Biotech Values

[DewDiligence]

Tyzeka sales projections:

[This is a repost of message # 32720 from August, updated for the new brand name.]

Let’s start with the six countries in which IDIX enjoys a 50/50 profit split with NVS: the U.S., Germany, U.K., France, Italy, and Spain. I’ve seen 2010 estimates for the overall HBV market in these countries as low as $1B and as high as $2B; JP Sommadossi has given a range of $1.5-1.7B for 2009-2010. Hence, I think it’s fair to say that $1.5B in 2010 is a conservative to middling figure for the overall HBV market in these countries.

What about Tyzeka’s market share in the above countries in 2010? I see the market being split approximately 1/3 for BMY’s Baraclude, 1/3 for Tyzeka, and 1/3 for everything else. The latter group includes residual sales of such older drugs as Lamivudine and Hepsera, early ramps of such newer drugs as Viread and Clevudine, and a small share for Pegasys. (I am figuring no market share for Anadys’ ANA975 or ANA380.)

Appling the assumed 1/3 market share to the projected $1.5B HBV market in the specified countries gives $500M in projected annual sales for Tyzeka. IDIX’s share of the 50/50 JV with NVS would be half of this or $250M. At a typical pharmaceutical margin, IDIX can be expected to net about $75M pre-tax from these sales.

To the above, one must add the royalties IDIX stands to earn on Tyzeka sales by NVS in the rest of the world, most importantly Japan and China. If this adds $50M in 2010, it would bring IDIX’s annual pre-tax net income from the overall Tyzeka program to about $125M.

That’s essentially the bull case. What about the bear case?

Well, first of all, Tyzeka might not be approved by the FDA and EMEA or it might be delayed. With NVS’ participation and the data disclosed to date, I consider this unlikely, but it’s possible.[10/25/06 edit: we can now forget about this possibility.]

The second prong of the bear case is that BMY’s Baraclude, which is a pretty good drug, has not exactly been setting sales records since the FDA approved it in March, 2005. Baraclude sales in 2Q06 were only $14M, but this included nothing from Europe or Japan, where Baraclude was only recently approved.

Thomas Ebeling, the #2 pharma executive at NVS, and JP Sommadossi, CEO of IDIX, have stated on more than one occasion that BMY botched the U.S. Baraclude launch in a big way. Given that BMY has botched just about everything it has handled in the past few years, this is perhaps not surprising. If I were being charitable, I would conjecture that BMY deliberately laid low on Baraclude because they had bigger fires to fight; now that the drug is approved in all of the major countries, perhaps they will put some muscle into a full-fledged global rollout.

The third prong of the bear case is that one of the newer HBV drugs such as Viread or Clevudine that are in phase-3 or about to enter phase-3 will prove to be better than Tyzeka. This is a legitimate concern, but my market-share numbers above give almost 1/3 of the projected market to these drugs. Anything more than that seems excessive given that these drugs may yet fail in phase-3 or show undesirable side effects or resistance profiles.

All told, I find the bull case pretty compelling and the bear case less so; I think Tyzeka can be a pretty big-selling drug for a company the size of IDIX. The Tyzeka program has risk, of course, but that risk is already reflected in the low valuation, IMO.

Thus, even without a lot of help from the HCV program (which is a whole other story), I think IDIX is a strong buy at any price up to the low teens.