Replies to post #196725 on Biotech Values

[DewDiligence]

Re: RVNC's development plans and valuation

Why would the CMO be leaving now when the company is getting down to the important P3’s. Unless one can believe that all the important [phase-3] decisions (dose, endpoint selections, etc.) are all done, just a matter of execution left.

Far from it. The phase-3 program for RT002 will be large, costly, and complex, which is why RVNC says a phase-3 trial in the glabellar-lines indication is still about a year away from starting. Moreover, it’s reasonable to presume that the FDA and other regulators will want a large safety database that tests RT002 for immunogenicity after several repeated injections.

Even after today’s public offering, RVNC probably doesn’t have the financial resources to commercialize RT002 on its own, so I expect the company to partner the program at some point (for both cosmetic and non-cosmetic applications).

Regarding the CMO’s abrupt departure, it’s more curious than worrisome, IMO. RNVC exaggerated the phase-2 data in glabellar lines—as I described in #msg-118159012—but the data were still strong enough to convince me that RT002 can compete with Botox (absent the emergence of some kind of safety problem).

The soonest RT002 could realistically be on the market in the US/EU (and perhaps a few small countries) is late 2018. The large cosmetic markets in China, Japan, and Brazil will take longer to penetrate insofar as these countries will likely certainly require country-specific clinical trials before granting marketing approval.

Likewise, commercializing RT002 in non-cosmetic applications will be challenging: the trial designs will be tricky and costly, and it will surely take more than three years for initial regulatory approval in such indications.

Currently, the worldwide market for botulinum toxin is about $3B, of which 42% is for cosmetic uses. In the next three years, let’s say the $3B grows to $3.5B and the cosmetic portion of the market reaches $1.5B. Based on these assumptions, a reasonable expectation for RT002 might be $500M in annual sales for cosmetic indications within a couple of years of its initial launch. Assuming RVNC partners the program with a large company, RVNC’s share of the net profits might be 30-40% of the pie.

I don’t think RT002 is a significant enough breakthrough that it will singlehandedly expand the market for botulinum toxin beyond the natural market growth described above. Rather, whatever sales RT002 garners will have to come at the expense of Botox (which currently has an 85% worldwide market share) and the other smaller players.

All told, at an enterprise value of roughly $800M (before today’s trading), RVNC seems to be more than fully valued. I would like to own the stock at some point, but I will wait for a more attractive entry.

p.s. I’ve deliberately omitted discussion of RT001 (RVNC’s topical botulinum toxin) because I’m not convinced that this program has positive NPV in either cosmetic or non-cosmetic applications.