>[IDIX] Have I read this wrong or will Novartis pay IDIX a sum nearly equal to IDIX's current mkt cap if valopicitabine makes it through approval?
“If Novartis exercises its option to collaborate with us on valopicitabine, it would be required to provide development funding for this product candidate and pay us up to $525 million in license fees and other payments based upon achievement of certain regulatory milestones as updated in the amendment, as well as additional milestone payments based upon achievement of predetermined sales levels.”<
Of the $525M cumulative amount for the HCV program, IDIX received $25M on March 29 when NVS exercised its option to license NM283, and IDIX will receive another $45M when NM283 enters phase-3 trials in the U.S. late this year or early in 2007. The remaining $455M is based on unspecified regulatory and sales milestones.
For valuation purposes, I don’t think you can tally the remaining $455M at anywhere near full value. First of all, NM283 has to succeed in phase-3 at the lower dose levels and get approved by the FDA. Assume for the sake of discussion that this triggers a milestone of $50-75M. The other $380-405M is presumably based on approval in ex-U.S. jurisdictions and attaining various geographical sales thresholds, some of which may be highly challenging. Factoring in the probabilities of achieving these milestones and discounting them back to the present, you get a figure that is much, much lower than the nominal $455M—perhaps a figure as low as $100M. (I am excluding the $25M that is already paid and the $45M due upon the start of phase-3, which is almost certain to be paid.)
Thus, the premise that IDIX’s current enterprise value is not much higher than the HCV milestones is a mirage.
I think a better way to evaluate IDIX is to consider the HCV program as icing on the valuation cake. Unless something untoward occurs during the FDA review of Telbivudine (PDUFA date in 4Q06) or the ensuing product launch, IDIX’s stake in the NVS-IDIX joint program in H*B*V ought to propel IDIX to profitability in 2007-2008 and justify a considerably higher stock price. If the HCV ship comes in as well, you could be looking at a very substantial gain from the current price level. Regards, Dew
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