This is the second part of my most recent analysis and is now to wrap some figures around a potential valuation of IMU. I believe it is always sensible to have (or at least gather) an idea of what a speculative company is worth. Although, it being 'speculative' means every valuation someone puts to it will require a lot of speculation around what variable to include in the analysis/valuation. It's all assumptions. With that being said, the discussion isn't binary, there are degrees of speculative companies, and therefore how much one needs to speculate. IMU is certainly (relatively) less speculative with regards to its potential for success. However, given the B-Cell platform and Oncolytic Virus market are essentially non-existence from a revenue standpoint, a lot of this valuation will be based on incumbent monoclonal therapies and also a discussion around the landscape for buyouts.
I would urge you to take the indicative share price with a grain of salt. The purpose of this is to provide an idea of what we can hopefully expect and not our entitlement! Another spanner in the works and something a lot of savvy posters have mentioned is the structure of a deal. Is the whole business for grabs, will LC and PH license out HER-Vaxx and use proceeds to develop the remainder of the therapies. Who knows. But this point has the potential to 'move the dial' a lot.
Ok, so I have used a risk-adjusted net present value (rNPV) calculation for this valuation. VCs and large investment firms typically will use NPV calculation however pharmaceutical companies tend to use rNPV (see
here,
here and
here to get an understanding on this point). Im neither, but I'm putting myself in the shoes of all the large pharmas with dance cards
.
The main drivers/assumptions around this model are:
Discount rateThis is the interest rate that you use to discount future cash flows. It can be the cost of capital, but for pharmaceutical companies, they will usually use Weighted Average Cost of Capital (WACC) which are around 18% for preclinical 13.5% for clinical and 8.7%, but if you know about WACC you would know why I have opted for a simpler discount rate. However, I have accounted for 'weight' across the different therapies based on their probability of success. The blended discount rate I have used is 30%.
Sales growth & Inflation of costsSales growth for certain monoclonal drugs have easily double-digit annual growth. The Compounded Annual Growth Rate of oncology drugs sits at circa 11.6% (see
here). We are at the cutting edge of this space, and I would assume we could be well above this from a sales growth standpoint, however, I have assumed a growth rate of 10%.
Inflation I have assumed at 3% for costs.
Expected Revenue This is obviously a big one. However, I have used incumbent sales of monoclonal therapies for Her-Vaxx & PD1-Vaxx and then used a point just above the middle of the two for CF33. The expected revenue figures are $7Bn, $4Bn and $5Bn respectively. These revenue figures grow at the 10% rate I mention above year on year.
As a side, I believe both CF33 will have huge potential on their own however, they also represent large unknowns for potential revenue so I have grouped them together.
Probability of successThis is the risk-adjusted element of the rNPV and differs for each therapy. Admittedly, I have been quite generous with these figures when compared to averages. To qualify my assumptions here, I will make reference/paraphrase a paper written on clinical trial failures, see
here if interested.
The main reasons clinical studies fail are because of; lack of efficacy, issues with safety, or a lack of funding to complete a trial, as well as failing to maintain good manufacturing protocols, failing to follow FDA guidance or problems with recruitment.
The primary source of trial failure has been and remains to be the inability to show efficacy. With 57% of those failures due to this fact. 17% of failed phase 3 trials examined were due to safety with 22% failing due to financial impact. So essentially 74% due to efficacy and safety. Both of which I do not feel IMUs therapeutics falls into. And anyone complaining about dilution, well 22% failed because no one was willing to pony up funds, we haven't had that issue. That, therefore, leaves us with not following proper guidelines and protocols. If there was ever an Avengers based on medicine it would probably look like our Scientific Advisory Board, the whos who of talent when it comes to the highest standard of knowledge in the world. So I feel our management has diversified away this risk to a large extent also.
Coupled with the fact that our Phase 1 & 2 trials have been structured so they show efficacy is also a stroke of genius by Leslie and the team. A pharma doesn't have to wait long (or us spend much more money) to see that our therapies are efficacious and safe.
On the above basis, I have used 80%, 65% and 65% for the probability of success for the therapies.
Profit marginI have assumed a 30% profit margin, this is based on
this,
this also, interestingly Herceptin has a profit margin of 85%! see
here. 30% is certainly on the lower end especially considering our therapies are cheap and easy to manufacture.
Cost of trials & post-approval development As any large pharma will also be considering the cost of the remaining phases of clinical trials I have assumed these to be. $40m US for HER-Vaxx Phase 3. $90m US for Phase 1, 2, 3 for PD1-Vaxx and $100m US for CF33 Pase 1, 2, 3. Find info
here.
I have also allocated $350m US each at the appropriate year for the cost of development post-FDA approval. I have this figure increasing at the rate of inflation each year until the assumed year of development. Find info
here.
Estimated patent lifePeak sales are the longest for Her-Vaxx as they are further along in the clinical process. But I have a sneaky suspicion Leslie and co will create a more effective compound in PD1-Vaxx and CF33 to reset the patent life like they did with HER-Vaxx. The valuation doesn't include this, however, and I have left patent lives as they currently stand.
ValuationOk so based on the inputs above the indicative rNPV and share price of Her-Vaxx, PD1-Vaxx & CF33 is:
So 1150% return based on today's close. Again, take this with a grain of salt, however, as you can see I have tried my best to be reasonable. If anyone has any further points to add to the model I have used, I am all ears. The point of my posts it to elevate the knowledge base of myself and fellow holders so I encourage any thoughts or criticism.
Gilead bought out Immunomedics for $21bn last year, although Immunomedics had a larger suite of therapies than we do (see
here), however, were arguably purchased because of Trodelvy which had just entered Phase 2 Triple-Negative Breast Cancer Trial in China (TNBC is also the target by CHECKvacc which was shown in pre-clinical to show stronger cancer growth inhibition than Amgen and Genelus OVs). Its also monoclonal therapy and has some nasty side effects. I can speak to its efficacy however I wouldn't expect Gilead would spend $21bn for nothing. But it certainly speaks to the amount of money for a suite of products, especially considering we can speak about our therapies efficacy and then remain silent after anyone asks us about the side effects.
I will do some more digging and hopefully, add more information into the mix. That's it for me this eve. Cheers.
