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Bionomics Acquisition A Plus
FNArena News - September 24 2012

- Bionomics expands into cancer stem cell sector
- Bell Potter sees longer-term upside potential from the move
- Reiterates Buy rating 

By Chris Shaw

For some time Bionomics ((BNO)) has been developing two lead products, one an anti-anxiety drug (BNC210) and one a cancer treatment (BNC105). The latter has proven to be effective in treating solid tumours and as a vascular disrupting agent.

Bionomics has now expanded via the acquisition of Eclipse Therapeutics in the US for US$10 million via the issue of Bionomics shares. As Bell Potter notes, Eclipse is a cancer stem cell development company, with two programs built around antibodies to cancer stem cell targets.

Bell Potter expects the first of the two programs being acquired will go to clinical trials in 2014, the long lead time being offset by the fact the acquisition improves the market position of Bionomics in the emerging cancer therapeutics market space.

The cancer stem cell sector is becoming increasingly important, as Bell Potter points out traditional chemotherapy drugs can eradicate most cancer cells but not cancer stem cells. The ability to knock out cancer stem cells could, in theory, prevent cancers from recurring.

This sector of the market is attracting increased interest from investors, Bell Potter pointing out a similar company, Verastem, conducted a successful Nasdaq IPO in January of this year by raising US$55 million. 

As well, in recent years Bell Potter notes there has been increasing activity among major drug companies looking to establish a foothold in the sector though both partnership agreements and mergers and acquisitions.

Given the longer time-line associated with developing the stem cell programs acquired with the Eclipse acquisition, Bell Potter sees developments with respect to BNC210 and BNC105 as the main drivers of the Bionomics share price in the medium-term.

In this respect news flow is expected to be solid, given a number of pre-clinical and clinical data announcements expected over the next 12 months. As an example, Bell Potter sees potential for BNC105 to be licensed in the second half of 2013, ahead of trial and interim data from ovarian cancer trials due in the first half of 2014. 

Bell Potter suggests any licensing deal would likely provide sufficient funds to invest in the rest of the development pipeline of Bionomics. A further positive is a previous partnership deal with Ironwood Pharmaceuticals of the US for BNC210, which provides US$345 million in upfront and milestone payments. 

A further US$10 million is to be injected into Bionomics before January of next year, enough to see the company broadly self-sustaining given the amount is more than the current annual burn rate on Bell Potter's numbers.

Aside from BNC210 and BNC105, Bionomics has other valuation drug discovery technology. Bell Potter suggests the proprietary Multicore, Angene and ionX drug and target discovery platforms offer an engine for future growth, something likely to be viewed attractively by potential acquirers in the sector.

As an example, Bell Potter notes Bionomics has a program for Alzheimer's Disease planned, for which there is currently no partner in place.

Adjusting its model for the Eclipse acquisition, Bell Potter now values Bionomics at $1.67 on a base-case scenario and $2.25 using more optimistic assumptions. The price target has been set at the lower end of this range at $1.70 and Bell Potter rates Bionomics as a Buy.

Given a current share price of around $0.35, Bell Potter sees significant scope for Bionomics to be re-rated as progress is made in clinical trials. Others in the market have not followed the story, as with a current market capitalisation of around $120 million none of the broker's in the FNArena database provide coverage on Bionomics. 

Shares in Bionomics today are higher in a weaker overall market and as at 11.10am the stock was up 1c at $0.385. This compares to a range over the past 12 months of $0.24 to $0.62.

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