Great trade and I agree, the outlook seems compelling. Topped up a million shares recently.
Key risks, in the highest to lowest order I perceive them:
1.
Lower actual sales than what the market expects. This could be for various reasons at both the user and healthcare professional level, such as a lack of product awareness or a lack of understanding of the benefits of Sofdra versus legacy products. BOT's main sales strategy is focusing on dermatologists, but some PAH sufferers also seek treatment via physicians, pharmacists and cosmetologists - these potential users could be overlooked.
2.
Superior product coming online, i.e. more effective (treatment OR delivery method) and/or less side effects. Current new entrants are Brella's SweatControl patch, needle free botox and Anhydrix. Future new entrants are unknown.
3. Whilst the clinical trials were extensive and the data compelling, including in a statistically significant manner with a very small p value,
there is no exact real world use cases of Sofdra yet (confirmation of change likely to occur in the upcoming quarterly). This means, as adoptions grows, an incident, which was previously never considered, could occur. You simply don't know what you don't know. When combined with BOT's omnichannel marketing, this could lead to the rapid spread of negative/mis-information, which could be difficult to recover from, especially considering the sensitive nature of healthcare. This could also be considered upside.
Why I think these risks are largely mitigated:
1. Relative to the large market opportunity, BOT's current ~A$750M fully-diluted market cap is low. Keeping all my other current Base Case (11.0% discount rate) assumptions the same (growth, margin etc.), but solving penetration to equal the current market cap, implies the market is only assuming BOT will achieve ~0.7% penetration MAX, in ~25 years from now (estimated end of patent). TAM being 3.7M PAH sufferers currently seeking treatment, plus 6.3M people suffering from PAH but not yet seeking treatment. At a minimum that is a measly ~7k prescriptions sold in the first year, or 750 patients. ~7x that are already subscribers to the International Hyperhidrosis Society's newsletter alone, with communication to be released to them soon. Alternatively, fixing penetration (so using my current Base Case ~10% max pen), but solving discount rate to equal the current market cap, implies ~50% p.a. Commercial DD could have overestimated the TAM, however a cross-check of the global PAH incidence rate aligns to the BOT published numbers - PAH is a human nerve condition, possibly caused by genetics, medications, systemic diseases, hormonal changes and/or stress amongst others, i.e. a seemingly global condition. Note this valuation is for Sofdra treating PAH sufferers in the US only. No pipeline products, no expansion to other countries or areas of the body, no off-label use assumed. Additionally, there is a multi-channel sales strategy and a world-class, experienced Management team leading it.
2. Sofdra is a non-invasive, convenient and cost competitive product (likely to be confirmed shortly by insurers). Clinical trial data showed ~9 in 10 patients had a clinically meaningful result. The safety profile is well established with relatively low side effects. All in, this is a strong and unique proposition. Current new entrants seem to be less compelling. Needle free botox is expensive and less convenient to access. Iontophoresis patches, like Qbrella's, can cause skin irritation/discomfort (i.e. more side effects) and are less convenient to access. Anhydrix is a less targeted oral treatment. Future new entrants will need to invest significant capital and time to even have a chance of developing and commercialising a new product. The global funding market for such risk-on asset classes is still constrained, buying BOT more time to establish market share, cost competitiveness (i.e. scale) and further deter potential new entrants.
3. Clinical trials were extensive and the data generated was attractive, including in a statistically significant manner with very small p values. Sofdra is approved by the FDA, which is considered the gold standard in drug and medical device regulation. The highly similar ECCLOCK has an established sales history in Japan, with no material unexpected issues uncovered to date.
(20min delay)