Replies to post #255646 on Biotech Values

[WorstLuck]

Two points (for the benefit of readers who might not be following this matter closely

Absolutely. Even tradable assets get undervalued but non-tradable assets get a bigger discount.

Which isn't an endorsement to buy BPMC at this price/time. But the discount is either steeper than what I was anticipating or the actual value is less than I believe, or some combination, for however anyone chooses to use that information.

[WorstLuck]

1) The BPMC CVR is non-tradable, which lessens the amount shareholders ascribe to it as compared to a tradable CVR; and 2) Investors have devalued clinical and regulatory CVRs to some degree based on what BMY did to CELG shareholders

With tender expiration just before midnight today's market close was 129.35, let's use .35 cents as a proxy for the value of the CVR package. The deal hasn't closed yet so there is that, but there is also no reason to think it won't.

If one designates a 60% annualized discount for time as being reasonably consistent with the nature of the asset then the following is implied, roughly:

Less than a 35% chance of payout for the $2 portion if payout is expected around 18 months out.
Around 25% for the same if you firmly believe the payout would be in 12 months.

Bump the discount rate up to about 80% (using 5% monthly, compounded monthly is close) and if you expect payout of $2 in 18 months that is about a 40% chance.

If the blended expected time to the conditions for payout of $2 is lengthened to 20-21 months it makes the discount rate and/or the odds of pay a little better (not much).

Not seeing any enthusiasm here. One could argue the size of the deal combined with the structure limited the demand more than a 60% discount would be able to fill, hence the 80% example which still shows caution on the odds of payout.

Something like 200-400M 'feels' about right in sum of parts

For fun I looked at Kyorin as a comp and of course with limited details there is plenty of speculation. On a risk adjusted NPV basis I can justify something like $200-250M or shaded a bit higher included as the BLU-808 part of the cash price in the BPMC purchase, but a license deal would structure differently.