Cytodyn Inc (CYDY)

[finesand]

Evaluation Update (Adding THERF, fix Royalties)

Most conservative model for Pro 140 with lowest market expectation.

Previous Evaluations:
- 2018-05-09,
- 2018-04-19

Changed:
- Fixed Royalties consideration, which is Rev * Margin * (1 - Royalties)
- Added THERF comparison
- Fixed R&R'16 MDR-2 pts size of their model, which is 70%

HIV-1 CCR5 Market Size Basics
Including comparison with Rodman & Renshaw 2016 (R&R '16) evaluation model and company's numbers.

CYDY and R&R are based on formula:
- CCR5 Pts = HIV-1 Pts * 70% CCR5
- Combo Pts = CCR5 Pts * 50% ART * X% MDR-2
- Mono Pts = CCR5 Pts * Y% SupVL

HIV-1 Pts for 2020 is around 1.3M, similar in any model.

CYDY's March '18 presentation used ever lowest numbers:
- X = 11% MDR-2 pts (combo)
- Y = 17% SubVL pts (mono)

CYDY's earlier presentation used
- X = 45% MDR-2 pts (combo)
- Y = 57% SubVL pts (mono)

R&R Oct2016 Model used
- X = 70% MDR-2 pts (combo)
- Y = 17% SubVL pts (mono)

Interestingly 20% MDR-2 risk has been mentioned in https://www.medscape.com/viewarticle/513281 and 70% MDR-2 pts in R&R '16 model.
However, we may shall use 11% MDR-2 as the lowest expectation for now, as stated by company. This has been also used for MDR-3 IZ http://www.idsociety.org/Press_Release_10_28_2016/
In reality, we assume MDR-2 proportion is at least about 20% minimum and hence doubles the CD02 Combo market value.
It might need also further discussion, why Pro 140 shall not be used as a first in line HIV-1 CCR5 medication, MDR-0, knowing its best in class safety, AEs, efficiency and even self-administered economy. Such discussion might be right after the CD03 Mono trials.

Basics for Multiples
- TaiMed https://www.reuters.com/finance/stocks/financial-highlights/4147.TWO (also shows industry + sector multiples)
- Discount rates in drug development 2011 http://www.avance.ch/avance_biostrat_discount_survey.pdf(edited)
- Discount Rates for Biotech Companies 2008 http://www.avance.ch/newsletter/docs/discount_1.pdf
- Valuation of Your Early Drug Candidate 2011 https://c.ymcdn.com/sites/www.michbio.org/resource/resmgr/BioToolBox_-_Commercialization/Valuation_of_Drug_Candidate.pdf
- THERF's May 2018 Presentation https://theratechnologies.s3.amazonaws.com/prod/media/Thera-Investor-Presentation-May-2018-Final.pdf

Discussion
R&R '16 only used 8-12% Combo market penetration, a 20-25% Mono market penetration and a 90% gross margin.
To be most conservative we just utilize 8% Combo, 16% Mono and 24% GvHD market penetration for now.

R&R '16 also used discount of only 40% (Chances of success 60%) overall, we have adjusted this to 70% success chance (30% discount) due to late stage and achieved PE, while using a slightly higher discount for Mono of 45%.

If you apply the roughly 24% royalty partnership model of R&R'16 to $8.52/sh, you would end up with current R&R '18 evaluation slightly above $2 for today.
However, this model shall reflect general Pro 140 market value for any transaction, including comparison to THERF and the main priority: buyout.

In regards to THERF comparison, it is notable that THERF sells Trogarzo/IZ at around $82600 net annual (30% of WAC)
while CYDY claims only $24000 net annual for PRO 140 for any indication, only 29% compared to Trogarzo/IZ.

Also the percentage of MDR-2 Experienced Pts varies widely between R&R, Medscape and CYDY,
for some reason - CYDY seems to downplay their potential market value?

DFC Evaluation based on Market Penetration & Multiples

Notables:
- Even lower than TaiMed's post BLA Combo value
- Using high over the top developing biotech discounts for Mono and Combo

Source
- PDF File
- LibreOffice Spreadsheet