Whilst we await the confirmation than RC220 has cleared the relevant regulatory hurdles and is ready for human use trials. I thought I would try my hand at creating an rNPV following the method detailed in the following paper: https://www.analysisgroup.com/globalassets/insights/publishing/2024-biotech-asset-valuation-methods.pdf
Please bear in mind that I have absolutely no formal training in finance or economics, my background is as a Pharmacist who now works in the Pharma industry but calculating rNPVs is outside my scope. There is some background knowledge that is useful however everything pertaining to the valuation of early-stage assets is self-taught. Also worth bearing in mind that, as I have used the Triangle report to estimate the future revenues of bisantrene, this rNPV represents the present value of bisantrene for CPACS in Breast Cancer in the USA only. Note this attempt at valuation also assumes that bisantrene takes the full regulatory pathway through to approval and does not qualify for any sort of advanced approval pathway.
Step 1: In order to develop the rNPV I first estimated the risk-adjusted costs of R&D from Phase I through to Phase III and then the costs of an FDA application for a New Molecular Entity (NME). I used the quoted costs of the Phase 1a/b all-comers trial, Phase 1 AML IIS trial, and Phase 2 FTO trial from the latest strategy deck, and converted them into USD. I then estimated the cost of a phase III pivotal oncology trial based on published literature which has the cost at 31.7M USD(1). The total costs for R&D and registration are therefore assumed to be around $65M USD. However, in order to calculate the present value of these costs, they must be discounted back to today's value. I have chosen a discount value of 13.5% which has previously been used by Pfizer to value early-stage assets(2). The NPV of the future R&D expenditure is calculated at $41.219M USD.
Now, we can adjust for the probabilities that each of these costs are indeed incurred. The risk that each cost would be incurred is based on the probability of the transition between phases occurring. I.e. published literature suggests that the probability of transition from Phase I to Phase II is 59.5%, therefore the probability of Phase II costs being incurred multiplied by the actual costs, gives the risk-adjusted costs of Phase II trials. Similarly the costs of the Phase III trial must be multiplied by the probability that bisantrene makes it through both Phase I AND Phase II, and so on and so forth(3).
Adjusting the NPV of the R&D costs for the probability that they are all incurred and we get an rNPV of the R&D costs of $20.654M USD.Also note: the costs of the R&D is all assumed to be lump sum payments at the start of the trial which is not realistic but for the sake of simplicity that is how I have modelled it.
Step 2: the kind folks over at Triangle research have already provided estimates of future revenues all the way out until 2042. To calculate the NPV of bisantrene's US revenue, we need to first calculate how much of that revenue makes it to the bottom line. First thing to consider, are any outstanding royalties on sales to CoH for access to their IP. The deal announcement suggests low single digits, which I have taken to mean 5% for conservatism. Secondly, there are $22M in development and sales milestones which I do not have any further detail on, so I have assumed 8 equal payments of $2.75M in each year from T-4 through T+4 of approval.
Once CoH milestones and royalties are out of the way, we need to account for estimated SG&A expenses, which come to an average of around 40% for the world's largest pharmaceutical companies. (4). Assuming the corporate tax rate of 21% in the US gives our estimate Net Proft After Tax for each of the years of the sales forecast, which are then discounted back to today's value using the aforementioned rate of 13.5%. The total estimated revenue of bisantrene in the forecast period is $14.7B USD. Total NPAT over the forecast is estimated at $6.6B USD. Discounted back to present value, bisantrene's NPV is $1.5B USD. But alas, we must also consider the risk of bisantrene making it through the regulatory pathway before revenue can be achieved. So, multiplying the NPV by the cumulative transition probabilities of success, general convention estimates bisantrenes probability of approval at 8.16%. When multiplying the NPV of $1.5B USD by its probability of success, the rNPV is $128M USD.
Step 3: The final step is to subtract the rNPV of the R&D costs from the rNPV of cash flows. This final step leaves us with an rNPV of $107M USD or $161M AUD.According to my rNPV, bisantrenes value in the USA as a CPACS agent is $0.805 per share on a fully-diluted basis (200M SOI). Now, we all know that there is potential for future indications outside of breast cancer, as well as future geographies outside the US. Which according to my rNPV is valued at today's SP at time of writing $1.62 minus $0.805 = $0.815 or roughly double the US value.
Now!
Importantly, the risk that bisantrene makes it through to approval has been estimated at 8.16% which includes the risk that it does not progress from preclinical to Phase I. If we assume that RC220 entering the clinic has a probability of 100%, the probability of approval for bisantrene increases to 11.83%. Plugging this into my rNPV model, the estimated rNPV then becomes $248M AUD, $1.24 per share. Doubling this figure would given a share price estimate of $2.48, an increase of 53% on today's SP. Published literature suggests that on average, a biotech companies value increase by 87% at the time they progress from pre clinical to Phase I(5).
Is RAC undervalued?The above rNPV uses industry standard probability of success figures to estimate the probability that a drug makes it through to approval. However, is bisantrene's risk significantly lower than the average NME because of its clinical history of approval in Europe in the 80s? Reducing the risk associated with the regulatory pathway can have a dramatic impact on bisantrene's valuation. I will not attempt to estimate the actual probabilities, but know that only small changes have an exponential impact on the valuation.
The information in the post above is my own opinion and is in no way meant to replace independent individual financial advice.
(20min delay)