Forum Topics BOT BOT BOT valuation

Pinned valuation:

Added 6 months ago
Justification

21 May 2024 - Bull Case (SOFDRA now approved)

Updating the valuation based on the 14th May assumptions, now with Sofdra approved, as follows.

SOI now 1,575+233, and allowing for further dilution due to share options to 2029, giving assumed 2029 SOI=2,000m

No change to 2029 EPS, debt free, and tax rate

Eliminate FDA failure cases and resubmission scenarios

Retain 12% discount rate to reflect market uptake risk.

2029 EPS now $0.055

Gives 2029 values for P/Es 25 & 45 of $1.36 - $2.45

Discount back at 12% to 2024 gives $0.77 - $1.39

Add back in value of $70m cash of capital raised = $0.035/share

Valuation range: $0.81 - $1.43

Central Case $1.12

Which kinda explains the limited SP movement today, versus what might have been expected, given that my pre-approval, undiliuted SP was $1.13.

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14 May 2024 - Bull Case

See today's Straw for full justification.

On the basis that $BOT achieve an EBIT in 2029 of US$104m, carrying no debt, and applying tax at 30% and USD:AUD 0.67 give 2029 NPAT of A$109m.

With 1,575m SOI, although $BOT will be highly cash generative quite soon, I'll allow some dilution due to share based compensation, so assume SOI of 1,800 in 2029.

That gives a 2029 EPS of $0.061.

I'll deal with the uncertainty via the P/E ratio, ranging from 25 to 45 - probably very conservative for a high growth pharma company.

I'll add a risk premium to the WACC, and discount at 12%.

My unrisked valuation range is: $0.88 to $0.1.56 (but including a margin of safety in the risk premium)

So, now I am going to apply my 90% CoS, and assume that in the 10% failure case

  1. There is a net 5% chance that there is a subsequent approval on whatever the residual issues are, and that the profile gets pushed out by another year, leading to a further discount and a further dilution of 10%.
  2. There is a net 5% chance that the drug is withdrawn amd the value of the business is $0.06 of the development portfolio.


Boiling all this up together, and I get a risked valuation of: $1.13

NewbieHK
Added 6 months ago

@mikebrisy i know the valuation is primarily based around SOFDRA however, would your valuation change considering the other products (ie BTX 1053 for acne at Phase 3) and the value in Botanix proprietary delivery system?




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mikebrisy
Added 6 months ago

@NewbieHK you are right in that my valuation only connsiders Sofdra and arguably would be higher if the development portfolio was included.

I haven't attempted to value the development portfolio. In the recent EurozHartley note valuing $BOT at $0.33 pre-approval, $0.06 was assigned to the development portfolio.

My valuations are higher partly because I take the time horizon out to 4 years before applying the P/Es to the 2029 EPS. My range is so wide that the implied error swamps any value that might be assigned today to the development portfolio. Therefore I chose to ignore it.

I don't plan to look at the valuation again until we get some sales numbers reported for Sofdra and maybe there'll be some updates on the development portfolio. My numbers are so far ahead of the market that I'll just now need to sit back and see what happens. (But I did top up a little today in RL and SM, because the risk-reward still looks very good. The potential upside is the largest in my portfolio,...by far,... so I've taken my RL holding to 5.5%.)

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umop3pisdn
Added 4 weeks ago

@mikebrisy I may be reading my trading app wrong, but it appears the market cap for $BOT is currently close to six hundred million.

With a current share price of 36.5c at time of writing, taking the share price to effectively triple to your stated average of $1.13, is a one and a half billion dollar market cap factored into your calculations?

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mikebrisy
Added 4 weeks ago

Yes, that's right. Here's a simple back of envelope triangulation with the market cap and my valuation, which you've read correctly .

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This isn't how I've valued it on SM, but it is a simple M&A case:

Revenue: $450/month net/patient = $5,400/yr/patient

Market: Case 1) 10m AHh in US; Case 2) 7m diagnosed

Peak penetration after 4 years = 1% gives: Case 1) 100,000 patients and Case 2) 70,000

M&A Valuation Case: Estimated peak sales acquisition multiple for a growing product is 5-10x, but we'll use 2-5x assuming moderate product market fit and peak and limited growth beyond 1% penetration. Case a) 5x and Case b) 2x.

SOI: 1,817m

USD:AUD = 0.67

Valuations (combining 1&2 and a&b)

1a) $2.22; 1b) $0.89; 2a) $1.55; 2b) $0.62

Average $1.32 ($0.62 - $2.22)

This is a different method than my SM valuation method, which was driven off some simple financials. (An example of triangulating using completely different methods.)

The BIG uncertainty is the number of patients that try the drug, and then those that stay on it.


QBREXA - the existing anticholinergic

As a bright spot, ever since Journey Medical bought QBREXA off Lilly, and have stared giving it some focus, there has been renewed momentum. In Q3 they added 4,000 new prescriptions over Q2, which in turn grew by 1,800 over Q1, with the drug having only increased 6% in 2023 over 2022. It's hard to know what the total sales of QBREXA are, because it was not given much attention when it was in the Lilly portfolio. I suspect they're not great otherwise they'd be giving more transparency.

However, Journey Medical has mulitple products including products in development. So they've had to allocate capital carefully to multiple demands. In Pharma, products don't sell themselves, and so I posit that neither Journey Medical nor Dermira before them gave QBREXA the focused attention that SOFRDA is getting from $BOT.

Journey Medical only has a market cap of US$116m and sales of US$80m across a portfolio of products, and if it starts generating new scripts at an annual run-rate of 16,000, then that's starting to look promising.

QBREXA is a cloth wipe-on and I think you have to wear gloves when putting it on, or at least wash hands afterwards, so SOFRDA's applicator is likely to be more patient-friendly. We don't know how the efficacy compares head-to-head.

Lilly only acquired DERMIRA in 2020 to strengthen their dermatological presence, and for them to sell QBREXA to the minnow Journey Medical a short time later clearly indicates it didn't fit with their strategic priorities. But of course, over that time Eli Lilly's fortunes have changed. In Q3 Lilly's GLP-1s achieved quarterly sales of over $4bn. So their appetite for lower value products is now in a different league!


ECCLOCK ( SOFDRA in disguise in Japan)

According to Euroz Hartley, ECCLOCK (essetially SOFRDA being sold under licence in Japan by Kaken) in year 4 sold 350,000 units, or the equivalent of 29,000 patients, taking it for a full year. While the drug is a lot cheaper in Japan, the reimbursement and health insurance set up is different. And Japan is a market only 1/3rd the size of the US in terms of patients (and a lot smaller in $ value).

So, translating 29,000 in year 4 in Japan to the US indicates that 70,000 - 100,000 is ballpark realistic. (That said, there is some evidence that the prevalence of AHh is higher in Japan than in the US, however, it can be hard to unpack the stats between all hyperhidrosis conditions, the axilliary condition, and primary and secondary conditions.)

The big difference between the markets, is that the US market has direct to consumer marketing, and a telehealth diagnosis, presciption and fulfillment channel all good to go. Backed by a very experienced management team with a great track record. So, is 1% market penetration aggressive or highly conservative? Take your own view, and the valuation of $BOT follows as a result.

SO WHAT?

My valuations for $BOT - by whatever method - are optimistic. They represent successful commercialisation. I am assuming a good product-market fit, and successful sales and marketing execution.

But if both of those things happen, then >$1.00 might only be the start.

And that's why, despite its execution risk, $BOT is my #2 real life position. From here, it has a very significant upside, but it could also flop and go to $0.10!

The great news, is I am going to find out over the next 12 months. It is possible that in 12 months time my valuation is either $0.10 or it might be $2.00, There are few if any stocks I own with that spread. But anyone who owns $BOT has to embrace that risk IMHO.


(Sorry @umop3pisdn you asked a simple question, and I've gone into a deep dive. But to me the number in a valuation is the result of a lot of thinking about the business and the market, and inevitably, when I start unpacking my numbers, a bunch of other stuff pours out. And if I haven't written it down before, then I tend to dump it in the Straw or Post of the moment.)

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