BIT - Back of the Envelope

Here is a link for general guide for one to form their own opinion as to whether we are over or undervalued at these levels.

https://www.investopedia.com/articles/stocks/06/biotechvaluation.asp

Key take aways

Phase 1 - 15% of Future FCF
Phase 2 - 30% of Future FCF
Phase 3 - 60% of Future FCF

10 Years

Have looked a Royalty Rates as well - 4.6% to 10%

So how big is this market?

What we do know.

Sales 2017 HIV $17Billion

Atripla was the drug used in the trial and sales 2017 was $1.6B – it is also a generic drug now as well.

Very basic calculation using NPV. Just based on FCF – Varying between 30-60% discounts between Phase 2 & 3

Royalty – Whole Market

$17B @ 4.6% Royalty = $782M – Discounted to 30% $235M FCF
NPV – 10 Years – 10% WACC
$1.4B
$2.07 Share

Royalty – Whole Market

$17B @ 4.6% = $782M – Discounted 60% $469M FCF
NPV – 10 Years – 10% WACC
$2.8B
$4.14 Share

Royalty Atripla Sales – No adverse effects from Trial - Phase 2

$1.5B @4.6% = $69M – Discounted 30% $21M FCF
NPV – 10 Years – 10% WACC
$128M
$0.18 Cents Share

$1.5B @4.6% = $69M – Discounted 60% $42M FCF
NPV – 10 Years – 10% WACC
$256M
$0.36 Cents Share


Drug on its own - $2.5B in Sales – 50/50 JV

Costs – 30% - $750M
FCF - $1.75B – Discounted 30% - $525M FCF
Phase 3 Costs $200M over 4 years
NPV- 14 Years - 14% WACC
$1.475B
$1.06 Share 50% JV

Costs – 30% - $750M
FCF - $1.75B – Discounted 60% - $525M FCF
Phase 3 Costs $200M over 4 years
NPV- 14 Years - 14% WACC
$3.1B
$2.22 Share 50% JV


Calculations are for my own musings and illustrations only to show how values can vary

My Conclusion is there is numerous factors to consider. The market got this wrong at 2 cents and has now rerated.

IMHO I reckon 20-30 Cents is fair value until a deal is struck. DO they go the whole market or just to one.

100% premium if it were to be taken over

Cheers