According to my analysis below, the current offer significantly undervaluesResapp because it values Resapp at shareholders’ minimum willingness to sell(WTS) https://en.wikipedia.org/wiki/Willingness_to_acceptbased on the value of Resapp as a standalone entity, rather than somewhere inthe middle of the range between shareholders’ minimum WTS and the acquirer’s maximumwillingness to pay (WTP).
The current offer was justified by the independent valuation byBDO, with analysis by Acuity in the scheme of arrangement booklet. However whenI read the independent valuation, I saw Acuity valued Resapp as a standaloneentity, thus grossly underestimating the true value of Resapp in an acquisition.They did not consider the incremental cash flows (synergies) Pfizer wouldbenefit from after the acquisition. Acuity valued Resapp as a standalone sum ofthe parts valuation, with each part valued by Acuity using a risk adjusted Net PresentValue (rNPV).
In an acquisition transaction or indeed any market transaction,the valuation limits are set by the buyer’s maximum willingness to pay (themaximum price), and the seller’s minimum willingness to sell (the minimum price),with a negotiated valuation somewhere in between these two limits. The seller’sminimum price is calculated by what they could earn if the seller did not sellbut stayed on as a standalone business. This is how Acuity valued Resapp. But thisshould be the minimum price, not the actual valuation. This ignores anysynergies between the two companies, whose benefit should be shared, not allcaptured by the acquirer, which would be the case if the company were sold atthe minimum price. The maximum willingness to pay is determined by the valuethe incremental cash flows the acquirer achieves from the acquisition, abovewhat Resapp (the seller) could achieve by themselves.
Looking at Pfizer’s potential synergies which determine theirmaximum WTP, from what I understand, Pfizer has at least 3 pharmaceuticalproducts in the respiratory space that would benefit from a respiratorydiagnostic:
- The Comirnaty Covid injection vaccine
- The Paxlovid oral antiviral for Covid
- The RSV vaccines, one in phase 3 trial and 3 from Pfizer's 2022acquisition of Reviral, which Pfizer said they believe can achieve $1.5B in sales https://www.pfizer.com/news/press-release/press-release-detail/pfizer-acquire-reviral-and-its-respiratory-syncytial-virus.
These areglobal products with vast demand and high profit margins sold by one of thelargest pharmaceutical companies in the world. So anything that will be able toincrease the price or demand will generate huge extra cash flows for them.
There are at least five ways I can see that Pfizer could benefitfrom Resapp's products:
- Many respiratorydisease cases are undiagnosed. The more people that are cheaply diagnosed withResapp’s diagnostics, the more these respiratory drugs and vaccines will bedemanded.
- Pfizer can negotiatea better deal from payers if they can show they are doing more on prevention.If Pfizer show they are diagnosing patients earlier, and can thus treat themearlier with preventative treatments, they can show they can reduce the cost topayers, and thus negotiate offset pricing pressure being applied.
- By sourcing "real world evidence". The statutoryhealth insurance (SHI) association in Germany has recently proposed that"the benefits / pricing of a drug should be routinely reviewed based onreal world evidence". Pfizer want their Covid vaccine and oral therapy tohave real world evidence of efficacy when negotiating with government ministriesof health and health insurance companies who pay for their products. They canuse the Resapp product to more cheaply measure cases, thus getting a bettermeasure of the real world effect of their respiratory vaccine and therapy.
- A Nature articlerecently showed the cost of developing a new drug doubles every 9 years. WithR&D costs sky rocketing, the pharma business model is at risk. This is why Sanofi inkeda big deal with A.I. discovery company Exscientia and AstraZeneca tooka stake in Humato make clinical trials more efficient with digital technology. Pfizer run a large number of clinical trials each year. ResappCC (the cough counter product) has already been used by Astra Zeneca to measure coughs in a lung cancer clinical trial.
- Acuity also ignored that Pfizer can also sell the Sleepcheckapp to a sleep apnoea device maker such as Resmed for a significant valuation,given in a similar way to Pfizer, it will help Resmed to sell more of theirsleep apnoea PAPR devices if more sleep apnoea sufferers are diagnosed.
Icould quantify the above, but they would be estimates, and I am running out oftime to share this with other Resapp shareholders.
