Rexahn Pharmaceuticals, Inc. (NYSEAMERICAN: RNN) has been on my watch list for some time now. However, I haven’t dug in too deep as I was concerned with the company’s balance sheet.
Nonetheless, news that was released today greatly alleviates these concerns. Moreover, it validates the impressive work that the company is doing in the oncology space. As a result, my opinion has become an incredibly bullish one. Here’s why:
What Is RNN?
Rexahn Pharmaceuticals is a clinical stage biotech play. The company is working to develop novel, targeted treatments for various forms of cancer. The company’s goal is to extend and improve the lives of patients with next-generation cancer therapies.
The company works to target cancer cells while avoiding healthy cells. This minimizes the effects on healthy tissue, ultimately improving safety and efficacy of the treatments.
The company believes that it will achieve strong efficacy results through the combination of cancer drugs that work in different ways to stop the growth of tumors. Therefore, RNN is deveoloping therapies that act synergistically with onther anticancer agents and with immunotherapy.
This News Changes The Game For The Company
As mentioned above, I’ve been watching RNN for some time now. However, a balance sheet that left plenty to be desired kept me away from paying too much attention. Nonetheless, the company seems to have solved that problem in a move that led to gains of more than 40% this morning.
In a press release, Rexahn announced that it had entered into a collaboration and license agreement with BioSense Global LLC. The agreement surrounded the development and commercialization of RX-3117 for pancreatic cancer and other oncology indications in Greater China. There are several reasons that this is exciting news:
- Funding – First and foremost, the license and collaboration agreement will come with an upfront fee paid to RNN of an undisclosed amount. While we don’t know the amount of this funding, I would expect for the upfront payment to be at least $10 million, representing a meaningful improvement in the company’s financial position.
- Forward-Looking Revenue – All in all, the agreement represents $226 million in potential payments in both upfront fees and regulatory and commercial milestone revenues. Should all go well, this agreement could fund the company’s operations for the foreseeable future.
- Chinese Market – China is a massive market with the potential to provide strong sales. The company will be receiving royalties in the low double digit to mid teens on net sales of the product in China. This could prove to be a meaningful income in the long run.
- No Chinese Development Costs – RNN will also benefit from an entrance into China with absolutely no development costs. In fact, BioSense has agreed to pay all development, regulatory, and commercialization costs associated with RX-3117.
In a statement, Douglas Swirsky, President and CEO at RNN, had the following to offer:
Rexahn is focused on developing novel therapies for people with difficult-to-treat cancers. This partnership will enable us to extend the development of RX-3117 to patients in Greater China and also to evaluate RX-3117 in additional indications in collaboration with BioSense.
We are excited to work with the experienced regulatory and development team at BioSense to advance the development of RX-3117 towards regulatory approval in Greater China.
The above statement was followed up by Andy Li, PhD, President and CEO at BioSense. Here’s what he had to offer:
We are delighted to partner with Rexahn to develop RX-3117 for the Greater China markets. Cancer is the leading cause of death in China with over four million new diagnoses and almost three million deaths per year. Prognosis is poor for certain cancers and treatment options are limited.
Despite the significant success of immunotherapy, chemotherapy will remain a critical component of treatment regimens for many cancers. With its unique tumor-targeting mechanism, we believe RX-3117 could become a safer, more efficacious yet affordable treatment option to patients and doctors. We are excited to advance the development of RX-3117 for cancers that are especially prevalent among Chinese patients.
RNN Is Not A One Trick Pony
When looking at clinical stage oncology companies, we often find companies that have their entire livelihood riding on one pipeline asset. However, that’s not the case when it comes to Rexahn Pharmaceuticals. In fact, the company has a relatively robust pipeline, consisting of 3 Phase 2 clinical development programs and one program in preclinical development. The company’s pipeline assets include:
- RX-3117 – RX-3117 is the asset that the agreement mentioned above is centered around. At the moment, the treatment is the subject of 2 Phase 2 clinical development programs. In one of the programs, the company is targeting metastatic prostate cancer. The second clinical study is assessing the treatment as an option in advanced bladder cancer.
- RX-5902 – RNN is also working on the development of RX-5902. The treatment is in clinical studies as a potential option to treat metastatic triple negative breast cancer. The company announced that it entered into a pact with Merck & Co. (NYSE: MRK) surrounding the development of the drug.
- RX-0301 – Finally, the company is in the midst of preclinical development for RX-0301. It is believed that the asset has potential as a treatment for hepatocellular carcinoma.
The RNN Financial Position
As I’ve mentioned a couple of times so far, I wasn’t too impressed by the financial position at Rexahn Pharmaceuticals in the past. However, this is no longer a concern in my opinion. Here’s how I see it:
According to the most recent financial results release issued by RNN, the company had total expenses in 2018 that added up to $20,537,673. At the close of the year, the company had cash and cash equivalents amounting to $14,725,821.
Based on these numbers alone, the company wouldn’t have enough funding to get through more than about three quarters at best. However, that’s no longer the case.
As mentioned above, RNN said that it would be receiving an upfront payment associated with the license and collaboration agreement that was announced today. While the company did not disclose the size of this upfront payment, I’ve seen plenty of agreements like this and I would venture to say that I’m expecting for this payment to be a minimum of $10 million.
If that’s the case, the total funding that the company would have to get through 2019 would work out to be closer to $25 million. This is important as $25 million would be plenty of funding to get the company through the year.
Moreover, this amount of time would likely be enough for the company to reach a milestone under this agreement as well as plenty of time for other positive catalysts to take place. Considering this, there should be no need for funding any time soon!
The Market Potential Is Incredible
It’s also worth looking into the potential market opportunity that the company’s assets under development provide. In the United States, the pancreatic treatment market is expected to grow to $13 billion by the year 2023. Not to mention that the bladder cancer market is expected to be worth $1.1 billion by the year 2025 and the breast cancer market may grow to be worth nearly $40 billion by the same year.
While it would be foolish to think that RNN will take the lion’s share of these markets, even a small share of any of these markets could represent a meaningful return on investment for a company with a market cap of just under $30 million.
Consider The Risks
Any time an investment is made, it’s important to consider the risks that come along with it. While I believe that Rexahn Pharmaceuticals represents a compelling opportunity, there are also risks to consider before you dive in. In my opinion, the most pressing risks to consider include:
- Revenue – First and foremost, as a clinical-stage biotechnology company, RNN is not generating any revenue as of yet. This means that the company is heavily reliant on continued support from the investing community and its partners. Should any of this support fall apart, the stock could see painful declines.
- Clinical Reliance – Ultimately, Rexahn Pharmaceuticals is reliant on the success of its work with regard to its clinical candidates. As we’ve seen from other biotechnology companies in clinical stages, any study failure could lead to dramatic declines in value.
- Penny Stock – Finally, with a market cap under $30 million, RNN is still considered to be a penny stock. Penny stocks tend to come with higher risks as success is based on speculation that everything will go well.
At the end of the day, Rexahn Pharmaceuticals represents one of the most compelling opportunities in the clinical-stage oncology space. With several potentially successful products in its pipeline and a partnership that alleviates balance sheet concerns, this stock is one that comes with serious potential.