Biotech Values

[mcbio]

Most of INCY valuation comes from 18424, partnered with NVS, could be on market next year in MF - market probably prices 100% chance of success in phase III.

But how many times in biotech have we seen great expectations dashed in Phase 3? I guess that's what bugs me about INCY and the $2B market cap valuation. If the market is truly pricing in 100% chance of success for the MF indication, there's probably not a ton of upside even if that pans out. On the other hand, if there is any kind of hiccup in the data, there's probably quite a bit of downside. I'm just thinking about this in terms of risk-reward.

I am uncomfortable with RIGL's drug safety profile, especially for RA long term use. The market doubts whether it can clear regulatory hurdle easily even if it maintains phase II efficacy.

I think we see those doubts more than priced into the stock, though, given the $400M market cap. There are some questions about the safety and I respect those though I think the drug will prove itself reasonably safe in Phase 3. I will say my biggest concern is that the Phase 3 trial design appears to follow the Phase 2 Taski3 design and that trial failed on the efficacy front. So I do think RIGL does have its share of risk. But I just tend to think those concerns tend to be more than priced in to the stock. Also, given that my investing timeframe is generally up to, but before, major binary events (e.g., Phase 3 results), I tend to think of the potential for a biotech to perform up to, but before, those major binary events. I just personally think RIGL at a $400M market cap, and a lot of negative expectations baked into the stock for the time being, may have better upside potential near-term than INCY at a $2B market cap, with the bulk of the valuation possibly tied to a drug that the market is pricing in 100% chance of success for. I.e., with INCY you may need to wait for the huge binary event, and the risk that entails, to get some upside whereas I could see RIGL appreciating nicely from the current $400M market cap level without having to incur the ultimately significant Phase 3 binary risk.

While 18424 competes with PFE's directly, I think for disease like RA with big and diverse market, no significant differentiation is not major burden, as you can see from antiTNF agents, which are all big sellers.

It's clearly a large market and I do agree that there will be room for two JAK inhibitors. I just think given that PFE is so far ahead they'll have first mover advantage and will presumably be able to capture and maintain a larger share of the market compared to LLY/INCY. I guess I'd feel more comfortable about LLY/INCY's share of the market if the market cap were a bit cheaper.