Absci Corporation (NASDAQ: ABSI) is up 43% premarket on the back of news about a research tie-up with Merck. This is a nice turnaround for the troubled Absci stock as after a first burst of enthusiasm following the IPO in June 2021 it’s been on a generally downward path. Some good news, sometime, was being hoped for given the decline from a high of $32.53 to yesterday's low of $6.04. In fact, Absci had dropped another dollar just yesterday.
This volatility is inherent in the pharmaceutical development sector. It takes tens to hundreds of millions of $ to research compounds and treatments to see if there’s anything useful there. Or, as with Absci, with even methods of producing things that might then be useful. It’s only if something is found that really is useful that any cashflow stream is created and value provided to the original investors.
So, in bio- or pharma- research there’s always that high risk that all of the efforts will turn out to create nothing of value. The validation of the idea that there is something valuable there often enough – even usually – comes when one of the major pharma companies decides to invest in or tie-up with that research developer. The economic reality is that the research is best done by independents but it’s necessary to tie up with a grander marketing machine to exploit what is of value and use.
So, a tie-up with Merck, like this that Absci has just announced, is in itself something of a validation of the company’s approach and technology. Specifically, this is its Bionic Protein non-standard amino acid technology to produce enzymes but the important point isn’t that collection of scientific terms. Rather, that this is a technology which, if successful of course, becomes the founding platform of research into many more than just the one disease or treatment.
The point about Absci being that it’s not looking to find the one treatment for the one disease, it’s creating a toolbox which can be applied to many. In that old formulation about mining, Absci is selling – developing – shovels, not actually digging for gold.
The Merck tie-up itself is in two stages. The first is to simply apply the Absci technologies to Merck’s current processes. More interesting in the longer term is that Merck is able to – at a price – ask Absci to use the tools in a directed manner at up to three different disease or treatment targets. It’s that second that could lead to research funding and stage payments of up to $600 million and royalties on top of that.
There’s still a long way for Absci to go to gain those larger payments. The Absci stock price is likely to be volatile as the market digests the implications of this tie-up with Merck.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.