First let me say that I like the company, and think that they will be very successful in time, and I want to thank Bulwinkl for presenting it to the board, but I think we need a little reality testing on things like finances. Here goes:
Share count – About 50 million.
Share price – About $50
Market Cap - About $2.5 billion
Revenue – In 2015 they had $17 million in revenue. They had none in previous years. So far in 2016 they’ve had $17 million in the first three quarters. This must be all support grants, as they have product on the market yet that I know about. It puts them priced at about 150 times revenue.
Now let’s look at net income (loss) :
In 2013 they lost $6 million
In 2014 they lost $42.6 million
In 2015 they lost $101.6 million
How about 2016?
In the first three quarters they lost $43 million, $64 million, and $74 million, for a rough total of $182 million, so far. Estimates for the fourth quarter are for losses of $88 million, which would bring losses up to $270 million for the year (well more than double the losses of 2015, which were more than double the losses from 2014). That’s more than $5 per share, and more than 10% of their market cap, and a lot to make up in order to break even.
If they get approved, how soon will they start making money? Well, they are planning a “controlled” launch that will likely rely on using medical experts to educate hospitals and cancer centers about the new technology. They had originally planned to file before the end of 2016, but delayed filing to the beginning of 2017.
This is a complicated treatment, and not like giving a pill or injection. It requires that a patient’s cells be withdrawn, infused with an antigen, and then re-injected back into the patient. This is not an ordinary launch. It’s not like launching an ordinary medicine into the market.
This is the first CAR-T therapy to reach the market. It will require new marketing tactics. There’s going to be a learning curve and they will go slow to make it a positive learning curve. They plan to initially target institutions that are already familiar with the CAR-T administration process. The slow rollout is meant to be a form of quality control. That launch will target 72 institutions, including clinical trial sites, national cancer hospitals, and cancer care network centers.
As I see it, this controlled and educating launch, enlisting and training medical experts, and using them to educate hospitals, will balloon losses in 2017 (if they get approved) from $270 million to how much? $400 million? $500 million? I haven’t a clue. Hospitals will probably be activated only a few at a time, and each will try a new treatment out on just a few patients to start with, to avoid unpleasant surprises. Revenue will be trivial at first, and won’t come anywhere near covering those losses. The way I see it, chances of the stock price quintupling in price in 2017 are infinitesimally small. Investors will be looking for hiccups in the launch and evaluating a prospect for a path to break-even
I think approval by the FDA is already largely baked into the price, given the lack of bad side-effects and the high rate of improvement. I think they will be approved, and that the company will eventually be successful, but an FDA delay is certainly possible, and I would be very careful with any time-fixed instrument like a call. Just saying.
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