How would you value this biopharma company? Analysis & thought exercise.

[bwall]

As some of you may know, I'm a bit of a fan of biopharma stocks. They can be hard to valuate, though, since they only have upfront costs for years, zero sales, then (perhaps), FDA approval for a drug or therapy that might or might not sell well. There is a lot of speculation, but one company recently sold some rights to a drug in clinical trials and this might provide insight as to company valuation.

Here's the breakdown:

1) About a month ago, CRSIPR Therapeutics (CRSP) sold 10% of the rights to it's main therapy candidate for Sickle Cell Disease to Vertex, another pharmaceutical company and their partner in the development of this therapy.

2) Vertex already had 50% of the development rights to the one time therapy that should provide a cure. After the purchase they now control 60% and CRSP the other 40%.

3) Clinical trial completion date is scheduled for May, 2022. FDA approval, if granted, should be a few months after that, say, six months later for arguments sake.

4) Without FDA approval, the therapy cannot be sold and has zero commercial value (as best I can tell).

5) The sale price for 10% of the rights (profits) from CTX001 was $900 million in cash. Not stock, not options, not promises or hopes or hours of singing Kumbahay together by the camp fire, cash. Cash that the company can spend as they see fit, with no strings attached.

Here is the question/thought exercise for the very smart people I find on this forum daily: What is a fair market value (market cap) for the company based on the above information?

For the purpose of analysis, let's assume that the company has zero machinery, real estate, other treatments in the pipeline, etc. The only asset that the company has is this one therapy that is about 16 months away from market.

[G-dog]

What does the therapy treat? What alternative treatments exist? And alternatives value? 

I don’t value stocks, but I would want this sort of comparison on what it might replace or compete against.  It gets harder when there are no other good treatments or actual cures (hence gene therapy).  Some diseases and conditions will just be harder to treat via gene targeting somatic cells.  But there have been a few apparent successes.

[Abe]

Average annual cost of treating SCD in the US is about $25k a year and 100k people have it in the US. So $2.5bn a year.

About 2,000 born per year with SCD, assuming lifespan of 50 years (its lower than for people without SCD) cost is $2.5bn saved for each cohort treated.

Because this is America and SCD primarily affects poorer, non-white people,say about 50% get access to care and 50% suffer needlessly. That’s still $1.2bn a year.

Average cost for a clinical trial in the US is about $500 million and patents last about 20 years. Assume about $50m per year in cost of the trial + manufacturing. Throw in $100m for research on other agents (pharma companies spend <10% of revenue on R&D).
So they are worth anywhere from $0 - $2.25per year, depending on efficacy.