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Insmed Incorporated Message Board

  • fudfighter4 fudfighter4 Jun 21, 2013 9:28 AM Flag

    Blehair - how could fair value be as low as $30?

    Re your -

    "if Arikace illustrates superior efficacy to either, and superior durability and safety to both, the revenue potential is then more than $400M, making the fair value $30"

    - fair value of $30 a share suggests a fair assumption that 55,000 of the 65,000 in the US/Europe with Cystic Fibrosis will NOT use the only therapy available which can deliver a significant and sustained improvement in their breathing.

    Would you care to share your reasoning on that please?

    The institutional shareholders who have been looking forward to the imminent Phase III results, but must now be persuaded to sell millions of shares to the agents of the tracker funds by the end of this month, will surely price their shares using a valuation model based primarily upon likely use of Arikace by the CF patient population.

    I'm struggling to see how they could possibly have such a pessimistic view of the adoption of Arikace by that patient population.

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    • blehair Jun 21, 2013 9:46 AM Flag

      Alright, let's have this discussion.

      Arikace is going for chronic indication, meaning 70% of the 70k, or just shy of 50k.

      The cost of Arikace, if comparable to TOBI, will be about $4500/month during USE. Assuming patients do 28-28 day routine, that's $27k/year.

      That means the size of the entire market is $1.35B at that pricing.

      Third of that is over $400M revenue, and would be achieved within 6 years. At 20% discount over 6 years out from approval date, at 80% gross profit margin, 90% to-market odds, and P/E of 12 (16 is common one too but I like to be conservative), that brings us to $900-1000M market valuation for CF indication. That's $30 on the nose. Factor in expected book value when cash runs out and the same sort of math for NTM indication, and fair value is actually $38. Since it's possible only EU will be approved from this trial, US CF indication may be delayed 1-2 years, which is why I cut back on that estimate a little. On the bright side, NTM could be approved based off P2 data. Further, in most of my posts (at least), I said $30s, or I said it would be $30 by year's end. It could go beyond of course.

      Why do I think $400M is a decent low-end estimate? Well, for the time being, we don't know for certain if the efficacy of Arikace can be sustained over long periods. The data so far supports it, but will P3? Who knows. I want to emphasize that I always specified that it was the low-end estimate, it may very well be a lot more then that for the indication depending on the data we see. But I'm projecting over $20s, minimum, by year end if P3 succeeds by any measure, that's a pretty bullish prediction and I used conservative metrics. If anything, you should be happy with my analysis.

      And it won't be $100.

      • 3 Replies to blehair
      • Thanks. I understood all of that apart from -

        1. why are your assuming an annual pricing of $27,000 when Wedbush only recently estimated Arikace would be priced at over $36,000?

        2. Re your -

        "Third of that is over $400M revenue, and would be achieved within 6 years."

        - the CF community is close-knit and well-connected. 65,000 live in the US/Europe. Why are you suggesting an adoption ramp which at face value appears complete gibberish?

        I ask these questions because I have your best interests at heart.

        There are many cynical investors who use this forum, and will be only too ready to assume you're a cheap #$%$ paid by the Shorts to manage the expectations of retail shareholders - so that they sell shares for as little as $20 next week when the buying by the agents for the tracker funds starts in earnest.

      • blehair Jun 21, 2013 10:01 AM Flag

        Since I'm talking to FUD, i should probably add that the reason why 30% market capture is reasonable estimate is because it's sharing the market with Cayston and TOBI. Theoretically it could go beyond 30% w/ good enough data, but that wouldn't be reasonable because that assume 100% of the chronic population is prescribed annually, and they aren't.

      • Columbo would have gotten half-way out the door and turned around and said "one more thing about you two..."

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