For most investors, life sciences is a complex industry with many pitfalls, including, clinical setbacks, regulatory requirements, patent cliffs, and ongoing health care reform.
On top of this, the financial crisis had led to a significant reduction in the number of financial specialists covering the industry. Now, many small, listed companies are no longer covered by financial analysts. We have a Nella Potter and I haven’t seen any other analysts covering NEU.
Private companies have an even greater difficulty in assessing the value of their technology, which is needed to fund the next steps in development or commercialization.
AND THE CLOCK STARTS TICKING...
- 20 years global patent protection on new molecule
- additional market exclusivities (e.g. rare disease, children, new chemical entity, GAIN act)
RESEARCH & DEVELOPMENT PHASE
- 8-14 years
- only costs, no sales, no earnings!
- risk-adjusted discounted cash flow valuation
A) Preclinical phase (lab & animal testing)
- 1-2 years
- safety & pharmacological properties
- initial formulation
- success rate: <5%
B) Clinical phase (human testing in a clinical setting)
Phase I
- 1-2 years
- safety
- healthy volunteers (10s)
- success rate: 5-10%
Phase II
- 1-3 years
- safety & determine optimal dose
- patients with disease (100s)
- success rate: 10-45%
Phase III
- 2-4 years
- safety & demonstrate clinical benefit/risk ratio (statistical significance p<0.05)
- patients with disease vs placebo (fake drug) or standard care (100s - 1,000s)
- success rate: 40-65%
Registration/filing
- 6 months (fast-track) - 10-12 months (normal review)
- achieve marketing authorisation by FDA (US), EMA (EU) or PMDA (Japan)
- determine label (patient group, dose, warnings)
- success rate: 80-90%
RETURN PHASE
- 6-10 years
- determine pricing, reimbursement (per country/region)
- finally sales & earnings!
- phase IV (post-marketing surveillance) requirements to monitor long-term safety
- life cycle managment (e.g. new indications, formulations, Rx-to-OTC switch)
Historical valuation ranges:
- "Star" phase P/E >20x
- "Cash cow" phase P/E 10-15x
- "Mature" phase P/E >6-10x
So, given the above, my price for a take over would be $12.50 as we are FAST TRACKED for FDA.
AT THE END OF THE DAY, ONLY DR T AND HIS TEAM WILL KNOW THE TRUE WORTH. Anyone have his number so I can give him a call? He may well say a much higher figure as there are a swag of products surrounding their drugs.
I’d be happy with any return from the share price if the kids with Retts had a much better life.
Expand
(20min delay)