Good morning, Armchair Army,
Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.
Yesterday, I looked at how to value companies with growing revenue.
But what if the company doesn’t make money?
(and won’t make it for a long time)
How do you value that?
It’s not easy.
A company driven by potential rather than earnings fundamentals?
That is a “story stock”.
(and honestly, it's where most of the ASX-listed healthcare space fits into)
A story stock is one where the value isn't just driven by the company's achievements so far…
… But by the attractiveness of the story that management tells the market.
What’s the upside?
What’s the journey look like?
Where are the value inflection points along the way?
Stories matter.
(and telling them matters even more)
I’m reading a great book right now called The Billion Dollar Molecule.
It's the history of Vertex, a NASDAQ-listed pharma company that fundamentally changed drug development in the 1990s.
One key hurdle for Vertex in the early years was securing a licencing deal with a larger pharmaceutical partner to finance the startup, without dilutive funding.
The catch?
The company hadn’t achieved anything of substance.
No molecules to speak of. No drugs to present.
Just a story to do the heavy lifting.
This is an excerpt from Chapter 3, when Vertex CEO Josh Boger refines the pitch to a large Japanese pharmaceutical company.
Boger knew that stories have to be accessible and that what investors want most from them is affirmation, so he moulded Vertex’s slide show not as a disquisition on science or business strategy, but as a quest.
The grail — the object of the quest — was structure-based design and its transcendent prize of safer, smarter, more profitable drugs.
The impetus, as always in such stories, was a combination of righteousness and greed. Vertex had a better way to discover drugs than screening and biotechnology and was intent on capturing the spoils of its victory whole.
The rationale for the quest was the company’s unique melding of disciplines and technologies, which he represented as a kind of circular flying wedge, and its scientists, who, he noted, all came from the world’s most powerful research institutions. Harvard, naturally, was a key supporting element, as was Merck, and on the financial side.
FK-506 and immunosuppression were the story’s set pieces, meant to illustrate its correctness.
Like Vertex, every early-stage healthcare company needs a quest.
A holy grail to target.
An impetus to get there.
A rationale to believe it can be done.
… and a reason to fall in love with the story.
Companies that understand this create a flywheel.
A compelling story…
Attracts capital →
→ which funds faster execution
→ which delivers milestones and evidence that the company is on the right path
→ which builds investor confidence
→ which strengthens the story
→ which attracts more capital.
… and so on.
The ASX-listed company that does this the best is probably Racura (ASX: RAC).
They have positioned their cancer target of “MYC” as the holy grail of oncology targets.
Heck… They even have a picture of the holy grail in their investor deck:
Racura has consistently raised capital from the markets most recently through rights issues, option exercises, and privately negotiated placements to strategic investors.
Not the typical “churn and burn” raises to the Hong Kong hedge funds so common in the sector.
… But raising from retail investors who are along for the journey.
My article on Racura:
The reality is that all early-stage companies are “story stocks” in some shape or form.
That means telling a compelling story (and executing on it) is key.
Find the holy grail…
Tell the story…
Take shareholders on a journey…
Win.
Let’s dive in…
The Pulse Check
Emyria (ASX: EMD) opens its first Sydney EMPAX clinic for psychedelic-assisted therapy. National capacity now sits at 90 beds per week across 4 states. (EMD, held, Armchair Pick)
🪑 The Sydney Clinic now moves to the next phase: “Clinic Commences”.
About a ~6-8 month timeframe for this clinic to start printing cash directly to Emyria’s bottom line:
Singular Health (ASX: SHG) signs MOU with Florida International University worth up to A$3.5 million to develop a medical imaging repository. (SHG)
🪑 A standout and material deal for SHG.
The key unlock for the deal was the State of Florida's appropriation of US$3 million to build a Medical Imaging Data Repository.
Now that those funds are available, this MoU can move forward to a term sheet… and eventual revenue for SHG (project completion date expected this financial year).
Argent BioPharma (ASX: RGT) signs an exclusive global licence (excluding China) with NLC Ltd. to commercialise antiviral products. (RGT)
🪑 Looks like Argent could become an antiviral… perhaps they’ve seen Island Pharmaceuticals' success and are looking to replicate it?
Patrys (ASX: PAB) completed dosing and follow-up for Cohort 1 in the Phase 1a trial of RLS-2202, a reformulation for delirium. (PAB)
🪑 Milestone ticked.
Firebrick Pharma (ASX: FRE) enters into the US retail pharmacy market for Nasodine. (FRE)
🪑 They haven’t gained much sales traction in other regions where they’ve launched. Here’s hoping that the US market is better.
Memphasys Limited (ASX: MEM) secures a $3.5M convertible note from major shareholder Peters Investments. (MEM)
Cochlear Limited (ASX: COH) faces a class action over FY26 profit forecasts in April this year. (COH)
🪑 This looks like a legal shakedown to me…
Around the World in Healthcare
Report: The National Health Service in England has imposed a two-year minimum wait for ADHD and autism assessments. (The Guardian)
🪑 That sucks.
If only there were an ASX-listed company that could do an assessment in 30 seconds.
… oh wait, there is! BlinkLabs (ASX: BB1)
Report: China Builds “Brain Computer Interface” Standards as Neurotech Funding Rises. (Neuro Founders)
🪑 This space is moving very quickly… We’ll all become cyborgs one day.
AbbVie wins FDA approval for the first selective D1/D5 receptor agonist for Parkinson's Disease. (Fierce Pharma)
Merck & Co. licenses Chinese-based SciBrunch Therapeutics' preclinical KRAS inhibitor SPR2015. US$400M upfront, up to US$2.1B. (Reuters)
🪑 KRAS is so ‘in’ right now.
See you all tomorrow,
The Armchair Analyst
