Oncodesign in Paris-Saclay

Introduction
The acquisition of the research centre of GlaxoSmithKline (GSK) situated on the prestigious ParisSaclay scientific and business campus along with 57 highly-trained scientific staff is set to radically
change the future development and visibility of this Dijon-based drug discovery company. This
change of dimension will occur on 3 fronts :
Because of the extremely favourable financial conditions of the deal which include a
payment from GSK to Oncodesign of 35M over 4 years to ensure job security of the 57 GSK
staff and transfer of the property rights of the buildings and equipment to Oncodesign for a
symbolic sum. This will radically change the cash-flow of the company as well as the quality of
its balance sheet.
By doubling the research capacity and expanding the competence of this very successful
research laboratory, enabling new services and partnerships to be offered,
By incorporating prestigious new scientific and corporate headquarters in the scientific heart
of the French capital, creating visibility and status for the know-how, achievements and projects
of this little-known pharmaceutical laboratory.
Background
Oncodesign is a biotech company with an unusual business model. Oncodesign (ALONC) has two
or maybe three arms, depending on how you look at it.
1) A Drug Evaluation Service for cancer drugs. This dedicated service is used by a very large
number of drug companies (600 clients from Europe, USA, Asia) to evaluate cancer drugs in the
pre-clinical phase. Oncodesign claims to be able to asses the efficacy of drugs in the very early
stages faster than anyone else, using bio-informatics, in vitro testing, in vivo testing, medical
imaging, etc. They have 20 years experience testing other people's drugs. This business is
profitable. It is made up of many small contracts with a rapid turnover, but growth is limited by the
available staff.
2) Drug Discovery Partnerships. Oncodesign carries out its own R&D on a platform called
Nanocyclix to discover and assess completely new families of molecules which it stores in its
patented drug bank that currently contains 6500 molecules for different uses, not only for cancer.
These drugs are then offered for co-development in partnership with drug companies at the preclinical stage on the basis of a pre-payment when the drug and target are selected and further
payments on reaching clinical phases and on to to commercialisation. The client company pays for
all the clinical phase costs. These contracts are long-term and the revenues are historically much
more unpredictable, but potentially much greater than for the Drug Evaluation service if they
progress to commercialisation. Clients include Ipsen (some Oncodesign researches actually work in
Ipsen's labs), UCB and Bristol Myers Squibb (the biggest deal so far) etc.
3) Fully-owned Drug Discovery : Oncodesign uses the revenues from these activities develop its
own drugs with the intention to license out at the early stages of clinical development, the first of
which is a radio-tracer molecule to asses the efficacy of cancer drugs to respond to metastases from
lung cancer.
Apart from the initial introduction, in 2015, this business model means that the company has never

had to raise cash for its development side, but it also means the rate of growth has been limited by
the income (from 7M in 2013 rising to 14M in 2015). The company does not take risks and cash
is managed very closely by the CEO, Dr Philippe Genne, who owns more than half of the shares.
To accelerate its development, Oncodesign has just signed a major deal with GlaxoSmithKlyne.
Oncodesign has signed to acquire the Saclay research laboratories of GSK, who are cutting back on
research in Europe and keeping only the UK and US laboratories. Oncodesign has agreed to take on
57 GSK research staff and will take over ownership of 8500 M2 of fully-equipped state-of-the-art
laboratories in a new building worth about 50ME plus some older buildings for a symbolic
payment. Oncodesign will also receive 35 M over 4 years to guarantee job security for the GSK
staff. This deal will double the size and income of Oncodesign for the next 4 years and extend the
competence of the company into new fields. It also provides space to expand and the prestige to
benefit from the innovative and international environment of the Paris-Saclay research campus.
Oncodesign is a leader in complex medical science that that market finds difficult to understand, so
it relies mostly on the turnover that historically depends on the Drug Evaluation business. This has
shown strong regular growth in recent years, but is incapable of showing the potential exponential
growth that Drug Discovery can offer.
The Immense Potential of the Drug Discovery Activity
Oncodesign's Drug Discovery activity deserves a special mention because of its potential to
generate hundreds of millions of income from a single successful molecule. In the long term the
Drug Discovery activity will have the greatest impact on the share price of Oncodesign. This was
amply demonstrated in June 2015 when UCB took up its option to license a selection of
macrocyclic molecules developed by Oncodesign for the treatment of Neurological Diseases. In the
days following this announcement the share price of Oncodesign jumped from 7 to 17 and
remains at this level today. The market did not anticipate this event but simply reacted to it.
In January 2016, Oncodesign announced its most important deal in Drug Discovery so far, a
strategic partnership that gives BristolMyersSquib the option to licence small macrocyclic
molecules for oncology and non-oncology therapies. According to the terms of this deal,
Oncodesign received an upfront payment of 3M$, and for each molecule selected will receive
further payments of up to 80M$ per molecule/target, (the number of molecules/targets is unlimited)
as the different stages of development are reached. In May 2016, the first molecule in this
partnership was selected, giving further proof of the validity of the Nanocyclix platform. Additional
molecules/targets should be selected in 2016 and 2017, boosting Drug Development income.
In 2015 Oncodesign opened discussions for partnerships to develop Kinase Inhibitors. Protein
kinases are enzymes that add a phosphate group to a protein, thereby modulating its function. This
process regulates many biological functions such that protein kinase inhibitors can be used to treat
diseases driven by over active protein kinases (including mutant kinases in cancer and
auto_immune diseases) or to modulate cell functions to overcome other diseases. A protein kinase
inhibitor blocks the action of one or more protein kinases. Oncodesign's patented Nanokinib
database contains some 5000 Kinase Inhibitors classified according to their nature and potential
field of application. The market for kinase inhibitors is estimated to be worth some $40Billion. In
2016, Dr Genne announced that discussions to licence RIPK2 kinase inhibitors were well advanced
and that a protocol would be signed this year. When announced, Oncodesign will once again
surprise the market as Dr Genne adds yet another major deal to his already impressive record. It will
prove beyond doubt the validity of the research and the wisdom of the business model of
Oncodesign to generate consistent growth without incurring risk for the shareholders.

Upcoming events
1) Turnover and Cash
End 2015, the turnover was 14,5M (up 100% on that of 2014), and for the first time the drug
discovery side was significant at 5M. Typically the drug evaluation side at 9M progresses
regularly, whereas the discovery side is more unpredictable. This may change in the future. Dr
Genne has stated that Drug Discovery income was at the point of becoming recurrent just like the
Drug Evaluation business. The Drug Discovery contract with BMS started with a boom in
December 2015, with 3M in upfront payment and was followed by a payment of 1M in May
2016 for the selection of the first molecule, so this contract is moving fast. These payments are not
announced in real time but show up in the half yearly figures, so we can't know what to expect for
H2 2016. There will however be a payment (est. 1,9M) for the Ipsen deal which guarantees 3.7M
per year for 4 years in payment for Oncodesign Staff detached to the Ipsen Saclay site in May 2016.
Based on a turnover at H1 2016 at 5,74 M and with orders at 7,1M (incl. Ipsen), we can
realistically expect a turnover of 12M for 2016 plus any additional Drug Discovery income during
H2 2016.
Dr Genne did however strongly indicate in May 2016 that a deal for kinase inhibitors (RIPK2) was
progressing well and was expected to be concluded in 2016. This should be a very large deal in drug
discovery, but we have no idea how this will play out in upfront compared to stage payments. Until
such a deal is announced, we can therefore only retain a figure of 5M for 2016, identical to that for
2015. This gives a total of 16M, a small increase on the 14,5M for 2015. But since Drug
Discovery income is variable, it could be slightly less or very much greater.
All this will change very significantly with the GSK deal. On the cash side Oncodesign will receive
35 M over 4 years to ensure the integration of the 57 GSK staff. It is not clear how or when this
will be paid, but a credible estimate would be 5M in 2016 and 10M for the next 3 years. Total
income would then be at least 20M in 2016, an increase of 38%. This would open the highly
visible perspective that 2017 will benefit from the full Ipsen and GSK payments of 3.7M and
10M respectively to be mechanically added to the Drug Evaluation income of about 9M (2015
data), making 24 M for 2017 plus any additional Drug Discovery income. If the Drug Discovery
income does become recurrent as Dr Genne has predicted, then 2017 should see income exceeding
30M, more than doubling that of 2015.
In September 2016, Oncodesign had 108 staff, up from 73 one year earlier. The 57 GSK staff will
take this number to 165, more than twice the number one year ago. More importantly, 90% of the
GSK staff are highly qualified scientists with considerable experience of drug discovery. They will
significantly accelerate the programs in both oncology Drug Evaluation (for which demand is very
high) and drug discovery from 2017 onwards as well as adding new therapeutic programs in nononcology. These new programs will include immunology, inflammatory diseases, fibrosis,
dermatology and neurological diseases as well as synthetic chemistry for drug design. Oncodesign's
offer will therefore be expanded to full Drug Discovery services with almost immediate effect,
thanks to the acquisition of highly qualified and experienced scientific teams and state-of-the-art
equipment. One can therefore expect as a strict minimum, additional income of 5M in in 2017
rising to 10M in 2018.
We are therefore looking for income in the range 20-25M for 2016 and 30-35M for 2017
excluding major Drug Discovery deals.
Cash Reserves were at 9M end 2015 and should increase significantly end 2016. Indeed, the first
stage of the 35 M GSK payment should enable Oncodesign to declare a modest profit in 2016.

The acquisition of the GSK buildings and equipment will bring a significant change to the
balance sheet. These assets will be acquired in for the symbolic sum of 1. However these assets
will have to be revalued at their true value in Oncodesign's accounts. This could add some 30-50M
to the balance sheet effectively creating a massive exceptional profit. The market cannot easily
ignore such an event despite its exceptional nature. It would clearly confirm the remarkable
negotiating and business skills of Dr Genne and his top management.
Income M

2017 (est.) 2016 (est.)

2015

2014

2013

Drug Evaluation

14,00

9,00

9,32

6,12

6,02

Drug Discovery

>5.0

>5,0

5,15

1,06

1,32

Ipsen Deal

3,7

1.9

GSK Deal

10,0

5,0

Total Income

>32,7

>20,9

14,52

7,18

7,34

How will the market respond to the 2016 figures ?

The recurrent Drug Evaluation business provides support for the share price and has given it
stability over the past 18 months. The market has however priced in some share value for the Drug
Discovery business and is now waiting for positive news from this front. Whereas increased
revenue from the Drug Evaluation services will be well received, significant or recurrent income
from Drug Discovery business is expected to be the main catalyst to boost the share price. The news
of the GSK Saclay acquisition was indeed excellent for the medium and long-term future of
Oncodesign, but since it will have no short-term impact on the Drug Discovery figures, it has been
largely ignored.
Because the market has so far failed to anticipate the change of dimension of Oncodesign due to the
GSK acquisition, a gap has occurred between company's current value and its market capitalisation.
This gap should be filled in the coming months as the company communicates regularly on progress
to get optimum value from its two research centres and how its Discovery and Evaluation poles will
be transformed. It will no doubt demonstrate that the GSK Saclay acquisition will be a strong
accelerator not only for the Drug Evaluation service (to offset the extra costs and generate recurrent
income) but also for the higher-profile Drug Discovery business through expansion of the
Nanocyclix Platform as well as for the strategic repositioning of the company (more on this below).
2) Getting optimum value out of the Paris-Saclay site
The Paris-Saclay campus is of vital importance for the prestige of French science and technology. It
includes the vast research campus of University Paris-Sud as well as the world famous research
centres of the CEA, Air Liquide, Ipsen, INRIA, INSERM, CNRS, HP, Ecole Polytechneque and
other business schools, etc. and of course the research centre of GSK. By acquiring the GSK site
and its competences, Oncodesign has effectively changed dimension and moved up into the Premier
League of scientific R&D. Paris-Saclay can reasonably be compared to the world famous science
campuses in Oxford UK or Cambridge USA. The GSK site is not just the acquisition of laboratory
space and staff, it is also an invitation to be become a key player in International R&D at the highest
level. It is an international crossroads to meet and invite top scientists and business leaders,
exchange ideas, discuss progress, projects and ambitions. It provides the opportunity to recruit the
best people from the best business and engineering schools. To achieve this major transformation,
the Saclay site must become home to some of the most high-profile scientists, managers and
activities of Oncodesign. Oncodesign Saclay will not only be a leading research centre, because of
its location in the Paris-Saclay campus, it will naturally become the permanent showroom for the
company's competence and achievement.

Oncodesign must therefore take major strategic decisions that will affect its future for the next
decade. No doubt Dr Genne has been working on this issue ever since serious negotiations started
with GSK. It is quite unthinkable to imagine that the Saclay site will become a Paris extension of
the Dijon laboratories of Oncodesign. The GSK site, because of its scientific and business
environment will very likely become the flagship site of the company. The site comprises 11,000 M2
of prestigious modern offices and laboratories, a surface that corresponds to 200 M2 per scientist,
far exceeding the needs of current 57 staff. Indeed with just 57 staff, this site is practically empty
right now. To develop a vibrant environment within its walls, it will have to grow rapidly, in part
because 57 highly qualified scientists will need support staff (technicians, computer specialists,
project managers, administrators, procurement, etc.) to work effectively.
In fact Oncodesign must make decisions on the following issues in respect of the Saclay site :
On the reorganisation of the scientific and corporate activities :
- Relocating the Corporate, commercial and legal services of Oncodesign to Saclay,
- Redistributing the Drug Discovery and Partnership activities between Saclay and Dijon,
- Redistributing the traditional and newly acquired Drug Evaluation activities between Saclay and
Dijon.
- Boosting the sales force to match to the new offer for both Drug Evaluation and Drug Discovery.
And even concerning the Strategic repositioning of the company
Until now the name Oncodesign correctly reflected the companies activities that were strongly
concentrated on identifying, assessing and designing new drugs for oncology. The acquisition of
the Saclay site, equipment and competences now means that this name no longer reflects the full
range of the company's future activities which will cover all aspects of Full Drug Discovery. The
current name is too restrictive to survive into the next decade, so what should replace it ?
Strategic repositioning needs careful thought, planning, expertise and time to do the job properly,
but we can expect that integration of the site will comply with a strategy that will lead to
repositioning of Oncodesign as a leading drug discovery company.
Oncodesign may be inspired by the Saclay location to incorporate Saclay into its new name,
immediately adding prestige and familiarity to the company name. Saclay Drug Discovery is one
name that comes to mind, which would in time be shortened to Saclay. But these are just my ideas
to provide food for thought. I am however convinced that big change is coming to Oncodesign.
No doubt Dr Genne will wait until the deal is finally completed in December before communicating
on his plans, but the coming months will very probably see a number of press releases on this
subject as the New Oncodesign reorganises and repositions. These announcements, profoundly
aimed at setting out the future of the company, could be recognised by the market as being more
important than the financial results for year 2016 which by the time they are published in the spring,
will only be relevant to the old Oncodesign. 2017 will be the year of change for Oncodesign
Albert F Wright PhD
wriga38@gmail.com
October 2016