Sernova Corp T.SVA

Alternate Symbol(s): SEOVF

Healthcare Biotechnology

Sernova Corp. is a Canada-based clinical-stage biotechnology company, which is developing therapeutic cell technologies for chronic diseases, including insulin-dependent diabetes, thyroid disease, and blood disorders that include hemophilia A. The Company is focused on developing a functional cure for insulin-dependent diabetes with its therapeutic cell technology lead asset, the Cell Pouch System, a novel implantable and scalable medical device with immune protected therapeutic cells. The Cell Pouch is a scalable, implantable medical device. The Cell Pouch is designed to create a vascularized organ-like environment for the transplantation and engraftment of therapeutic cells. Its regenerative medicine therapeutic approach is to provide cell therapies where the cells, transplanted within an organ-like vascularized implantable device, the Cell Pouch, generates proteins, hormones or factors released into the bloodstream for treatment of diseases.

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Sernova Corp > How do we determine fair market cap from a licensing deal?

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Post by MoneyMouthon May 06, 2021 2:34am

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Post# 33138676

How do we determine fair market cap from a licensing deal?

FIRST: this is purely speculative and only servers to illustrate my thought process on how I'd evaluate a licensing deal if it ever happened.

So, way back when Sernova gave us that hour+ corporate update presentation, Dr. Toleikis mentioned a little bit of the structuring idea behind a licensing deal. He mentioned we could see:

An upfront payment,
Milestone payments,
And Royalties

Since then I've been wondering how we could determine the potential market cap based on a deal. Looking at a recent report, it looks like within the medical device subsector, companies are usually valued at 14x EBITDA (Earnings before interest, tax, depreciation and amortization).

Now, I've seen a lot of people expecting big cash upfront if Sernova were to secure a licensing deal. Well lets play with some figurative numbers here. For each scenario, lets consider the upfront payment as earnings for 2021. Then lets pretend that Sernova achieves a "milestone" each subsequent year from there. As for royalties, Sernova has estimated a potential yearly revenue (For only T1D Severe HU with Human Donar Islets) of 340 million a year (on the low end.) So the royalty payments will be some percentage of 340 million. For all T1D patients they estimate 24 billion per year (on the low end) To be very conservative, lets say they can only ever penetrate 20% of the market, leaving us with 68 million (Severe T1D) & 4.8 Billion (All T1D) respectively, in potential revenue.

Also, going to pretend we are fully diluted with 300 million shares outstanding.

Deal Scenario A: (Upfront based on 25% of our current market cap of 342 million)
Upfront: 85M = Earnings 2021
Milestones: 100M (20% more than upfront payment) = Earnings 2022
Royalties: 7% => 4.76M to 336M

2021 MC = 85M x 14 = 1.19Bn = $3.96/Share
2022 MC = 100M x 14 = 1.4Bn = $4.67/Share
Royalties = (4.76M x 14) to (336M x 14) = 66M to 4.7Bn = upwards of $15.67/Share

Deal Scenario B: (Upfront based on 5% of mid range potential revenue of the licensee (2.4 Billion revenue))
Upfront: 121M = Earnings 2021
Milestones: 146M = Earnings 2022
Royalties: 5% => 121M

2021 MC = 1.7Bn => $5.6/Share
2022 MC = 2 Bn => $6.66/Share
Royalties: 1.7 Bn => $5.6/Share

To summarize, I believe I've used pretty conservative numbers for these calculations. I've only projected 20% market share and have only included T1D markets. So I hope you can see the potential here is pretty huge. Who knows how the markets would actually react to numbers like this and who knows how a deal would even be structured. But still, I hope this gives some of you an idea of where we could go.

Would love to hear some of your guys' thoughts on how you think a deal should look if you were in the drivers seat!