I'd like to share with you all a company that I initiated a position in about 2 months ago as I exited my investment in Kite Pharma (acquired by Gilead for $11.9Bn). I'll make this a quick pitch and in layman's terms.
Brief: Urogen is a clinical stage (that means pre-revenue, pre-FDA approval) biopharma company focused on developing treatments for urological cancers (cancers of the urinary tract). They have several drugs in their pipeline but we will focus our analysis on the most promising drug that addresses the largest market. The drug is called VesiGel and it treats a type of bladder cancer.
Why VesiGel is a great investment: 1. Competition - currently the treatment for bladder cancer is to apply chemo therapy via a catheter into the urinary tract. Unfortunately, the body naturally expels fluids in the urinary tract with you guessed it...urine. Existing treatments only allow the chemo to be active against the cancer for a couple of minutes. This significantly reduces the effectiveness of chemo. What happens is most patients receive surgery to remove the cancer which is A) expensive B) invasive C) requires overnight stays and D) high risk for complications.
VesiGel is applied via a catheter into the urinary tract but is suspended in a gel that slowly dissolves when in contact with urine. The result is VesiGel is applied to the cancer for hours instead of minutes.
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Approval Odds - now here is the magic of the entire investment thesis. VesiGel uses chemo therapy as the active drug and is only a vehicle to administer the chemo. This is important because chemo has already been approved by the FDA. Urogen is thus eligible for a fast track FDA approval process because they can use all the data that proves chemo is effective for themselves. They only have to prove to the FDA that the vehicle for administering the drugs is effective.
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Results - Phase I and II trials have already commenced with preliminary results being very positive. Treatment is short (6-8 weeks) and approximately 80% effective which is a large increase over the status quo which typically is less than half as effective and requires surgery afterward.
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Market - the market for drugs that treat this specific bladder cancer is around $5Bn annually (this means they could potentially earn $5Bn a year in revenue if they penetrated 100% of the market, a more conservative approach would say 20-25%).
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Value - the shares IPO'd May 2017 at $13. Today they trade at $36 a share, almost 3x! The market capitalization (the value of the company) is around $400M. This is a real back of the envelope valuation (I have a more detailed valuation backup), but assuming they penetrate 10% of the $5Bn market, they will have $500M in revenue. As of today, Urogen's comparable companies trade at 4x-5x revenue. $500M x 4 = $2Bn valuation. Divide that by 13M shares = share price of ~$150.
Let's discount the ~$150 share price back 2 years (the high end of when they will start selling product) and let's use a 30% discount rate to account for the higher risk (30% is a high discount rate FYI).
Math: $150 / (1+.30)2 = $89 / share today
At today's closing price of $36 / share there is still tremendous upside.
Knowledge Source: I work in finance and perform a lot of valuation/returns analyses
Disclaimer: I am long Urogen
I welcome your thoughts.
Submitted November 03, 2017 at 08:33PM by SaturdaysAFTBs http://ift.tt/2ivE7rx
