NASH BIOTECHS ARE UNDER EVALUATED


 


It's been a while since I wrote about the valuations of Biotechs targeting NASH.

Since I follow Biotechs on the markets I have learned that there is no point in trying to anticipate the unpredictable by calculating short-term and medium-term valuations.

The only thing I can do is to establish long-term scenarios based on realistic, accurate data and established facts.

So I decided to gather all available public data that I could find on the context of NASH, disease, in treatment strategies, diagnostic techniques. I have also established a database integrating all drug candidates, their mechanisms of action, their side effects, their therapeutic targets, the progress of their clinical studies, published results. 

As I am not selfish, I share all this data on this site so that everyone can make his own table, his own opinion. I know that polemists will explain to me that it is useless, but their knowledge of the subject is even worse than mine.

There are some who invest in values based on advice, analysts' publications, or their feeling of the moment. I like to evaluate things by analyzing, projecting, evaluating the potential by myself. 

Non-alcoholic steatohepatitis is a growing disease, given its progression; we could even speak of a pandemic.

I compiled all the latest scientific publications to try to assess the prevalence of the disease around the world; it allowed me to approach, country by country the estimated number of sick patients.

Based on the progress schedule of each drug candidate as well as these estimated prevalence’s, I was able to establish a model evaluating the market share of each drug in each country, as well as the estimated number of patients treated.

Since NASH is a silent disease, we need to be very cautious about what the patient care rate will be in the future, it should progress very slowly at the beginning and, as it has been for Diabetes, then accelerate further to reach an important rate of care. As an example, my model predicts that in 2025 only 3.5% of Western patients will be treated.

This study is freely available here as well as links to all results - NASH MARKET STUDY FREE OF ACCESS

Some find it too optimistic, as long as one can speak of optimism for the treatment of a life-threatening illness. I was very conservative, however, in terms of prevalence rates, care rates and treatment costs.

As everything is transparent in the proposed model everyone can make their own opinion on the figures used and weight the results in their own way.

Analysts use superlatives when talking about the future market for NASH treatment by announcing figures between 20 and 40 billion dollars of annual market.

Some investors question their figures, often sometime not well supported.

So I preferred to recalculate myself rather than take them for cash, I confirm that the forecast amounts are well over $ 30 billion and more as soon as the Asian market opens, very impacted by the disease.

The two most advanced companies are INTERCEPT and GENFIT, but a simple analysis of the profile of their two drugs shows that the patient base that will be able to target the ELAFIBRANOR OF GENFIT is much broader than the the OCALIVA of Intercepts’ one because of its several adverse effects.

But the valuation of GENFIT is the half of Intercepts’ one, and both, even including a risk factor, always present with the Biotechs, are absolutely not correlated to the size of their potential markets.

Prudent projections show that the turnover of the two drugs could exceed $ 1 billion a year from 2023 and GENFIT could exceed $ 5 billion by 2025.

All this with only 3.5% of potential patients treated.

Markets do not believe in miracles (though, when we see bitcoin!),

And are therefore very cautious about these easy-to-verify figures.

They do not know the disease, not the actors and doubt the published figures, they overestimate the risks of failure, even if they remain significant, and are under valuating these companies.

The field is left open to hedge funds that short these values to the slightest rise, and it must be said that the history of the valuation gives them reason and flexibility to continue. The prices therefore fall regularly according to the good will of the speculators.

Those, who like me, are betting on success, are few!

But what can we hope if we consider that we bet on the success of the clinical studies of these companies and in particular GENFIT.

Well, being the first on the market with a drug considered by specialists as a future first line treatment, ELAFIBRANOR will be on a virgin market segment without any competition, the other drugs in the group heading the race are targeting subsets of patients or a very small but lucrative segment of advanced fibrosis or cirrhosis.

This would make it the first-line drug available that would be supplemented by other drugs depending on the progress of the disease.

That would make almost $ 3 billion in sales in 2025, just for the United States. You can go check the interactive projections on the corresponding page of the site.

I tried to calculate the potential net margin of GENFIT for the year 2025 taking into account direct sales in Europe and licenses in the rest of the world and it exceeds $ 2 billion.

With a PER of 8, very low compared to the figures practiced on the market, it would already imply a valuation 20 times higher than that of today.

Even if you are skeptical, and want to divide these figures by 2 or even 4, you can see that the valuation gap remains huge.

So, even if investing in a Biotech presents a risk,  a few months ago, I estimated that , regarding statistics, the percentage of chance of success for ELAFIBRANOR to reach the market is close to 68%. 

These are just statistics to objectify the risk, but are they taken into account correctly in the current valuation?  I dont think so!

To me, the most advanced biotechs targeting NASH remains under valuated!


G Divry

Notice that I am neither a physician nor a biologist or financial analyst, my point of view is only that of an enlightened amateur, so it must be taken for what it is, a questionable point of view



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