This article first appeared in Corporate, The Edge Malaysia Weekly, on June 27 - July 3, 2016.

AS July draws near, all eyes will be on TauRx Pharmaceuticals Ltd — in which Genting Bhd has a 20.7% stake — as it is expected to release the results of its Phase 3 clinical trials on its experimental Alzheimer’s drug next month.

The clinical-stage biopharmaceutical company is conducting research on treatment for the progressive brain disorder, which causes a slow decline in memory and currently has no cure.

When contacted, a TauRx spokesman declined to comment on the findings of the clinical trials but says news on the matter will be announced in a “few weeks’ time”.

Should the trials be successful, it will be good news for those suffering from the disease as well as Genting and the other stakeholders of TauRx.

However, if the findings are positive but not enough to obtain the approval of the US Food and Drug Administration (FDA) — which is needed for the eventual commercialisation of the drug — will Genting continue to invest in the research, or are there plans to list TauRx or tie-up with new shareholders, industry observers wonder.

Previous news reports stated that TauRx may go for an initial public offering (IPO), but industry sources say exploring tie-ups with large pharmaceutical groups could be a better business model instead, if more investments are needed.

Genting did not respond to emailed questions from The Edge on the matter.

On June 2, at Genting’s annual general meeting, the group’s chairman and CEO Tan Sri Lim Kok Thay said nothing has been decided by the TauRx board and a decision would depend on the outcome of the clinical trials. He was commenting on news of the biopharmaceutical company’s listing plans in the US.

Gaming analysts believe TauRx is a potential winning catalyst for Genting.

“But that catalyst will only materialise if the results of the trials are positive, or when Genting can unlock the value of that investment,” says a gaming analyst at a local research house that covers the stock.

“It has been a long-term bet … it remains to be seen if anything will come out of it,” he adds.

Nearly 14 years ago, in November 2002, Genting announced a total investment of US$111.8 million in TauRx in exchange for a 20% stake in the pharmaceutical company. Singapore’s sovereign wealth fund, Temasek, is also a substantial shareholder of TauRx.

UOB Kay Hian, in a May 25 report, notes that while Genting’s management could not provide updates, its investment in TauRx continues to be a wild card for the group.

“The outcome of TauRx’s Phase 3 (final) clinical trials is expected to be known in 3Q2016 and should the results be encouraging, TauRx would be eyeing a Nasdaq IPO in 2017 (with a potential valuation of US$15 billion), according to The Wall Street Journal in Dec 15 article. If so, Genting’s 20.7% stake would be worth RM12 billion and this could raise our target price to RM12.70,” it states.

The foreign research house currently has a target price of RM10.40 and a “buy” call on Genting. The stock ended at RM8.19 last Thursday.

While things are unclear and subject to the outcome of TauRx’s clinical trials, what is certain is that this venture by Genting is a long-term wager.

According to the Alzheimer’s Association, from 2002 to 2012, only 244 drugs for Alzheimer’s were tested in clinical trials.

“Only one of the 244 drugs successfully completed clinical trials and went on to receive approval from the FDA.

“Many factors contribute to the difficulty of developing effective treatments for Alzheimer’s. These factors include the high cost of drug development, the relatively long time needed to observe whether an investigational treatment affects disease progression, and the structure of the brain, which is protected by the blood-brain barrier, through which only very specialised small-molecule drugs can cross,” it states on its website.

It adds that none of the pharmacologic treatments (medications) available today for the disease slows or stops the damage and destruction of neurons that cause Alzheimer’s symptoms and makes the disease fatal. “The six drugs approved by the FDA for the treatment of Alzheimer’s temporarily improve symptoms by increasing the amount of chemicals called neurotransmitters in the brain,” the association says.

News reports note that as TauRx is at the clinical development phase, it is still in the red with a loss before tax of US$13.23 million, and that Genting’s total investment cost in TauRx is over RM480 million.

Apart from TauRx, Genting has invested in DNAe Group Holdings Ltd, a company incorporated in the UK that is involved in research and development on technologies for genetic analysis and sequencing. Genting is also a major shareholder of DNA Electronics Inc, a development-stage diagnostic company incorporated in the US that is involved in the development of a sample preparation system for the rapid isolation of bacterial and fungal pathogens directly from blood.

None of Genting’s healthcare investments has contributed to its earnings as yet. The bulk of the group’s earnings still come from its leisure and hospitality businesses. It is also in plantation, power, property and oil and gas.

For the first quarter ended March 31 this year, Genting saw its net profit fall 78.9% to RM130.83 million. The decrease was mainly due to lower earnings before interest, taxes, depreciation and amortisation (Ebitda) and the inclusion of gains on the disposal of available-for-sale financial assets and reversal of previously recognised impairment losses in 1Q2015.

In a May 25 report, Maybank Investment Bank Research says excluding exceptional items — which were largely due to unrealised net foreign exchange losses of RM280.9 million — 1Q2016 core net profit was down only 3% year on year to RM343.7 million.

It adds that it believes the group’s earnings for the second half of 2016 will be strong.

“At Genting Singapore, we expect doubtful debts to moderate from 3Q2016 onwards on tighter credit policies (from 90 days to 30 days repayment terms). At Genting Plantations, we expect FFB (fresh fruit bunch) output to pick up sharply on seasonally higher rainfall. At Genting Malaysia, we expect more visitor arrivals, thanks to new amenities at Resorts World Genting. Therefore, we leave our earnings forecasts for Genting unchanged, despite the earnings shortfall in 1Q2016,” says the research house.

Maybank has a “hold” call on the stock with a target price of RM8.90.

See also Page 32: Weighing the returns on Genting’s long-term bets 

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