Pinned straw:
The thesis is focuses on the diagnostic 64Cu-SAR-bisPSMA (Cu-64) for prostate cancer with the theragnostic and pan-cancer pipeline as upside opportunities yet to add value. Clarity is seeking an NDA for Cu-64 as a diagnostic tool for application in pre-Radical Prostatectomy and BioChemical Recurrence (BCR) patients via the CLARIFY and AMPLIFY phase 3 studies. Both are key points in the management of prostate cancer that are well suited to the product as Telix has demonstrated with it’s Ga-68 product and provides a credible base line model to use for valuing Cu-64.
Head-to-head studies against Ga-68 via the Co-PSMA study shows significant advantages in terms of efficacy on a 1-hour base line, but the significantly higher half-life allows for 24 hour imaging that has enhanced efficacy further on that base line. The significantly higher half-life and shelf life of Cu-64 Vs Ga-68 (and F-18) are also a critical differentiator for manufacture and clinical application. As such once in market Cu-64 is highly likely to dominate it’s market against existing products capturing a high proportion of the TAM.
The Clarity CEO has a TAM estimate of $5b based on US$5k treatments and the approximate 1m US diagnosed prostate cancer population that have received and are under serviced with pre-Radical Prostatectomy or BCR related PSMA-PET scans. This is the prevalence (population) and may enhance the initial TAM, however the incidence (annual new cases) is more relevant for forecasting ongoing future sales each year and this is ~330k according to the American Cancer Society, of which around 70% are diagnosed with low risk cancer (Prostate Cancer Incidence) and 60% of those are managed with active surveillance (Low risk active surveillence). So around 58% of new diagnosis go onto have a Radical Prostatectomy which is ~191k a year, giving a ~US$950k TAM for that procedure (at US$5k each).
The incidence of BCR is between 20-40% of those having a Radical Prostatectomy (BCR after RP). The increased use of Robot-assisted radical prostatectomies (RARP) is improving results, so the low end of this range is of most relevance. This increases the Radical Prostatectomy TAM by 20% to ~US$1.15b given it is a related follow up.
This is probably low ball, given there is a case that Clarity with it’s significantly improved efficacy on current options will be used in expanded situation, also I am assuming just 1 scan for each case, but there is likely to be pre and post procedure scan’s plus it may be used in additional follow up testing (testing and treatment paths are doctor and patent dependent). I note TLX has a US$7b TAM for their Precision Medicine PSMA opportunity which seems very large, my understanding is the total prostate cancer diagnosis and treatment market is around US$15b.
A middle ground and factoring market penetration rates for a sales estimate is the Telix forecasting sales of around US$2.4b by FY31 they are currently tracking to around US$800m in FY26, so I will use the combination of Telix’s actual and forecast sales (year adjusted by 5%pa growth) to project Clarity sales from FY29 (my estimate of market entry) to FY38 (patent expiry) as well as take the Telix’s EBITDA of 35% on it’s diagnostic business for a cashflow estimate.
Normally at this stage I would take a statistical average probability of success (POS) for Phase 3 assets of 50% but I value the work @mikebrisy’s has done on Clarity and agree it is much higher. I will take the low end of his 65-75% range to now cast the current value of the company.
Based on this and “now casting” based on the current market price of Clarity I get the below. In short, the current price assumes there is a 65% chance a 20% return is achieved through to FY31. This is just the current PSMA-PET diagnostic, with a net zero value for the theragnostic in Phase 2 and other active programs and pipeline options. A matrix of outcomes is also shown for different POS and discount combinations.
One key thing I am unsure on is the expected time to NDA if successful. As such I have pushed first revenues out to FY29 which I hope will be conservative and will adjust with additional information because even 1 year earlier can make a significant difference to the value of patent protected products.
Why buy now
Pre commercial Biotech companies on the ASX are for the most part heavily discounted compared to similar US listed companies which is a great edge for Australia investors. However, due to skilled capital management of the CEO, Michael Parker, plus the halo effect of Telix, the discount for Clarity has been much lower or non-existent over recent years. This is exemplified by Telix having a market cap under A$200m at a similar stage of development.
The recent pull back in price provides the margin of safety that was previously missing, I don’t think it was over valued previously but it sure wasn’t undervalued either and I look for investments that are significantly undervalued, which I believe is now the case for Clarity, a price around what it traded at 2 years ago but significantly higher POS.
As such I have a starter position and intend to add on price drops or where clinical progress increasing value is not priced in.
Disc: I own RL
@Tom73 nice work on laying some value analysis for $CU6 (more than I have done and it is on my to do list, as I have various versions of Work in Progress!).
On your question of time to commercialise, an optimistic timeline might be:
- AMPLIFY topline: H2 2026
- CLARIFY topline: H1 2027 (or potentially H2 2026)
- Rolling NDA submission begins: early-to-mid 2027
- NDA accepted and priority review clock starts: mid-2027
- FDA decision: H1 2028 under priority review; H2 2028 under standard review
So, I think slating first sales in FY29 is prudent, and it is also what I am assuming.
On the sales model, $CU6 has said little publicly about whether they intend a direct sales force, a co-promotion arrangement, or a licensing/partnership model. The Theragenics deal is notable in this context. Theragenics noted it has a current commercial sales force in prostate cancer and deep insight into the field, which has led some observers to speculate the relationship could extend beyond contract manufacturing into commercial support, though $CU6y has not stated this explicitly. Their stated strategy is to target the US as the primary approval market, with five open IND applications from the FDA. Beyond that, they appear to be deferring detailed go-to-market disclosure until closer to NDA submission. No partnership or licensing deal with a major pharma has been announced.
The team at Canaccord Genuity are more bullish, with revenue of A$109.2m in FY28, but I can't see that from where we are today, unless there is a rapid review and Theragenics is contracted for sales and marketing.
If I read your valuation correctly, you're basically laying out a range of NPV(20%) values based on the 64Cu diagnostic product for the prostate indications (plus the helpful grid at different discount rates.)
In the context of today's EV of c. $750m, your rNPV(20%) of $927m is - as read it - just counting for the FY29-FY38 revenue stream for 64Cu diagnostics for prostate, and does not consider theranostics and other cancers, nor does it assign any continuing value after FY38. (Please correct me if I've misunderstood!) Of course, that is the most tangible asset of the business as we stand today.
The material difference in my approach to valuing this business is that I apply WACCs of 13% - 15%, because of applying the %CoS to each product cashflow stream (i.e. so as not to double-risk the cashflows). I also get a lower peak revenue for the 64Cu diagnostic asset because I assume a more competitive market, but I do include value for other parts of the development portfolio, and assign a continuing value to the business, because this is a science-based company that will continue to seek to exploit and develop their platform. Which is why I tend to get higher valuations.
Interestingly, for comparison, Canaccord Genuity get the following sum of parts valuation:
SAR-bisPSMA PC Dx $5.57 risked ($7.99 unrisked)
SAR-bisPSMA PC Tx $2.66 risked ($5.87unrisked)
SARTATE NETs Dx $0.18 risked ($0.35 unrisked)
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Total EV $8.41 Risked ($14.21 unrisked)
Finally, you make a good point about timing.
At today's SP of $2.50, the market is effectively seeing a high chance of failure or poor commercial execution/high competition. However, as each month passes and we get closer to the AMPLIFY and CLARIFY topline readouts, funds will start positioning themselves for exposure to the approval risk. This is a well-known phenomenon which has been studied thoroughly in pre-revenue pharma companies. It is classic "buy the rumour well the fact" and it would be reasonable to expect a run up in the SP from hear of anything from +30% to +100%....potentially more from where we are today!
My $CU6 RL holding is now only 2.7%, but my plan is to hold on to that. (I might add a little more on further weakness over time, but only in the context of managing other positions in the speculative part of my portfolio.) If AMPLIFY topline is positive, I'm expecting the SP to run away a bit. However, there's enough time between the Topline and and FDA decision for the froth to blow off, and at that point (perhaps late 2027) I'd potentially add more, depending on what everything else looks like for the business and the competition.
When we consider how the SP might evolve on positive newsflow towards NDA approvals, I believe the Canaccord Genuity numbers are instructive. (I don't accept their valuation - its simply one point in a very wide range!) However, it is instructive because as you've shown in your analysis, this is a well-established market, with mutliple lines of treatment, including competing radiopharmaceutical products. And so I think in the event that the market starts to smell success, valuations will quickly move to being anchored on revenues growing towards a range of meaningful market shares of this reasonably well-defined market.
So that's some additional colour I would added to your section on "Why Buy Now". In 6 months time, in the success case, this could be a very different story!
Disc: Held (RL 2.7%)