Thursday, October 31, 2013 12:40:16 PM
Valuation: Risk-adjusted NPV of C$457m
Our rNPV has increased to C$457m following the recent positive SCC lung and NSCLC data. This is based on prudent assumptions of Reolysin’s probability of success in each indication, launch date, pricing and market penetration. By comparison, Oncolytics’s EV is currently C$174m, based on a market cap of C$212m and end-Q2 cash of C$38.2m.
Sensitivities
Oncolytics is exposed to typical biotech company development risks, including the unpredictable outcome of trials, as highlighted in last year’s outcome of the SCCHN study. It has a very high single-product risk, with the entirety of its value residing in Reolysin. The investment case hinges on Oncolytics’s ability to secure a licensing deal to commercialise Reolysin and fund the pivotal Phase III trials required in larger indications such as NSCLC and CRC. Ideally, such a partner would have an established oncology franchise so that it can provide the resources and experience to conduct trials in multiple indications to fully exploit the novel technology. A licensing deal should achieve a significant re-rating in valuation.
Valuation
Our risk-adjusted valuation has increased to C$457m following the impact of the recent positive SCC lung and NSCLC data on our risk-adjustment; the probability of success has been increased from 30% to 40%. This valuation compares to a current EV of C$176m, based on a market cap of C$214m and an end-Q2 cash of C$38.2m. This valuation model is based on what Edison believes to be prudent assumptions of probability of success, launch date, pricing and market penetration in each indication. The probabilities of success in the different indications are in line with industry norms. No upfront or milestone payments from a licensing partner have been assumed in our model. For simplicity, our valuation model assumes a Reolysin price of C$20,000 per course of treatment across all the indications considered; however, higher pricing may be possible.
http://www.edisoninvestmentresearch.com/serve_pdf.php?d=researchreports&f=OncolyticsUpdate031013.pdf&first_name=Robert&last_name=Doig&company=Private&email=robert@mylacpa.com
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