I expect we will see a bit of churn through recently issued shares - some are happy to take a small profit over a short term for no risk.
When you talk of adding value, I'm guesing you're talking about the SP rather than the sort of company building work that has been the focus of the incoming board.
I've been saying for a long time now that the SP is a poor indication of the value of the company. In fact, its only relevance is if you want or need to sell shares before we get to our end point - approval to market MPL for the treatment of MND/ALS. That is how I value the company, discounted for risk to reflect the stage we are now at.
There's nothing terribly creative about this approach. You can add in NPV adjustments with weighted average cost of capital or use different reference points (forecast EBITDA, revenue, etc.) to establish the value post approval, but a simpler approach looks something like this:
1. Using revenue post approval - this is pretty easy to determine as we have a decent reference point in Amylyx post their receipt of conditional approval from the US FDA. On an annualised basis, Relyvrio was generating circa US$400 million ($615 million AUD) in revenue before running into difficulties (https://investors.amylyx.com/static-files/807d9525-ae93-4661-92f9-56423a32fbef - look at the six month figure. It went up a little from here before issues began to bite). While I fully expect MPL will exceed that due to its superior safety and efficacy (based on the signals we are seeing thus far and assuming these continue through the upcoming adaptive phase 2/3 trial) profile, let's just assume that revenue figure is a decent starting point.
2. Value multiple - the value of the company isn't one year of revenue, it's a multiple of that. Again, fairly easily determined by looking at the MC of companies operating in the same sector and determining the ratio between MC and revenue. (There's many examples, but this provides a simple summary: https://firstpagesage.com/business/pharmaceutical-company-valuation-ebitda-multiples/). You'll see that companies operating in the Drug Discovery and R&D spaces are, on average, valued at around 8.6 to 9 x revenue. This multiple has been determined by looking at the actual, real world MC of these companies as a multiple of annual revenue.
3. Discount for risk / current stage - we're entering phase 2, so I have appllied a 60 percent discount (some would argue 70 percent, but unlike many drugs entering phase 2 we captured and continue to capture decent evidene of efficacy in humans diagnosed with the disease, as opposed to only biomarker readings in healthy volunteers). We also have some pretty smart staticians telling us that the survival data we're seeing is something special.
Pulling all of that together: Value = (Revenue x Value multiple ) x Risk discount Or, Value (US$million) = (400 x 8.6) x 0.6 = 2,064 OR US$2.06 billion. For MND only.
There are other ways to estimate what our revenue might look like post approval - for example, patients x annual cost of treatment - but you end up with similar numbers and those numbers get really big really quickly once you begin to add in other jurisdicitons, better uptake due to the relatively benign adverse events and excellent safety profile, patients living longer, etc.
Of course, we need to get there first, but that outcome is not very far away now that we have been accepted onto the Healey platform trial. And, while there may be a commercial outcome before we get to approval, for the purpose of the valuation exercise it makes sense to pin those estimates to approval in MND/ALS.
So why the current SP? A few factors I can see. First, it's Australia not the US and the appetite to invest in smaller biotechs is very different. Secondly, I believe that the market is over estimating the risk discount - something that is only discovered if you do a deep-dive into the data from our phase 1 trial (which was NOT like your normal phase 1 trial). Most investors don't undertake this depth of DD. Thirdly, the market often gets it wrong - finding those companies that are undervalued and sticking to your guns is how fortunes are made. Be right and hold.
Looking forward to an exciting six to eighteen months. The pathway forward is now clearly marked.
Cheers
Densy
PAA Price at posting:
18.5¢ Sentiment: Buy Disclosure: Held
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