As of this writing (03/14/20), BioCryst (NASDAQ:BCRX) shares are trading at $2.21 after a hectic week of extreme volatility. In the first days of March and as a result of speculative movements regarding the government’s possibilities of choosing BCRX’s antiviral Galidesivir as a treatment against coronavirus, the price shot up to $4.22. Immediately afterwards we witnessed unprecedented collapse of more than 50% stemming from the stock market crash caused by the coronavirus crisis. We are living in days of stock market convulsion with an intensity that I had never seen before. As a BioCryst investor, I can say that I am reasonably calm, as I know that I am invested in a company with a pipeline that supports a solid valuation and enormous revaluation potential. I am taking advantage of this extreme volatility by making small purchases at very low prices and lowering the average price of my shares.
There is much speculation regarding Galidesivir since, according to the company, it is in active communication with the government about the possibility that the drug may be useful as a treatment to fight the coronavirus. The company is waiting for the government to grant authorization to begin the in vitro test to verify the drug’s effectiveness.
In my opinion, Galidesivir has a lot of ballots to be able to finally be chosen as a treatment against coronavirus. This possibility will ensure that BioCryst receives the necessary funds to carry out the necessary pending trials. And really a statement from the company announcing such a circumstance would blow up the stock price.
But we have to be very cautious about this, since the final decision is up to the government, so BioCryst can only wait.
In any case, even in the event that there is finally no news about Galidesivir, the company’s pipeline guarantees enough intrinsic value.
On the other hand, BioCryst has published the 4Q 2019 ER.
From my analysis, I can affirm that I am very optimistic about the company. Revenue for the entire year of 2019 of $48.8M was reported, which means an increase of 140% compared to the previous year 2018. This large increase in revenue is due, in part, to the upfront payment of $20M made by Torii Pharmaceutical (OTCPK:TRXPF) as result of the partnership contract signed last year in Japan. Net losses for the full year 2019 have been $108.9M, or $0.94 per share, compared to the previous year’s net losses of $101.3M, or $0.98 per share.
All lines of investigation continue as planned. Therefore, regarding Berotralstat, in addition to FDA approval of the NDA, with PDUFA scheduled for 03/12/2020, it is reported in the statement that the JNDA has been accepted by the Health Authority of Japan (PMDA) with the Sakinage classification, which implies a shorter review period (2H 2020) and, in fact, the final decision can be considered as approved. The Berotralstat NDA is also expected to be submitted to the European health authorities during this first quarter of 2020.
Regarding BCX9930, BioCryst states that it had dosed its first PNH patients in the proof-of-concept study with its oral Factor D inhibitor BCX9930, and expects the results for the second half of this year 2020.
Regarding BCX9250, an oral inhibitor of kinase ALK-2 for the treatment of fibrodysplasia ossificans progressiva (FOP), data from phase I trial in healthy subjects is expected for 2H 2020.
Finally, as a novelty, it is reported that the company is in continuous communication with health authorities of the United States regarding the coronavirus crisis. In this sense, it is stated that the antiviral Galidesivir could be useful as a treatment and prevention of the disease.
As you can see, BioCryst continues executing its action plan as planned. We have two positive developments in the ER:
- The acceptance of the JNDA by Japan for Berotralstat with a Sakinage classification, so the approval can be considered as assured for the second semester of this year 2020.
- BioCryst has reported that they have meetings with government health authorities regarding the coronavirus crisis.
In this sense, it seems that the antiviral Galidesivir, currently in phase II, could be chosen by the government as a treatment to fight the disease.
The only negative point that I find is the delay regarding the POC study in PNH patients with BCX9920, since the results were expected for the first half of this year, now delayed for the second half of this year 2020.
Therefore, BioCryst faces a year that may be the year of the definitive transformation of the company, thanks to the beginning of the commercialization of Berotralstat. First in Japan by the end of this year 2020, then in the USA for the beginning of next year 2021, and finally in Europe for the middle of next year 2021.
To all this, and as I have already mentioned before, we must add the probable choice of Galidesivir as a drug to treat the coronavirus. Although still in the early stages of trials, as we are currently in a true global health emergency, authorities would shorten the drug’s testing and approval processes.
With a current market capitalization of around $340M, the revaluation potential it presents is very high. As we will see in the next section, only with Berotralstat it justifies a capitalization greater than $2.5B.
Market potential for Berotralstat and BCX9930
1) Berotralstat
We started with Berotralstat because it is the drug that is in a more advanced stage of research and that will presumably begin to be commercialized at the end of this year 2020. The commercialization will be launched in three areas: the US, Japan and Europe. On the other hand, final approval can be considered almost assured in each of the 3 areas due to the excellent results, both in efficacy and safety, as reported in each of the trials.
Market potential in the US:
To estimate the market potential of Berotralstat in the US, I have considered the following parameters:
According to surveys conducted by the company, more than 40% of doctors are willing to prescribe the drug.
Although I am confident in the potential of Berotralstat, I think 40% is too optimistic. Due to this, I am going to assume an initial percentage of market penetration of 2%.
The number of patients diagnosed with HAE is approximately 7,500.
BioCryst, which is already preparing the sales team, will do the marketing in the United States directly.
The price that it will eventually go out is still unknown, but the company claims it will be around the price of the competing drug Takzyro, whose annual cost per patient is approximately $570,000. With these data, we can prepare the following table:
US potential market:
|
2021 |
2022 |
2023 |
|
|
% penetration |
2 % |
4 % |
7 % |
|
Nº patients treated |
375 |
1125 |
1500 |
|
Annual cost of treatment |
$570.000 |
$570.000 |
$570.000 |
|
Annual revenues |
$85,5M |
$171M |
$300M |
Source: Author
Market potential in Japan:
In Japan, we have the number of patients diagnosed with HAE (500), and the estimate of the total HAE patients is 2,500. Keep in mind that Berotralstat will be the only drug available to prevent HAE attacks, so, as there is no competition, the % market penetration will be much higher than that of the US. I am going to estimate a conservative initial % of market penetration of 15%, which will increase in the following years.
Another important parameter is the price at which the drug will come out. The price will be negotiated within 60 days after the approval.
In the presentation of the latest results, it was explained that traditionally in Japan and for rare diseases, it is normal for the price to be slightly higher than in the United States. Also, the fact that Berotralstat has been classified as Sakinage helps the drug to come out with some premium on the price.
In my previous article: “BioCryst’s Berotralstat In Japan: A Guaranteed Commercial Success“, I estimated a starting price for Berotrlastat of about $220,000. However, and as we have explained before, the final price will be even higher than that of Takszyro in the US, because it is a rare disease, without an approved medicine in Japan and with the classification of Sakinage. Therefore, to estimate revenue in Japan, I am going to assume an annual cost equal to Takhzyro in the US: $570,000.
On the other hand, Torii Pharmaceutical will commercialize the drug in Japan and BioCryst will receive royalties of between 20% and 40%.
Japan potential market:
|
2021 |
2022 |
2023 |
|
|
% penetration |
15 % |
20 % |
25 % |
|
Nº patients treated |
75 |
100 |
125 |
|
Annual cost of treatment |
$570.000 |
$570.000 |
$570.000 |
|
Annual revenues |
$42,75M |
$57M |
$71,25M |
Source: Author
Market potential in Europe:
In the case of Europe, we have very little information to estimate Berotralstat’s revenue. In the statements that the company has reported, no significant data is detailed on the number of patients, nor the possible price at which it could come out.
Regarding the number of patients and knowing the incidence rate (1 / 30,000), we can estimate about 12,000 patients. Of these, approximately 30% could be being diagnosed, that is, 3,600.
Regarding the price at which it could go to market in Europe, i suppose that it would come out at a price similar to that of Takzyro.
In Europe, we will assume a % market penetration similar to that of the United States, since there are several medications for HAE prophylaxis.
In Europe, BioCryst will commercialize the drug with it own sales teams. According to company reports, a strategic partnership will not be established because the European market is highly concentrated, allowing the creation of sales teams that cover the entire European territory.
Europe potential market:
|
2021 |
2022 |
2023 |
|
|
% penetration |
2 % |
4 % |
7 % |
|
Nº patients treated |
72 |
144 |
252 |
|
Annual cost of treatment |
$570.000 |
$570.000 |
$570.000 |
|
Annual revenues |
$41M |
$82M |
$143M |
Source: Author
Global market potential:
Therefore, globally we can estimate a sum of revenue in the 3 areas and for the year 2023 of approximately $514.25M.
Applying a very conservative P/S ratio of 5 give us a market capitalization of $2.57B.
With a current capitalization of about $340M, the price has plenty of scope to increase in the months and years ahead.
2) BCX9930 potential market
As reported from the company, they have already begun to administer the first doses of BCX9930 to evaluate the third part of phase I “Proof of concept for PNH” and the results are expected for the second half of this year 2020.
Regarding the market potential of BCX9930, and as we explained in my previous article: “BioCryst: A New Actor In The Alternative Pathway Inhibition Field,” we are talking about a market above $7B. This is because BCX9930 may be indicated to treat numerous diseases, each with a sales potential of $1B:
“In principle, these pathologies would be the initial objectives of BCX9930 although there are other additional indications to which the drug could be indicated. Additional potential orphan indications for complement inhibitors include, but are not limited to, optic neuromyelitis (NMO), ANCA-associated vasculitis (AAV), C3 glomerulonephritis (C3G), IgA nephropathy (IgAN), warm autoimmune hemolytic anemia (wAIHA), focal Segmental glomerulosclerosis (FSGS), and coldagglutinin disease (CAD). Each of these pathologies has an revenues potential of more than $1B.”
Source: Article author
Despite the fact that BCX9930 is still in a very early research phase, there are high expectations for this drug as the first phase I results that BioCryst reported last year were excellent, and there is a huge potential market that could reach $7B.
Cash status
The 4Q 2019 ER reports a cash status of $138M as of 12/31/2019. It is estimated that BioCryst will need between $125M and $150M for this whole year 2020. The company expect to receive a payment of $20M from Torii Pharmaceutical after the Berotralstat approval in Japan for the second half of the year.
Therefore, it is highly likely that they will have to resort to a public offering for the second half of this year to raise between $50M and $80M.
Possible risks to consider
- Result of POC study for BCX 9930 that is expected for the second semester will not be satisfactory.
- The non-approval of Berotralstat by FDA.
- The non-approval of Berotralstat by the Japanese Health Authorities.
- Possible offering for the 2H 2020 that implies dilution of the value for the shareholders.
Conclusion
During these days, we are witnessing extreme volatility in the markets derived from the coronavirus crisis. The BioCryst price is suffering from this volatility climate and we have witnessed how it rose to $4.20 a week ago and then brutally drop to a low of $1.85 last Friday, 03/13/20. The stock market crash and speculations on Galidesivir are behind these strong speculative moves.
As we have previously explained, BioCryst’s pipeline supports a much higher intrinsic valuation than the current market capitalization ($340M), so this volatility should be exploited by investors to buy and lower the average of their shares price.
Regarding Galidesivir, I believe that it may play an important role in this coronavirus crisis, since it has demonstrated efficacy in in-vitro tests on a wide range of viruses, including coronaviruses, and in phase I trials reported in May last year, no notable adverse effects were detected.
In addition, it should be noted that the company already has experience dealing with the authorities and health agencies of the US, since several contracts have been signed to supply the antiviral Peramivir.
If the government finally decides on Galidesivir, we will see strong upward speculative movements in the share price, but as I have previously commented, this circumstance does not depend on the company, so BioCryst only has to wait for the government’s decision.
In any case, the fundamental value of BioCryst is not based on Galidesivir, but on the other drugs in its pipeline.
As the markets calm and the PDUFA date for Berotralstat approaches (12/03/20), the stock price is expected to rise to reduce the margin that currently exists with its intrinsic value.
So take advantage of these high volatility days to buy the stock at bargain prices.
Disclosure: I am/we are long BCRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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