"In 1979, the rate of knee replacements among Americans age 65 and older was 10 per 10,000. By 2006, it had risen to 87 per 10,000."We're seeing an explosion in knee replacements".5
Dr David T Felson - 1st April 2008
A DEAL CASE STUDY
Its fine to speculate what a deal for us could mean, I like referring to other actual examples when formulating a case in my mind, but of course we are individual, our circumstances are unique and as others have commented, there is a lot to be ironed out.
THE DEAL
Now there are more combinations of how this can play out than the number of gifs that our friend AF has in his extensive library...(it's a lot)...BUT we can take a rough stab...But before we take a look at some figures that we may be looking at one day, let's check out a case study, OTEZLA.®
Apremilast is a drug that has been found to show efficacy in the area of Psoriasis which incidentally is a type of arthritic condition. In the same vein as Rheumatoid Arthritis, it is an autoimmune disease which means the body (immune system) mistakenly attacks and destroys healthy body tissues.6 Efficacy is quite good with the mean of around 67% in terms of reducing the PASI score (psoriasis area and severity index ).7
So there were only a few drop outs in their P3 and there are some AE's though not severe ones, overall quite a good result for them.Finally Otezla is classed as an immunosuppressant and it is to be taken for life, this may bring up side effects over time as finally it can lower the body's immune responses. The drug has been on the market since 2014.
A good question to ask is what do they sell for? Without insurance you are up for around $800 for 24 tablets and you need about 2 tablets a day, not cheap. It takes about 24 weeks to achieve the mean reduction in symptoms (PASI score) as was the case in their P3 trial.
Revenue? Well here it is in a graphic:
2019 was pretty close to the Pink column in the above chart, approx $1.7 Billion which was a 25% increase on 2018. The new owners (Amgen) suspect it will be double digit growth for the next 7 years.
The market size for psoriatic arthritis (PA) is around 3% of the population. Another good question is how does OA compare...here is a stat from the respected Arthritis foundation of America 8 :
Some estimates state that OA occurs in around 10% of the population.
Mozz - tell me more about the deal....Celgene owned the drug and early last year Amgen offered them an all cash offer....
Hmm surely it must be now time for a Mozz Quiz? We'll make it a MMQ...Mini Mozz Quiz...
Question: WHAT WAS THE DEAL OFFER?
A) $2 Billion all cash offer
B) $2 billion and thirty free Disneyland lifetime passes?
C) Something more than $2 Billion?
Answer?
$13.4 Billion in cash.
Paradigmers...I see some potential for us for sure.....oh and by the way, Otezla is not DMOAD.
Amgen is currently loving the acquisition, Otezla is adding spades to their revenue, with the last quarter alone reaping in some $538 Million in revenue, it won't be long before Amgen gets their money back...
We know a fair few deals in this sort of area have been around the $3 to $5 Billion mark...I can see how that's the "Bear case". I'm certainly not going to walk around the Mozz library with thoughts of $13 Billion in my head, but I will say that after some hard 008 evidence...our real potential increases somewhat.
How many people out there have cotton on to what we have? Judging by the innate share price and crazy low volumes....there are more to learn about us and what we exactly have!
SHOW ME THE MONEY - FIGURES
Ok so let's get stuck into it...the easiest way to tackle this is to think about the numbers of patients we are realistically going to be able to address.So this post will only deal with OA, the primary layer. MPS, The Twins, other indications we will leave for another day, another discussion.We know the overall prevalence is officially around the 10% number of any given population. We also see evidence of around 32 million in the USA. I'm going with doc diagnosed OA, actual numbers are closer to 90 million, I'm not including this...I'll go conservative.some 40 million in Europe and some 2.5 million in AUS.Japan is also quite sizeable and would come in at around 30 million...For this exercise I'm going to pretty much ignore the rest of the world....So let's add them up
US 32 million
Europe 40 million
Australia 2.5 million
Japan 30 million
So in total, that's a whopping 104.5 m...lets round down to 100 million. Sure, not all of them are going to:
Know about iPPS
Afford it (though insurance will cover a good stack of them)
Are going to go ahead with such a treatment even if they can afford it and even if they come to find out about it eventually.
So lets discount this by a full 2/3....that's now around 30 million....Again, I'm going to halve this,15 million...I think we are getting quite close to a decent plausible and certainly conservative figure....In effect I'm doing what those brokers do...using conservative figures to risk adjust the final figures...but the evidence is out there, we can align our possible trajectories with drugs that are selling now...with the demand we know about....Paradigmers...let's now set up a spreadsheet to give you some combos:
Let me explain how this works...
Three strategies, Conservative, Average and Aggressive (Top). The Price of our drug is the variant for these three strategies (Column 1 below). The 15 million odd patients as a target, is fed into Column/Identifier (Column 2) which is the first course of the 12 injections.
Now it all depends on the % of repeat customers as to what makes up the rest of the figures in columns 4 - 9. I've taken three steps, 10, 20 and 30% of the 15 million patients that will be repeats...The booster cost (Column 3) I am assuming is 2 more injections on a yearly basis. The totals compute out at mind numbing levels....I mean the most conservative figure on the sheet in Column 7 is a crazy $38 Billion.
Now before we open any champagne bottles and let off R~ck+t pics like you wouldnt understand...these aren't the actual figures that will line our pockets.... D'oh:
Why not? Because most likely we will have to do a deal and we may just see 25% of it as a royalty on sales...a quarter of some $38 Billion is still a rather hefty $10 Billion right? We will investigate what exactly this means a bit later on in the next section of this post.
Ok let's continue with an exercise... Let's again go somewhat conservative and say it's ONLY $5 B USD for global rights as part of this deal.So there would possibly be a proportion, we'll call it $150 Million up-front no matter what, we keep this...
Maybe a milestone on Third Phase successful read out..another $100 Mil....a full 1 B on 100 million dollars achievement of sales and the rest after crossing the $1B mark?On top of that we could typically expect around the 18 to 24% royalty level, again with 008 DMOAD evidence I can't see us garnering anything under 23 - 25%..But for this exercise, we'll just take a 20% royalty.
If we take the lowest figure from the spreadsheet above...this is what we get:$38 Billion x 20% = 7.6 Billion....with milestones of $5 B....crickey that's a big figure...It's even bigger in Aussie dollars....let me do one more dial down of figures to build even more derisk-fat into this piece....it's 7.6 + 5 = 12.6 Billion USD...I'm dialing this down to just $10 Billion AUD. Sure the Deal component is a once off, but the royalty is a gift that will keep giving!
THE NEXT STEP
The next step is to get an understanding of what this $10 B annualised revenue actually means.
How about some examples of companies that actually make 10 Billion of sales per year...what do they look like??
Ok so I took 3 companies:
Campbell Soup, AES, Henry Schein, just three companies are not a great sample size but how many companies do YOU know that make exactly 10 billion of revenue per year, so of the three, the average market cap is around the 8 to 10 B mark, Ave is 9 B...so if we now equate that to how many PAR shares we have (And I'm just using a rounded AUD 10 B figure to makes the maths easier)...it equates to a fairly decent $43 a share....not bad.
Incidentally remember the massive $13.4 Billion USD all cash offer by Amgen? If we got that, it would equate to a faint worthy $70 per share.
WHEN?
Well we ain't going to get this sort of revenue in Year 1 (2025?)..it will build up, but I think we may all be surprised at exactly how quick this goes.....which usually tend to happen a few years after first sales, but as I'm going quite conservative, I might guess that it could just be say 3 or 4 years after first sales. Humira hit 1 Billion plus after just one full year...we should easily be able to hit 10 B in 4 or 5 years after the first patient gets their jab...so IF first sales start 2025...it's 2029 or so. Yes that's a bit of a wait...but this is a rough stab in the dark...
The beauty about a deal is that the chances start going up after a Phase 2....and then again during or after a phase 3. In our case it, at least to me, it makes a whole heap of sense to put a lot of deal discussion on hold at least until we get some 008 data back. Yes we get the primary read out in just a few months from now and the greater data set (of 008) sometime perhaps early to mid next year....but it's these clues that will propel us from a Good company with a great drug that can help and be of greater use than the current std of care....to....a GREAT company...a history making company that managed to at least in a few cases REDUCE...DELAY....HALT and in some cases REGRESS the onslaught of this OA disease.
THE CONVERSATION
To be a fly on the wall in a future Doctor's surgery when they get approached by the Big Pharma partner to PAR....
*Pan the Dreamy music*
KEYBP = Big Pharma Doc = Doctor
BP: Pssst. Err Doc(s), you know those NSAIDS and Corticosteroids and the occasional Opioids you prescribe to your OA patients?
DOC: Err... you mean the ones we have been prescribing for decades now ? Yeah, what of it?
BP: Well we ain't going to do that no more...there is a wind of change....sorry, make that a Cat 5 Cyclone of change coming...some little BioPharm Down Under has cracked the code and just passed their P Plates licence test...and are allowed to sell it...something that starts with a 'Z' and looks like a Holy Cup or container...make that a Grail.
DOC: Show me the money, do I switch all me knee OA patients on to it?
BP: Yep, Don't forget the Hip guys too....we have that on the label as well....Happy Selling! Oh and there won't be half as many writs and customers complaining that your current remedies do nothing for their OA and pain...Zilosul is safe and non addictive...the pressure is finally off you guys and one more thing, it actually works!
(P = Prescribable ! A new driver is coming to the Pharma Freeways of the world. )
So YES, the TAM box is ticked, but are there any others to be ticked?What I mean is what's the point if you just look at this top down...we off the cuff say that we have a large market to address.....are we actually going to address it ourselves?
This shouldn't be like a new car manufacturing company saying the auto market is worth a trillion dollars, this is our TAM...that's false...what about all the competition, what is the biggest share you will realistically encroach? THAT is your real TAM. Are you new to us? Yes you have a lot of catching up to do...but let me conclude by saying that I'm confident with our TAM, I've come across many papers illustrating and documenting the sheer size and problem of OA, the future growth and reasons why it is growing.
At a very high level these are just some factors coupled with a great TAM that is real for us....
1) Patents and difficulty to copy
2) Long history of excellent and FDA GMP approved manufacturing, top standards over decades
3) Multiple indications apart from the primary (OA)
4) Good margin
5) Ongoing recurring revenue possible in at least 30 % of the cohort (my views)
6) Proven model already , this is not just in theory.
7) Darned early in the story
8) Yes Mozz, all that above is good but useless if our drug doesn't show efficacy...We have this and to a great extent, more than anything else on the market.
9) Mozz, no point in having all of the above if it's hit and miss...sometimes it works..sometimes it doesn't..we need consistency.....check!
10) Yeah is it safe? IT'S SAFE! Phase two out of the way...now phase three which will also assess safety as well as the endpoints.
11) I don't want a drug that does all of the above...everything....BUT I gotta take these shots (needles) once every 6 hours, what's the point...I want durability.Mate..forget Panadaol of 6 hrs or Tramadol for 1 day of benefit..I give you iPPSadol (Mozz made up word) for as much as 9 to 12 months, in some cases 3 years!There is a specific study as part of the P3 that will look at durability to better estimate what this is and importantly this will get written into the label. Very important for us and will add real value to our proposition.
12) None of the above is really any good if there is competition, if someone can already do this....the competition are far far worse...and far behind.
13) If all of the above is not enough.....what about getting that and in SOME cases DMOAD...first time ever- a drug that may just show the ability to reverse the course of the disease....this has never been done or shown before in OA. (Subject to trial read out)
CONCLUSION
When we have cash on the line we need to be mindful of what we are investing in and why will it be a success...this becomes such a sharper focus when we have more than a normal allocation and its another reason why I have continuously sought out to do some some deep dives not just not the entertaining dreamy side of valuations and market sizes, but more fundamental issues like
DOES OUR PRODUCT WORK -Yes there is a multitude of evidence WHAT ARE CUSTOMERS SAYING ABOUT iPPS...No point in ALL of the above being in theory or just evident in some mice models....we have human patients, we don't just have three of them saying its good, we have hundreds now WHAT ARE THE DOWNSIDES? WHAT ARE THE DISADVANTAGES...WHY MAY WE NOT BE A SUCCESS?No point in having a great drug with all of the above benefits and attributes if there is competition that can whip us....that are on our coat tails...that have a better route to admin, that are cheaper.....WHY DOES IT WORK...and HOW DOES IT WORK....it cannot simply be magical or random....is this consistent?
I know we don't need to know how a car words to be able to drive it...but at this early stage I for one must know at least in principle what is going on...WHAT makes us tick...why does it work....what is the science behind it...TAM in my books is adequately checked off....but that's one part of the investment story...the best thing is that this isn't the only chapter that is well written...all parts of the story are coming together before we are finally published in a couple of years time...
Bring on the opening of the OA IND!
DYOR - Speculative comments and personal opinions scattered throughout this post.
US 32 million
Europe 40 million
Australia 2.5 million
Japan 30 million
Know about iPPS
Afford it (though insurance will cover a good stack of them)
Are going to go ahead with such a treatment even if they can afford it and even if they come to find out about it eventually.
Bring on the opening of the OA IND!
(20min delay)