcare

Biodexa Pharmaceuticals

Acquisition of Varian Bio to bolster pipeline

Pharma and biotech

Spotlight – Flash

24 May 2023

Price

US$0.227

Market cap

US$4m

Share price graph

Share details

Code

BDRX

Listing

Nasdaq

ADS in issue at April 2023

18.9m

Pro-forma net cash (end FY22 + February 2023 equity raise)

c £7.8m

Business description

Biodexa Pharmaceuticals (formerly Midatech) is a clinical-stage biopharmaceutical company developing pipeline candidates with a focus on oncology and rare and orphan indications. Lead candidate MTX110 is in Phase I clinical studies in aggressive rare/orphan brain cancer indications including recurrent glioblastoma, diffuse intrinsic midline glioma and medulloblastoma. The preclinical pipeline includes MTD217, targeting leptomeningeal disease, a secondary metastatic cancer of the central nervous system that has a poor prognosis.

Bull

First-in-class potential in aggressive brain cancers with MTX110.

Therapeutics portfolio supported by three enabling platforms.

Upside from potential partnering for drug delivery platforms.

Bear

Challenges in finding partners/out-licensing opportunities.

Challenging macroeconomic environment making fund-raising difficult.

Earlier-stage product out-licensing strategy may limit upside potential of partnership deals.

Analysts

Dr Arron Aatkar

+44 (0)20 3077 5700

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Biodexa Pharmaceuticals is a research client of Edison Investment Research Limited

Biodexa has announced that it has signed a non-binding letter of intent to acquire Varian Biopharmaceuticals, a privately held US-based biopharma company developing a small molecule atypical protein kinase C iota (aPKCi) inhibitor for treating cancer. Varian’s pipeline comprises lead candidate VAR-101 (basal cell carcinoma, BCC) and VAR-102 (solid tumors), both in preclinical development. The proposed acquisition is in line with Biodexa’s strategy to expand its oncology-focused pipeline following its recent repositioning as a therapeutics company. The proposed terms include issuing 10m American depository shares (ADSs) as an initial consideration (which translates to c $3m at Biodexa’s current share price), resulting in Varian stakeholders owning c 34% of the combined business, post consolidation. A further 6m ADSs will be issued based on meeting predefined clinical and regulatory milestones pursuant to the deal, Biodexa also plans to raise a minimum of US$7m in net proceeds to fund the Phase I study for VAR-101, expected to start in Q124.

Historical financials

Year
end

Revenue
(£m)

PBT
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

P/E
(x)

Yield
(%)

12/19

0.67

(10.9)

(997)

0.0

N/A

N/A

N/A

N/A

12/20

0.34

(11.1)

(1,036)

0.0

N/A

N/A

N/A

N/A

12/21

0.58

(6.1)

(136)

0.0

N/A

N/A

N/A

N/A

12/22

0.70

(8.5)

(155)

0.0

N/A

N/A

N/A

N/A

Source: Biodexa company filings. Note: PBT and EPS are normalized. *Adjusted for the 1:20 share consolidation announced in March 2023.

Protein kinases are widely regarded as key therapeutic targets in cancer due to their role in signaling mechanisms that drive tumorigenesis; more than 70 kinase inhibitors have been approved by the FDA as of 2022. Varian’s lead drug candidate, VAR-101, is an aPKCi inhibitor being developed as a topical formulation for the treatment of BCC and has completed Investigational New Drug-enabling skin toxicology studies with plans to start a Phase I proof-of-concept (PoC) trial in Q124. BCC is the most common skin cancer with 3.6m cases diagnosed each year in the US alone. Currently marketed topical treatments include imiquimod and 5-fluorouracil, although both target superficial and early-stage tumors. The other asset, VAR-102, is an oral formulation targeting solid tumors with an initial focus on non-small cell lung cancer.

We view this proposed acquisition as being in line with Biodexa’s renewed business strategy to focus on oncology and rare/orphan indications. As a reminder, in March 2023, Biodexa announced a new preclinical program, MTD217, targeting leptomeningeal disease and communicated its plans to acquire/in-license another pipeline candidate in FY23. Alongside legacy asset MTX110, this acquisition would take the product portfolio to four programs targeting a range of cancers.

An all-stock transaction would allow Biodexa to preserve funds earmarked for clinical development, in particular to advance lead asset MTX110. We note that as part of the proposed deal, Biodexa also plans to raise at least US$7m in net proceeds, which will be used to fund VAR-101’s Phase I study. While this may lead to some further dilution initially, PoC for the acquired assets, if established, should unlock value on the upside.

General disclaimer and copyright

This report has been commissioned by Biodexa Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Biodexa Pharmaceuticals. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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General disclaimer and copyright

This report has been commissioned by Biodexa Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Biodexa Pharmaceuticals. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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