George:
The business plan, if the chemistry is up to the task, allows them to sponge off of the biological expertise/screens that others have developed, and where pharmachem is desperately needed as a complement. The opportunity is there to walk through this relatively narrow time window and capture a nice percentage of the total future revenue stream from pharmaceuticals. The same is true for other combichem companies that can keep partnering and chemistry on track, but the ARQL strategies work best for me.
Proprietary chemistries are good. IMO, however, there are routes around them...... even if they can be successfully protected. Therefore, you need to do two things, longer-term, to become a legend stock. First, you need to shove effective compounds through preclinical and get them into human testing for large markets. That's what we're all focused on and and dreaming about. However, the business plan centers around near-term revenues that are leveraged from superior chemistries and their automation. So, the second thing you need to do is to maintain sufficient revenue flow so that your chemistries will stay advanced, relative to virtually every biotech and relative to most pharmas.
I didn't mean to imply that "legend" was easy. :-)
ARQL gets that lead slot at H&Q for a reason. It's sexy. They're trying to accelerate the drug discovery and optimization process AND maneuver their way to an earnings plan rather than a milestone plan. Gordon, at H&Q, promised one product in clinicals this year. Rachel Leheny, in her analyst's wrap, promised two INDs this year. Gordon has gone not only after drugs but also specialty chemistries including agrichem. Over 70 Ph.D. chemists. The robots work 24 hours/day. The pipeline is being filled for collaborators with IND candidates. I feel that they've walked through that narrow window and that the next few years will be exciting.
Now, the trick to "legend" will be to keep the window open. To do that, they have to manage this incredible growth. That's where Gordon will be tested as few CEOs have been tested. If he doesn't tend to (and groom) the very best of mid-level managers, poof, there goes "legend".
Hey!, the Abbott agreement, the first for ARQL, was extended to '99. The partners appear to be happy. There were, in January, ten compounds in lead optimization or preclinical studies. That's 10 compounds in 21 months and in 9 of the 14 major disease categories. Most importantly, the IMNX agreement demonstrates that the biotech-biotech deals will continue, and most will continue to roll out as 50:50. If ARQL is only half as good as they think they are, they're damn good.
Hogan took a very simple concept and ran with it. He said that the important first step was to fill a given space on a molecule...... that you needed a restricted, biased library to get hits, not millions of compounds. Optimization could be done later after you've sprinted to the lead.
I wish, however, that he would stop selling his frigging stock and focus on the single most important step to achieving the status of independent pharma (their goal)..... the hire of competent, mid-level manager-scientists. No politics, everyone on the same page...... quiet, nose-down scientists who respect their capacities and avoid politics. IMO, if they can do that, there's nothing standing between them and "legend".
The punch line? No burn at the moment. However, the company plans to diversify into non-pharma activities, and that will take cash.
In the current environment, Gordon, Hogan et al. could invent a process to economically synthesize gold, and, since it's a biotech, ARQL wouldn't pop. I'm not going to go into why this has happened, the difference between today's biotechs and those that have had such marvelous, well-lighted failures, or my current view of the premiums that are assigned to good research. If one doesn't invest in ARQL (high risk stuff!), one should at least watch the story as it unfolds. The same should be said for INCY, MLNM, ABSC and a few other companies that tried to catch a different wind.
Cheers! Rick |
