Clovis: valuation assumes front line is a given

Clovis: valuation assumes front line is a given

October 21st, 2015.

By Juan Pedro Rodriguez Serrate

Most of the value of Clovis (NASDAQ: CLVS) lies on its lung cancer drug rociletinib. Its valuation currently assumes it’ll be approved in the first-line setting and will garner almost half of the overall market.

I have modeled two scenarios using the DCF valuation methodology: one assumes rociletinib is launched in front line EGFR lung cancer and the other that its use is restricted to T790M positive patients.

In the first case I arrive at a net present value of $87/share, or a market cap of $3.30 billion based on the following assumptions:

- Launches in 2017 ahead of AstraZeneca which will launch the following year.
- Targets a potential of 67,000 patients with previously untreated EGFR+ NSCLC in the world’s major markets.
- Gets approximately 40% market share whereas competitor AZD9291 gets the rest (total 26,700 patients).
- $50,000 average net price per treatment, a premium to Iressa and Tarceva.
- Peak total sales of $1.9 billion: $1.7B for rociletinib, $0.2B for rucaparib.
- Peak FCF of $0.93B, WACC of ~9%.

Valuation 1

(click to enlarge)

However, if rociletinib fails to gain approval in the first-line setting, or losses market share against competitors, its valuation goes down to $48/share or a market cap of $1.70B. Main assumptions are:

- Addresses only T790M positive patients: potentially 37,000 in the US, EU-5 and Japan.
- Same price and market share: treating around 14,700 patients with rociletinib.
- Peak sales of $1.18 billion
- Peak FCF $0.57 billion dollars and ~9% WACC.

Valuation2

(click to enlarge)

In both cases, no terminal value is modeled beyond 2031 and no value is ascribed to its third asset Lucitanib.
In a takeout scenario in which Clovis is bought by a big company with an stablished lung cancer franchise, synergies, marketing savings and other variables may result in a higher valuation.
Data from TIGER-1 study which evaluates rociletinib vs. Tarceva in the first line setting will be presented in Q2 2016, likely at ASCO. AstraZeneca will present data in front-line around mid-2017 (FLAURA study).

Any questions or comments, feel free to leave a comment or drop me a line at iberbiotech@iberbiotech.com

 
I have no position in CLVS

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