Part 3. Trois. from LMoss - Conclusion
A third uncertainty is whether the standard of treatment in FY99 will be one PI plus non-PIs (I label this 1P) or two PIs with or without non-PIs (2P). Testing is now underway to evaluate the 2P option. Early results are promising, but it is too early to predict the outcome with any certainty. Viracept is a logical partner in any 2P treatment because it blocks a different location on the protease structure. It also increases the bioavailability of Roche's PI by a factor of five. (Low bioavailability has been a problem with that PI.) On balance, I give 2P a p=0.3, but I think this may be an underestimate. We will know much more about this in another six months or so. The consequence of treatment shifting from 1P to 2P is a doubling of the PI market.
I believe these are the most important uncertainties in estimating the market for Viracept. Each of the three uncertainties has one of two possible outcomes, so that there are eight possible combinations. I'll call one of them (VE/DT/1P) the reference case and assign each of its component parts a factor of one in its effect on sales of Viracept. I estimate that if this reference case were the only possibility, Viracept would be used to treat 45500 patients in FY99 (i.e. about 6% of the current U.S. HIV-positive population). At $4800/patient, which is the reported revenue now being realized by the lowest-priced PI (Merck's Crixivan), that would give Viracept revenues of $220 million.
The eight possible combinations can be calculated in a simple spreadsheet. (I recommend this to anyone who would like to see how different estimates of event probabilities and their effect on sales will change the final result.) The probabilities and effect on sales are separately multiplied for each of the factors in the eight combinations. The eight resulting combination probabilities are then multiplied by the respective combination effect on sales. These eight products are then summed to give a probability-weighted estimate of Viracept sales. The result, for the values estimated, is 6.86 times the sales of the above reference case, or $1.5 billion.
This result is much higher than that of any analyst following AGPH. If it is realized, it could lead to AGPH profits of $22/share in FY99. The market might well reward such performance with a P/E multiple of 30, giving a stock price of $660/share in that year.
As I said in the beginning, estimating future sales of Viracept is not an exact science. I would welcome comments on this analysis. The views of medical care professionals working in this field would be especially helpful. In particular, have I correctly identified the key uncertainties, the probabilities of different outcomes, and the effect on sales of those outcomes? Is the estimate of patients and sales for the reference case reasonable?
Can the transition to a new PI and new treatment regimes occur as quickly as implied?
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