Puma leaps, but how big is the T790M opportunity?
Just when you thought Puma Biotechnology’s valuation could not get any more bloated, its chief executive, Alan Auerbach, found another ace up his sleeve in a victory on a patent that the markets did not even know existed.
It is ironic that this patent relates to a use for which Puma’s lone asset, neratinib, is not even being developed, and telling that the sellside declined to seize this chance to rewrite valuation models again. The market might have taken a more bullish view, but Puma’s 19% rise on Friday is at odds with the very early opportunity the win presents, as EvaluatePharma data demonstrate (see table below).
Puma’s victory concerned an opposition Boehringer Ingelheim had lodged against an EU patent covering neratinib’s use in cancers with an EGFR T790M mutation – a potential use for Boehringer’s pan-Her inhibitor Gilotrif, which had been launched last year for first-line NSCLC tumours with EGFR exon 19 deletions or exon 21 substitution mutations.
An equivalent issued patent is also held by Puma in Asia, while in the US an application was filed in 2006. Puma bulls must therefore bank on this IP standing up in the rest of the world, and on the EU verdict not being overturned; in this case any developer of an irreversible pan-Her inhibitor – this is also neratinib's mechanism – would be expected to pay Puma a royalty on sales in T790M-mutated tumours in return for infringing Puma’s IP.
Of course it makes no difference that neratinib itself is not being developed for this use; Puma’s patents effectively represent a separate asset, and apparently one on which it does not owe the IP’s originator, Pfizer, a downstream royalty.
T790M mutations are thought to account for some 60% of the resistance built up to initial EGFR therapy like Roche’s Tarceva or AstraZeneca’s Iressa.
Two additional industry projects are in development specifically for T790M-resistant tumours: Clovis Oncology’s CO-1686 and AstraZeneca’s AZD9291. Boehringer being private no consensus sales data exist for Gilotrif, but these can be estimated based on expectations for Pfizer’s pan-Her inhibitor dacomitinib, which failed last month (Pfizer hands Boehringer an early win, January 28, 2014).
In the table below Gilotrif’s sales forecasts have been set at double those that had been expected for dacomitinib. For the purpose of this valuation 60% of these, and 100% of CO-1686 and AZD9291 revenue, come from T790M-mutated tumours.
|A valuation of the opportunity in T790M tumours ($m)|
|Gilotrif in T790M (60% of total)||86||209||337||446||532||606||670||722||764||797||818||828||911||1,002||1,102||1,212|
|NPV at 10% WACC||6,026|
|*based on EvaluatePharma consensus data; **double dacomitinib forecasts.|
Taking these forecasts out to each project’s expected patent expiry results gives a net present value of this market of $6bn. A realistic royalty payable by any infringing developer might be 5%, putting the value of this interest at just $301m – before the added risks are considered – yet Puma’s market cap on Friday added an extra $600m.
This might be explained by analyses such as a recent one from Leerink Swann estimating that the market for the Clovis and Astra molecules alone could be $3bn and above.
As EvaluatePharma data demonstrate, however, such bullishness is not reflected by the wider consensus – at least not yet. Indeed, neither Leerink nor Cowen analysts raised their price targets for Puma based on the patent win.
Of course, Leerink already has massive expectations for neratinib in breast cancer, helped by the fact the analysts seem not to adjust the asset for risk, and do not account for either a 10-20% neratinib revenue payaway to Pfizer or even any tax payments.
With a market cap of $3.5bn, and the NPV of neratinib at only $1.8bn according to consensus forecasts, it can be seen just how much the market expects Mr Auerbach to repeat the takeout trick he managed with his previous company, Cougar Biotechnology.
Still, by making Puma 19% more expensive all the market has done is make a takeover even less probable.