Do i really need to point out that under the original deal, Cephalon had to pay for all Phase II b and Phase III trials which could be valued well in excess of $1.5bn in todays money (especially if you allow for cost of capital over the approval process) ...plus a cash sum up front and additional regulatory milestone payments of $1.7bn ! It was the largest deal ever in regenerative medicine at the time. After all those payments Mesoblast still retained all manufacturing rights and shared significantly in net product sales. Sounds like that deal alone could be valued in todays money in excess of $6bn. You could argue that as Cephalon took on all the risk of the major trials but the valuation is largely based around success payments ...but folks that is where we are right now....about to find out if the Revascor clinical trials have achieved either 1) overwhelming efficacy, 2) requires a confirmatory trial to confirm the clinically significant results of the first or 3) fails to meet its endpoints . Remember that the almost $3bn market cap at the time of the Cephalon transaction was before the successful interim futility analysis and BEFORE the reassuring DMC comments at the end of the REVASOR trial which did not mention any adverse events and after commenting they had “checked components of the trials primary and secondary endpoints” !!! , It was also before Alofisel & Remestemcel (GVHD) passed their respective phase III trials . In fact that $3bn market cap was AFTER sharing half? the value with their partner which was subsequently returned by TEVA FOR NOTHING when they balked at the clinical trial costs and were desperate to bring their balance sheet under control. ON that basis the valuation adds up in that the $3bn market cap reflected the risk that the trial would fail and the sharing of the revenues in the event of success with their new partner...crudely $3bn equals 50% of the $6bn....but that was before the wait for all the clinical trials to take place (another 5 years with the costs upfront and the revenue discounted years ahead).
Let’s look at it another way. If one assumed a Grunenthal type deal as a template for US CHF, remembering of course that was just for Europe and Latin America , which is arguably less than 50% of the value of US market therapy for the same condition . Mesoblast would need to receive $1bn for the accrued milestone payments assuming a successful Phase 3 and subsequent approval and the confirmatory trials (if any) would have to be reimbursed. Mesoblast then participates in royalties up to the 20’s of percents. Assuming as many analysts have peak sales of $3bn for chronic heart failure with reduced ejection fraction, that represents at least $2bn of NPV ?if they sold that stream to a Royalty Pharma any day of the week .
If you think i am getting carried away just go back and look at estimates made by Credit Suisse when they wrote research about the Cephalon transaction . You will blush at my conservative my numbers are.
Lastly , consider this. Entresto was approved in 2015 as the gold therapy for CHF with reduced EF after the mortality and morbidity results of the PARADIGM-HF trial. According to extracts from the Pharmacy Times in an article dated 5/7/2016 “the number needed to treat (NNT), standardised to 12 months was used to calculate the number of potential lives saved per year with Entresto therapy was calculated as a range of between a lower limit of 18,230 to an upper limit of 41,017. ...The mean cost of HF hospitalisation of $18,158 compared with $10,467 for non HF hospitalisations.... Following simulations the incremental costs and quality adjusted life years (QALYs gained with Entresto treatment were estimated at $35,512 and 0.78 respectively compared with enalapril....this equated to an incremental cost effectiveness ratio (ICERS) of $45,017 per QALY for the base case. The ACC/AHA and WHO consider an ICER per QALY of below $50000 to be very good value”
Don’t forget that article was based on numbers/costs five years out of date !
Now , ask yourself . Would it be unreasonable, that in the event of a Revascor phase 3 trial demonstrating overwhelming efficacy in reducing terminal events assuming even half the results of the Phase 2 results in the 150m dosing arm, how many life’s would be saved from the 1.2m class 3/4 CHF patients in the US alone...not to mention LVADS. Let’s remember by the time Mesoblast is likely to administer its therapy, patients have become refractory to virtually all other treatment . We are virtually the only game in town . If we entered into a normal distribution agreement and our global pharma partner treated just 50,000 patients we could received annual royalties of circa $15,000 on 50000 patients which would equate to $750m . That’s worth $6bn of market cap all day long....and the numbers could be many multiples of this prudent example.
So there you have it folks ...3 sensible back of the envelope ways of arriving at a $6bn market cap....just for CHF in the US. You just need a little active imagination.Then just add risk assessed values for CLBP, GVHD, CROHNS , DIABETES and rheumatoid arthritis,etc, etc, and stir gently until you get up to $10-12bn ! ...dependent on both CLBP and CHF achieving key primary and secondary endpoints and not discounting the ar$e out of the income stream (which no one will do post approval anyway.) Of course everything is predicated on the need for good CHF phase 3 results or the shares will fall back sharply (50-60%?) .and then recover over time as people begin to realise our steroid refractory treatment for aGVHD, will post BLA approval be worth in my opinion more than the current market capitalisation (see my previous posts). My amateur risk assessment is that our chances of success with this CHF trial are now 75% because of the factors i have described in numerous posts to date. I like the odds and have bought a lot of shares ...but i wish i had more of course ! OP Good luck to all. Was i just dreaming or did i actually just write all that !
PLEASE DO NOT RELY ON THE OPINIONS EXPRESSED WHEN MAKING AN INVESTMENT DECISION . I COULD BE THE CLEANER !
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