The New Criterion

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Another biotech shooting star falls to earth after a poor clinical trial. Meanwhile, PNG-focused Mayur Resources’ $15.5 million IPO looks likely to close oversubscribed on the back of its multi-commodity strategy.

ResApp (RAP) 8.3c

The best-performing ASX stock of 2015, ResApp has joined the list of biotech stocks suffering an embarrassing – and surprising – clinical setback.

ResApp had developed an app-based algorithm that enables patients with respiratory diseases to literally cough into their phone for a diagnosis. Given the rise and rise of telehealth, investors soon cottoned on to the huge potential.

After being in trading halt for seven days – always a suspicious sign – ResApp on August 9 released the broad results of a US clinical study across three hospitals called SmartcoughC, involving 1245 patients aged between 29 days and 12 years.

The results were a shocker, contradicting those of previously positive studies carried out at Perth’s Joondalup Health Campus and Princess Margaret Hospital.

While the US study aimed at a 75 per cent effectiveness rate, the results were as low as 35 per cent for positive diagnosis of asthma and reactive airways disease. The results were compared with a traditional X-ray analysis, blood test or a doc with a stethoscope.

The results for negative confirmation – confirming a patient did not have a certain disorder – were not much better.

Two smaller Perth trials for adults and children claimed detection rates of up to 100 per cent, with nothing below 89 per cent. An Indonesian-based trial, funded by the Bill and Melinda Gates Foundation, was equally impressive.

“These are not the results we expected given our experience in Australia,” says ResApp chief Tony Keating. “It’s obvious that a large number of tests have been affected by procedural anomalies and we now need to go through each case one by one to fully understand the results.”

“Procedural anomalies” included some patients being treated before the cough test, “contrary to instructions and training.”

Some cough recordings also had unacceptable background noise and interference, including coughing from third parties in the room.

ResApp now aims to repeat the study with some refinements, as well as launching an adult study during the coming US winter. Each trial is expected to cost $2.5 million to $3 million. “We have $8 million in the bank and I’m glad we do,” Keating says.

The company is also pondering going ahead with a Food and Drug Administration approval application for bronchiolitis, the only application to score passable detection grades of between 80 per cent and 95 per cent.

ResApp’s setback has parallels with the near-fatal experience of Innate Immunotherapeutics (ASX:IIL), which held high hopes for its multiple sclerosis drug with the backing of US Republican investors.

The drug had already been made available to needy patients, who reported benefits. But in June a 93-patient local trial showed “no clinically meaningful or statistically significant differences in measures of neuromuscular function or patient-reported outcomes.”

As with Innate shares, ResApp stock was poleaxed on the day, losing 77 per cent of its value.

ResApp shares listed via the backdoor in July 2015, with $4 million raised at 2 cents apiece. The stock peaked at 53 cents in September 2016, a 1275 per cent gain for the smarties who picked the top.

The moral of the story for investors is that when it comes to clinical studies, the dangers increase the more expansive the trials become.

The lesson for patients is the stethoscope-wielding doc remains the best way to diagnose respiratory diseases, which account for the lion’s share of GP visits.

Mayur Resources (not yet listed)

In a variation of the coals-to-Newcastle theme, this eclectic multi-commodity resource house plans to ship one million tonnes of sand from PNG to Sydney.

Don’t we have a surfeit of the stuff already – and not just on Bondi Beach?

Apparently not: Mayur’s sand is the high quality fine-grained variety, valued by the cement makers and it’s in short supply in the Sydney region.

According to Mayur CEO Paul Mulder, most of the construction sand is supplied from quarries in the Newcastle region and then trucked to Sydney at great cost.

It’s cheaper to ship the stuff from PNG, where the sand will be an otherwise waste product from Mayur’s proposed Orokolo Bay mineral and industrial sands project on the southern coast.

The Singapore-incorporated, Brisbane headquartered Mayur is currently in the throes of raising up to $15.5 million ahead of its September 1 ASX listing.

The offer looks like being well oversubscribed ahead of its August 18 close date.

Mayur’s PNG assets also include limestone, copper-gold tenements and coal projects, as well as a planned coal fired power station to be built near the industrial city of Lae in Morobe Province.

The Orokolo Bay industrial and mineral sands project looks like being the first project up and running, based on a simple open-cut operation to extract five products including titanomagnetite (iron ore), industrial magnetite, zircon-rich heavy metal concentrates and high grade free silica sand.

The project remains subject to a definitive feasibility study, with total capex of just US$22 million to bring the project into production.

With more than 12,000 square kilometres of highly prospective exploration tenements available to be drilled, Mayur is confident enough to plan trial shipments to customers in China and Japan within 14 months.

Costed at $110 million, the Lae power project involves shipping coal from Mayur’s Depot Creek project in the south of the country, which boasts the first complaint coal resource in PNG, at 11.4 million tonnes. The power plant, which has been granted environmental approval, remains subject to a power purchasing agreement execution with the state-owned utility PNG Power.

The process has been delayed because of the country’s recent election, that last week saw controversial Prime Minister Peter O’Neill and his People’s National Congress win a second term.

While approval is no Lae-down misere, Mulder seems confident the power project will ultimately prevail because of the need for reliable, low cost electricity.

While Mayur holds several gold and copper interests in PNG, the main focus is on the Feni Island gold tenement in New Ireland, currently rated as a 650,000-ounce resource.

Meanwhile Mayur’s undeveloped Port Moresby Limestone Project aims to supply the domestic PNG market with the cement making and agricultural material, which currently relies on imports from New Zealand and Thailand.

Apart from the freight advantage, the deposit is high grade and at surface.

Mulder knows a thing or two about developing projects, having run Hancock Prospecting’s coal interests for Gina Rinehart between 2007 and 2014.


Tim Boreham is author of The New Criterion

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