Valuation
In the abstract of Dr. Javitt's pre-print, "Vasoactive Intestinal Peptide treats Respiratory Failure in COVID-19 by rescuing the Alveolar Type II cell" one statement stands out to me that is most compelling as to valuation:
Because of its lack of toxicity and low cost of manufacture compared to proprietary biologics, VIP may be uniquely attractive to those focused on global countermeasures against COVID-19.
Coming up with a valuation is difficult because there are many unknown variables, "known unknowns" as it were, to quote Gilead's former Chairman Rumsfeld again. In my estimates of valuation I'm going to make a wild assumption from the outset: that RLF-100 is successful in receiving approval globally for the treatment of COVID-19 in both critical and mild to moderate patients (preventing their progression to critical).
Relief Therapeutics has not to my knowledge decided pricing that a dose of RLF-100 will be. In critical patients, IV administration 50 -150 pmol/kg/hr over 12 hours is the process. In the mild to moderate trial, patients will receive nebulized RLF-100, 100 micrograms 3x daily.
However, according to Relief and NeuroRx, the cost of manufacture is low, and, of course, the dosing amounts mentioned above are extremely low. That could result in a high margin to Relief Therapeutics, even after manufacture, fill/finish and distribution agreements are necessarily struck.
How many doses will be required globally? If, over the course of the pandemic (estimated at 5 years), only 1% of the world's population (76 Million people) will require dosing with RLF-100, either to prevent worsening of their condition, to recover from a critical condition, or even as a prophylaxis, that would equal 228 Million doses (at an average of 3 doses per patient). If each treatment dose results in only $50 to Relief Therapeutics net, that equals $11.4 Billion in net income over 5 years, or $2.28 Billion per year on average. Assuming dilution of 600 million more shares and applying a price to earnings ratio of 18 on that and you have a share price of around $18 per share.
Of course, this could be way off the mark, mainly because of the aforementioned missing inputs such as cost of manufacture and dosage price. I think only 1% of the world's population over 5 years is a quite conservative estimate of usage requirements.
It's hard not to look at the valuations of various companies going after a vaccine to try to guess at a valuation for Relief Therapeutics:
Company
Market Capitalization
Moderna (MRNA)
$29 Billion
Novavax (NVAX)
$8.7 Billion
Inovio (INO)
$3.2 Billion
Vir Biotechnology (VIR)
$6.53 Billion
The Emergency Use Approval (EUA) of Remdesivir by the FDA added $10 Billion to Gilead's market cap overnight when it was first announced. And as we all know, Remdesivir has only been shown to be effective in reducing hospital stays by about 4 days. It also comes with side effects, contraindications, and a median price tag of $2,730 per treatment course if you average the insured and uninsured price.
Adding a $10 Billion market cap to Relief Therapeutics gives us a stock price of about $5 per share, and a total market cap of about $12 Billion.
In the previously mentioned interview with Zurich-based publication, The Market NZZ, Relief's Chairman Dr. Selvaraju had some valuable commentary that reflects his perspective on valuation:
Q: Ram, at the beginning of the year, the market capitalization of Relief stood at merely CHF 2 mio [million]. In the past week, the value has grown to more than CHF 1bn. This surge was driven by hopes that Relief has a drug candidate - RLF-100 (Aviptadil) - that showed in first clinical trials a rapid recovery from respiratory failure in the most critically ill patients with Covid-19. In addition, independent researchers have reported that Aviptadil blocked replication of the Sars-CoV-2in human lung cells and monocytes. How does that feel?
A: I believe the attention we are getting now is a function of the severity and the global nature of the Covid-19 pandemic. And, it is a function of the fact that we have been fortunate enough to move a clinical program ahead very quickly: We have now started to see evidence that the drug is working. Many other people have tried things in Covid-19 and didn't get very far. That reflects, how challenging it is to treat this disease and how rare it is to identify a therapeutic that actually can have an impact. That is driving the attention on our stock now.
Q: In order to justify the current market value well in excess of CHF 1 bn, Relief must be building up a profit potential of more than CHF 100 mio. [million] per year that is realizable for at least 10 years in a row. Is this realistic?
A: That is very realistic. The Covid-19 pandemic has officially infected 19 Mio. [million] people worldwide. However, that is a gross underestimate of the actual figure. The official numbers reflect only how much testing is done. The number of people that get sick and face respiratory difficulties is somewhere between one and five percent. That might not sound like an impressive statistic. But given the numbers of tens of millions of people infected, this is a sizable population, particularly if you look at the relative benefit of our drug: If it saves lives, how do you put a price on that?
Q: What are your revenue expectations?
A: If the drug is approved there are three scenarios: Assume it is approved in an environment in which Covid-19 disappears very quickly. I think we can almost totally rule out that scenario. It looks more like that the problem is actually getting worse. The second scenario is an approval for the drug while the disease persists for several more years, but eventually goes away. In that context, we think it is quite likely that peak annual sales of RLF-100 would be much higher than the CHF 100 Mio. [million] annual figure mentioned in your question. The pricing depends on the competitive landscape and the question if there are effective vaccines available etc. In this base scenario and with effective vaccines available, it will take several years to deploy them. Our drug would have four to six years of potential deployment for those patients who get severely ill - and it could generate hundreds of millions of dollars per year during that timeframe.
Conclusion
We all know that biotech investing can be a risky proposition. We must be rational, skeptical, and cautious at all times when investing. There are times when one decides to put their risk capital to work. I have done so with Relief Therapeutics.
Throughout this piece, I have tried to point out the risks, uncertainties and to give a fair picture of Relief Therapeutics and its prospects.
As COVID-19 continues to spread in an uncontrolled manner in various countries including the U.S. and experts in virology and vaccines caution that a viable vaccine still won't be a panacea. If it is as effective as the yearly flu vaccine, that means that 40-50% of those vaccinated will have protection. That leaves nearly half of the population unprotected, not to mention those who don't get vaccinated. A recent survey indicated at least 20% U.S. residents will refuse to get vaccinated.
Therapeutics are clearly needed to help stop this destructive force, and I believe that the science behind RLF-100 is sensible, the lung cell target is rational, and the method of action theorized matches up extremely well with the effects of the virus. If RLF-100 is successful, the low cost to manufacture and relative ease of manufacture will be a boon not just to the comparatively wealthy U.S., but to the entire world
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