RE: Equity Positiononc's goal should be to partner ASAP, and accept a lower royalty rather than higher, to do it, because it reduces their risk. Issuing equity to the partner also gives credibility to onc (which I think is lacking and one of the main reasons the stock is “undervalued”). partner equity also instantly legitimizes reolysin.
they will have to totally rely on a partner to give them the resources to even consider sharing the burden of planning & conducting phase III trials which will involve hundreds of enrollees (see errbitux) rather than the dozen or two they have now. So it makes more sense to simply have the partner fund ALL ph III trial costs.
That will come at a price – likely lower royalties, but it shouldn’t matter if the royalty is 10% or 25% since if reolysin is 25% effective, the revenues from royalties would be huge in either case.
Lower royalties will not only help make a deal, but also increase the partner’s incentive to put reolysin ph III trials on a "fast track” – so that eventual revenues start flowing sooner for both, which also serves to maximize the value of onc’s limited life patents.
Onc needs cash even if they don’t participate in conducting ph III trials – the question is will it be in the form of an upfront payment or an equity investment. To mitigate the risk to both the partner and onc, onc should insist on an equity investment by the partner - one that allows a higher royalty to onc than without an equity stake since the partner would be able to recover some of that via an increase in the value of their onc investment and two, it adds credibility to onc management and legitimacy to their reolysin treatment. For the partner, it gives them influence with the company – sort of an option or right of first refusal if reolysin is effective and they want to take greater control over the company.
The amount in question should be sufficient to allow onc to remain viable if the partner should ever decide to back out – perhaps some penalty provision or premium payment due onc if the partner ever decided to sell their shares, based on the stage of trials, results, etc.
The above situation suggests a a couple of things to me.
a partner will only enter into such an agreement once they are reasonably satisfied that the considerable outlay required on their part for an equity investment and phase III costs is justifiable – meaning statistically significant & positive, complete phase II results at a minimum.
I am unconvinced that the small number of enrolees in the current phase II trials for onc is a good thing – it raises another yellow flag to me – I can’t dismiss the possibility that they are cutting back trying to do this on a shoestring, instead of doing it right – and they might pay for it down the road.
These guys are trying to turn a $50M Cdn company into mega- hundreds of millions or billions – even a small screw-up in these early stages can ultimately cost them (and shareholders) big time.