First off, I am not giving you advice. I'm not a financial advisor, nor do I work in the pharma industry. I'm just sharing some research I did, and I'm open to all feedback and comments. Additionally (in full disclosure) based on what I found, I'm holding 450 shares because I'm still afraid of options.
Lets start off with some TLDR for the bullish thoughts and bearish thoughts.
Bullish points:
Based on fairly conservative COGS I have a share target of $19, but if that turns out to be overly conservative a more realistic value could easily push the share target to $24-$30. These values also assume fairly conservative adoption among the patient pool. The recent injection of liquidity also gives them plenty of runway to start cashing in on a fully approved drug (Orladeyo). Additionally none of this accounts for their developmental drug (BCX9930) at all which has been racking up some big wins in clinical trials fairly recently and could push this to another level entirely. Considering that their Orladeyo drug on its own would support nearly double the current share price this makes a 10$ entry point fairly attractive with a potential bonus moonshot if BCX9930 takes off.
Bearish points:
Despite being approved, the rate of adoption of Orladeyo could take years to secure my estimated market share (I cant find any data to help estimate adoption rates). Drug trials can be a shot in the dark, and while currently there is no bad news regarding their up and coming drug BCX9930, a bad result would certainly draw enough negative sentiment to tank the price, despite Orladeyo easily supporting a share price of 19$ on its own. Additionally BCX9930 will need to complete trials for all of the numerous diseases they plan to market it for. Those trials will cost time and money and drag out for years. Lastly drug prices are in the focus of media pressure in the US which could likely have a negative impact on the pharma industry as a whole.
Now for the details. I'm going to talk through Liquidity, Revenue estimates, Cost estimates, and eventually arrive at my price target estimates. Lastly I'll speculate on some risks.
Liquidity: In the 3rd quarter, they lost around 45M and had around 150M cash. In Dec., they secured an additional 325M in liquidity (200M as a line of credit, and 125M as a 1-time gain which results in them paying a royalty on Orladeyo). They have plenty of liquidity.
Revenue: they have 2 drugs that I consider material. Orladeyo which was approved in US and Japan, and is about to be approved in Europe. BCX9930 which is far from approval in all but 1 disease in the US.
- Orladeyo is the only oral treatment for a rare disease known as HAE.
- Orladeyo will likely be sold for around 300000 per patient per year. Biocryst set a price for sales in US of 485000, and will likely be sold for less in Europe, but I figure it averages 300000. This price might sound obscene but is actually cheaper then its competition Takhzyro and Haegarda, which cost over 500000 per year.
- Orladeyo was actually only 30-44% effective in reducing HAE attacks, whereas Takhzyro and Haegarda are both around 80% effective. However, Orladeyo is the only oral medication while Takhzyro and Haegarda both require injections. The keys to Orledeyo are that it is a much more convenient and less invasive treatment, and despite its seemingly low effectiveness, it turns out that 50% of patients had a 70% reduction in attacks (while the other 50% probably saw little or no benefit, averaging to 30-44%).
- Also, in Biocryst's 3rd quarter conference call, management discussed a survey that they conducted, and found that about half of patients receiving injection treatments would consider switching to Orladeyo. Since Orladeyo is effective in half of patients, and half of patients would consider switching, I conclude that Orladeyo could likely secure roughly a 25% market share
- There are 7500 patients in US and 6500 in Europe. If I conservatively assume 20% market share, their revenue would be .2*14000*300000=840M. FYI, their guidance is "north of 500M".
- For sales in Japan, Biocryst made a deal with a pharma company called Torii. Torii will sell Orladeyo in Japan and pay a royalty to Biocryst of between 20-40%, which will amount to around 15M in royalty revenue for Biocryst.
Costs
- After looking at various income statements, it looks like cost-of-goods-sold is generally 15-33% in the pharma industry. I'll conservatively assume 33% for Orladeyo. Gross profit is 840M*.67 + 15M royalties=575M
- In the 4th quarter they had 605000 in product sales (100000 was Orladeyo). COGS was only 33000. It's unclear how much of this COGS is attributable to Orladeyo or how much noise there is due to revenue still being so small, but 33000/605000 implies a COGS of just 5.5%. This leads me to think my 33% assumption may be high. If COGS turns out to be 25%, then gross profit would be 645M. If COGS turns out to be 16%, then gross profit would be 715M. I can't imagine COGS being any lower (otherwise the drug wouldn't cost 485000).
- As a result of securing additional liquidity, Biocryst will pay a royalty of 8.75% on the first 350M of sales, then 2.75% on sales between 350M and 550M, then 0 thereafter. This amounts to a maximum annual royalty expense of 350*8.75% + 200*2.75% = 36M
- SG&A + R&D + interest expenses were 50M in 3rd quarter, and increased to 62M in the 4th quarter. They said they had infrastructure set up to market/distribute Orladeyo so I imagine SG&A won't increase much, but R&D will likely increase to fund further research of BCX9930 as well as other drugs. I'll assume these expenses rise to 75M per quarter, or 300M annually.
Based on these assumptions that leaves profit of 575M - 36M - 300M = 239M. Again, COGS is a major unknown in my model, but profit could be as large as 309M (in my 25% scenario) or 379M (in my 16% scenario)
Share count was 176M in 3rd quarter, and increased from 110M last year. I'll assume risk of further dilution to 200M.
EPS is 239/200=1.19. I estimate a $19 share price based on P/E of 16 and COGS of 33% (This improves to $24 and $30 share prices in my 25% or 16% COGS scenarios respectively, both of which are more realistic than a conservative 33%). This is before considering the BC.0X9930 drug, which actually seems to be their primary asset. I did not see any revenue estimates for BCX9930. But lets look at what we do know:
9930 is already close to approval to treat PNH in the US (here is some great DD thats focused more on this new drug from u/BIO9999), but there would only be around 300 patients in the US. I found a presentation on Biocryst's IR page that listed other diseases that 9930 could treat, and I googled the prevalence of each in the US:
- aHUS - 600
- ANCA vasculitis - 6000
- Lupus nephritis - 12000
- IgAN vasculitis - 66000
- glomerulonephritis - inconclusive
- primary membranous nephropathy - 3000
- IgA nephropathy - 7500
It's unclear how many of these patients would need treatment with 9930 or what the price of 9930 would be, but there seems to be a huge opportunity for 9930 to easily double my revenue/profit forecasts. This revenue is many years and many clinical trials away though, and may eventually face competition from other drugs, so I didn't include it in my analysis.
Risks: (1) I did not consider corporate tax on their profit (though they probably won't pay much tax due to years of losses to carry forward). (2) I've seen politicians tweet about obscene drug prices, and the bad press/political pressure may cause price reductions and instantly hurt the share price. (3) According to Seeking Alpha, analyst consensus revenue estimates are only 56.8M in 2021 and 144M in 2022 (as opposed to my long-term estimate of 855M). It seems it might be some time before they reach my revenue targets.
Again, I'm not that familiar with the pharma industry so I'm not really sure what will happen with COGS, R&D, or SG&A, but I tried to be conservative. I never thought I would consider a pharma stock, but this really looks good around 10. Thoughts?
Supporting Info:
Additional BCRX DD:
God like