The trouble with MLNM of course is that it's as complicated as hell. Still, I suspect we'll learn something in the attempt.
Here's a back-of-envelope and most likely off-the-wall valuation look at one portion of a third tier I own a little of - Titan (TTP). The objective is to value their share of Iloperidone, currently starting Phase III trials by Novartis.
The deal is somewhat unusual, because the drug was developed by HMR, licensed to TTP and then licensed to Novartis. The consensus on the threads is that Novartis will pay a 15% royalty to HMR and 10% to TTP. (I have no personal knowledge of the accuracy of these numbers).
Further, Novartis is alleged to be spending $100m on Phase III trials, which if anything I would think is conservative for a trial eventually involving 3,300 patients at over 200 sites in 28 countries.
Let's assume these numbers are correct. Now Novartis only really owns maybe 50% of this drug, because they have to pay 25% royalties. (This 50% figure may be a bit low, depending on their margins. It is based on a 25% royalty being roughly equivalent to a 50:50 split). This gives the Novartis/HMR/TTP ownership as 50%/30%/20%
So if Novartis is paying $100m in upfront trials for half this drug, we can be pretty sure that their risk-adjusted present value of their share of the drug is substantially more than this - say at least $300m. (Remember the drug would be worth a good few billion if ultimately even moderately successful).
This would mean the TTP risk-adjusted present value for iloperidone alone is 2/5 of $300m, or $120m. (The PV's for Novartis/HMR/TTP are $300m/$180m/$120m).
TTP is trading for around $50m over cash.
Comments?
Here's the trial announcement:
Novartis Announces Launch of Phase III Trial to Evaluate Compound in
Schizophrenia
- Patient Recruitment Begins Across US -
EAST HANOVER, N.J., Jan. 15 /PRNewswire/ -- Novartis Pharmaceuticals
Corporation announced today the initiation of a Phase III clinical trial in
the United States for Zomaril™ (iloperidone), a compound being evaluated for
treatment of schizophrenia. The study is the first of several in the
Zomaril™ Efficacy/Utility and Safety (ZEUS) program and is known as the ZEUS
study (ILP3000). The ZEUS study has recently initiated patient recruitment
and aims to enroll a total of 600 patients at 40 sites throughout the United
States during the next eight months. When it is fully implemented, the ZEUS
program will involve 3,300 patients at 208 sites in 24 countries worldwide.
The ZEUS trial is designed to assess the safety and efficacy of three fixed
doses of Zomaril™ in patients with schizoaffective disorder or
schizophrenia. A devastating condition which affects nearly one percent of
the world's population and 2.7 million Americans, schizophrenia is the most
common and disabling of all major mental illnesses. Patients in the ZEUS
study will receive free medication and be closely monitored on a regular
basis by mental health professionals. To be eligible for participation in
the trial, patients must be between the ages of 18 and 65, diagnosed with
schizophrenia and exhibiting symptoms of the disease.
''Although there have been significant advances made in the treatment of
schizophrenia over the past few years,'' said John Kane, M.D., chairman of
psychiatry at Hillside Hospital, ''we still lack an optimal therapeutic
agent and 20% to 30% of patients do not respond to the current therapies.
Therefore research into new modes of treatment is vital for patients
battling this horrible disease.''
Schizophrenia impairs patients' cognitive functions causing positive
symptoms such as hallucinations and delusions, and negative symptoms such as
blunted affect and social withdrawal. The disease typically strikes in late
adolescence, with the onset of gross abnormalities in perception and an
inability to feel or express pleasure. The profound incidence of suicide
among schizophrenics is a well-documented public health problem.
Commenting on Novartis' role in this program, A.N. Karabelas, CEO, Novartis
Pharma AG said, ''By sponsoring this trial, Novartis is honoring its
long-standing commitment to development of new compounds that may help
patients suffering from schizophrenia to re-establish balance in their
lives, regain personal independence and improve their overall quality of
life. Zomaril is the leading late-stage product in our development program
for schizophrenia.''
Novartis has been a leader in the management of psychotic disorders for
several decades. Beginning in the 1950's with the introduction of Mellaril®
(thoridazine), to the discovery of the breakthrough drug Clozaril®
(clozapine) in the 1970's, the company has set new standards of care for
patients with mental illness. The development of Zomaril™ (iloperidone),
licensed from Titan Pharmaceuticals, once again demonstrates Novartis'
commitment to this patient group. To obtain further information about the
ZEUS Study, please contact Clinical Trial Leader Josephine Cucchiaro at
973-781-8155.
Peter |
