I'm thinking Spectrum's MC should be over $2B at this point in time (meaning not in 6 months from now) or $20+ish per share. Back in Jan, I attempted a DCF model (a la H.C. Wainwright Analyst Edward White) to get at what Spectrum should be valued at (post 2549). I only did the work-up for previously treated egfr ex20in NSCLC. I stopped w the rest of the analysis in other cohorts and for Rolontis because in getting a PV of the previously treated egfr ex20in NSCLC revenue discounted cash flow of ~$1B, I reasoned that if you multiplied that by 6x sales (a la Jan 2019 NYU Stern School of Business Pr/Sales ratio of 5.89) that comes out to ~6B MC and a ~$50/sh. Now nowhere did I see this type of price, and for only one cohort no less, anywhere mentioned and knew that it had to be wrong and gave up doing it for the other cohorts and Rolontis. I did ask for serious feedback on what I did wrong but didn’t get any takers. Later on, I did ask myself why and came to the easy conclusion that the 6x sales ratio was inappropriate for projections of up to 12 years in the future that I used since there is so much future uncertainty. The thing is I did come up w a DCF revenue stream of $1B for the egfr ex20in NSCLC cohort. You can see my referenced post for more detail, but the assumptions I used I felt pretty solid in using e.g. it will be approved in late 2020, will initially be the only game in town for the 1st couple of years and will get high penetration rates. So I feel that the DCF for the egfr ex20in NSCLC cohort IS $1B. The uncertainty penalty is not using the 6X sales ratio. And every time a milestone is passed e.g. top-line data, approval, actual sales, the nearer it should get closer to that 6x sales ratio or $50/sh and that’s just for the egfr ex20in NSCLC cohort. Again see post 2549.
This has been a long-winded post to say that, at this point in time, JUST the egfr ex20in NSCLC cohort is worth $1B or just under $10/sh. I know this doesn’t mesh w trading philosophies but this is how this Long sees it. This is my lodestar view.
PS I am going to try to come up w a MC using the DCF model for the other cohorts and Rolontis in the next week or so to get the DCF revenue stream for all potential sales when I have some free time. The projections will be iffier or more complicated. For example, for the previously treated her2 ex20in NSCLC cohort presumably there will be more competition (eg DS-8201) so say it only gets 50% penetration due to competition. But what does that say? It says that instead of 2nd line treatment, pozi will be tried in 3rd line so you would subtract a couple of months of usage. What about if pozi gets approval for 1st line? What does that change? Well, they have the same # of patients using posi but the Duration of Treatment will change. So instead of 7m on treatment in 2nd-line it could be 10 or 12m of treatment for 1st line, etc.
Regarding Rolontis, I'll project that, say to price pressures from biosimilars, the total market goes down 25% to $3B even though Neulasta sales went up 5% in the 4thQ 2018 even w 2 biosim in the market (and I read somewhere that Mylan captured 4% of the market last yr but I’m not really paying close attention at least until Rolontis is closer to approval). And regarding Rolontis approval, I feel it’s a pretty sure thing w/o it being a 100% sure thing (ha wordsmithing!). It got a SPA for it’s P3 trial and it met its endpoints which almost assuredly means FDA buy-in. It did reduce the # of patients in the trial but the proof of the pudding is it met its endpoints. I was concerned w the delay in submitting the BLA but pretty sure it was for 12m safety data to mature (see posts 2411 and 2412).
So bottom line, I’m much more bullish than you it seems like but it’s about time Spectrum stops disappointing w their delayed timelines.
AI
