Shares in cancer research business Race Oncology Ltd (ASX: RAC) stormed 42% higher to 22 cents today after the group announced its childhood leukaemia trial drug, Bisantrene, has been granted 'rare paediatric disease' (RPD) designation by the U.S. healthcare market regulator the FDA.
According to Race Oncology the RPD designation means Bisantrene "has the opportunity" to be awarded a 'Priority Review Voucher' (PRV) by the FDA which "grants the holder an accelerated 6-month review of a drug application by the FDA".
For speculative healthcare businesses trialing drugs to treat some of the commonest human ailments in the world such as cancer, Alzheimer's, or heart disease, FDA approval to commercialise a drug based on its efficacy is the Holy Grail that can lead to unimaginable riches for investors.
However, few succeed and the prohibitive costs in funding medical research mean these healthcare start ups can often end up burning a hole in investors' pockets with no return.
However, Race Oncology's CEO is declaring today's news a "game changing outcome" on the basis that Race may be able to sell the PRV to a larger healthcare business if it is awarded.
According to Race, a PRV can commonly sell in the secondary market for US$110 million to US$130 million. It also sees the PRV's value as independent of the value of Bisantrene as a drug to potentially treat childhood leukaemia.
This all sounds exciting enough, but I wouldn't suggest taking a punt on Race Oncology shares on the basis of this news.
It has $4.1 million in cash on hand and burned through $3 million in operating cash flow for the 9 months to March 31 2018. It also probably has to fund costly upcoming trials for Bisantrene if it's to attempt to gain PRV indication for the drug, with there being no guarantee of the trial's success.
Another business in the speculative bucket, but on a larger scale, is Mesoblast limited (ASX: MSB). Today its shares are up more than 10% on news of a financial and commercial deal with a Chinese healthcare partner.
But why take a punt on companies with mixed track records and little in the way of revenues when you could buy a junior healthcare company already growing revenues and profits like clockwork….
