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As @Strawman made special efforts to feed the "spreadsheet jockeys" on the call this morning, I thought it only fair to respond in kind.
Matt referred to the potential that Sofdra really takes off, being a case not at all considered in the E&P and EH valuations of $0.47 and $0.55. So I thought I'd have a go a putting some dimensions around that.
Assumptions (details shown in the spreadsheet below)
- Assume sales build to peak over 5 years according to the profile given
- 5% of diagnosed market captured in yr 5
- 2.5% of undiagnosed market capture in yr 5
- 12 scripts per year at 50% persistency (absolute, not progressive/cumulative)
- %GM 76%; SG&A grows at 20%; R&D at 10% of revenue; nominal DD&A (capital light)
- No debt
- SOI grow at 2.5% per annum
- P/E in 2029 of 50 (which is modest if this baby takes off)
Crank the handled and discount back at WACC of 10% and you get a valuation of $12bn, today.
In this scenario, they are writing 2m scripts p.a. in 2029. That's just double the rate in Japan after 3 years. With excellent marketing and execution, that's not inconceivable.
To be clear, this IS NOT my valuation. I am happy to leave my valuation at a "modest" $1.20.
The point is that if we see a strong revenue trajectory in 2Q25, 3Q25 and 4Q25, then this indicates the order of maghnitude change that could possible emerge - which is probably more in line with where Howie and Vince are thinking.
For sure, there is a lot amount of execution risk. But this kind of upside potential means that this morning I've added a further 20% to my RL holding at $0.335, and will align SM accordingly. I want to place a bigger bet here.
I wasn't around to get on the $PNV bus pre-revenue, but I'm damned sure that I'm on this one with a solid position.
I'll write a separate straw with some reflections on the SM meeting later today.
Disc: Held in RL (7%) and SM
Just over a month ago Euroz Hartley published a short term price target for $BOT of $0.33, predicated on their assessment of the typical run-up in SP ahead of an FDA decision. Sure enough, with days to go, SP has passed this target standing today at $0.345.
I have absolutely no interest in short-term trading, as I am placing a 90% risked bet that this will be a much more valuable proposition. Much more over time. That said, it is interesting to watch the volumes and prices.
Last week's "non-announcement" appears to have given the market a little nudge, reminding the hot money out there about the impending FDA decision.
In the success case, on fundamental grounds, I expect the SP to go a lot higher. However, if there is a negative decision, this baby has pumped up enough that any correction will likely be hard indeed.
At time or writing there are still slightly higher volumes in the "BUY" queue (9m) than the "SELL" queue (7m), but things have evened up a little from this morning. But today marks the 3rd conseuctive day of higher than normal volumes.
tick-tick-tick
Disc: Held in RL and SM
$BOT have sent existing shareholders and everyone on their mailing list the updated Euroz Hartley report following last weeks Commercial. It is a thorough and well-written report, so I have put screenshot below in this straw.
Its gives a valuation of $0.33, and clearly seems to encourage the pre-FDA SP uplift short term trade. (Not for me)
I prefer to focus on the long term investment proposition in the success case.
Before reading, be aware the EH supported $BOT in the recent capital raise. It is also likely based on my reading of the disclaimer they have been engaged by $BOT as their defence adviser. EH have been paid by $BOT in shares for the advisory services they've provided. So although EH have certified that this is their own opionion, it is clear that it has been prepared benefiting from the EH collaboration with $BOT management and board.
So when I read it, I read it more as the view of $BOT management than of an independent analyst. So, I wanted to make that clear up front.
You can read the report yourself, but I wanted to highlight a few points.
FDA Approval
The imply a CoS of FDA approval in June as 90%
Benchmarking ASX FDA Knockbacks Leading to CLRs
They compare recent ASX companies that received a knockback at FDA approval (listed in Fig 3. on page 4). Of the 7, 5 were finally approved, one withdrawn, and one under review.
However, what is important, is that none of the sample group received knock-backs purely for label/patient information data. All were some combination of safety, efficacy of manufacutring, with one (later approved) not providing details.
%BOT's CRL was was labelling and patient information. The corrected labelling led to 100% compliance in the human factors study.
Therefore I think 90% is a reasonable CoS, and perhaps given $BOT reports of having high confidence of approval following engagement with the FDA in recent weeks, it is hard to understand the basis for a rejection. Should a rejection occur it would be a shock.
Revenue Profile
Figure 8 on Page 7 provide revenue projections. The growth curve looks reasonable. However, to my eye it looks conservative give the gap in the market that SOFDRA addresses. The projection is to only penetrate 1.0% of the market by 2033 - 9 years after launch.
As ever, the drug will only suit some sufferers, and not everyone will respond. In any event there is certainly upside to this if the drug is well-received by the market.
Cautioning my own enthusiasm, I note that the analysis has considered the progress of the drug in Japan in developing their projections. $BOT reported that Kaken have sold 350,000 units in the last 12 months in Japan. The valuation forecast projects the US taking 5 years to get to this. So following launch (assuming approval) it will be instructive to follow the early US profile compared with the experience in Japan. There has to be a bull case to do much better than the EH profile.
Valuation
Of EH's valuation of $0.33, $0.26 comes from SOFDRA and $0.06 from the development portfolio.
My Quick Valuation - Bull Case - SOFDRA is approved in June with minor risk adjustment
I think the EH sales profile is a prudent forecast, and I base my valuation solely on SOFDRA.
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
- There is a net 5% chance that there is a subsequence approval on what ever 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%.
- 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
What do I have to believe: 1) SOFDRA gets approved some time in the next year, 2) the telemarketing strategy is successful, 3) the product gets some traction over 9 years with 1% of the potential market.
Not a long bow to draw for a Bull Case.
Now at the start of this straw, I speculated that EH are $BOT's defence advisor. If their valuation is truly $0.33 that clearly cannot be true, because as my analysis shows, if you believe the forecast, and had deep pockets, you'd happily put in a takeover offer today of $0.50 to $0.60. The board should send any acquirer away for anything south of $0.60 or even $1.00 IMHO, given the upside which I haven't even attempted to assess.
So there is a lot of risking being applied to the EH analysis, unless I am missing something!
(I note that my fellow $BOT bull @Nnyck777 is at $1.92 ... I'm slowly getting there :-)
Disc: Held in RL and SM
$BOT have issued their 4C.
Highlights
Cash holdings actually increased, thanks to exercise of options.
We're now two months away from the expected FDA decision on Sofdra - one way or another that will be a major SP catalyst, with anything but an approval a major surprise.
Accordingly, $BOT are making good progress in preparations for launch. They've focused activities on the US payers (insurers) and report"
"The Company has now engaged players that account for 80% of covered lives in the US and is pleased with the feedback regarding pricing and the relative absence of obstacles for patients to access Sofdra following planned approval."
So, if the approval is straighforward and goes as expected, then FY25 is going to be an important year!
Disc: Held in RL and SM
I wanted to better understand the precedence around the FDA letter holding up approval of sofpironium bromide gel based on labelling and patient information deficiencies.
I found an interesting reference on the subject in JAMA (Sacks et al. (2014) JAMA 311(4) 378-384). The article is a little too dated for my liking, but the information in Table 5 is interesting. (below)
Of 151 drugs not approved in their first cycle, 71 were subsequently approved following resubmission, with 80 not approved during the lifetime of the study.
What is more interesting is that only 4 drugs (2.6%) were not approved first time for labelling alone, and all 4 of these were subsequently approved.
Although the median delay in the study was 435 days this includes the entire population which is dominated by drugs with safey, efficiacy, chemistry, manufacturing and controls issues, many of which would have required further clinical trials. There's no data on the delay for labelling ony.
So this provides some independent support for the CEO's confidence that the drug will be approved when the labelling feedback is addressed.
It is many years since I was a practitioner in the industry, so it is good to know that the 2.6% of labelling rejections aligns with my own intuition that, while not un precedented, a labelling-only knockback is unusual.
In his interview on Ausbiz yesterday Howie McKibbon said "It's something that we anticipated. If we were going to get any feedback from the agency, we would have that much earlier in the cycle. So we were quite surprised that this occurred," which reinforced my own expectation that label feedback is usually addressed in earlier communication between the FDA and applicant, prior to the final decision.
Thinking about this overnight, I think the reason that this didn't happen in this case, is that the instructions relate to the use of the gel applicator, that requires validation in a controlled environment. So, its not just a change to the label (as you might easily do for a pill or capsule) but a patient instruction that has to be validated by observation and requires a supplemental submission reporting the results. I think that is why a resubmission is required and makes me think that maybe Howie shouldn't be so surprised. (It also weakens any argument about conspiracies!)
Source: Sacks et al. (2014)