I was interested in actually doing an analysis of ONC’s (or any prospective BP buyer’s) opportunity in pancreatic cancer (PDAC) so I did a bit of research and basic financial analysis. Here, briefly, are the results.
The USA is expecting 62,210 new diagnoses of PDAC in 2022. Canada is expecting 6900; the EU is expecting around 100,000. Around 90% of these will not survive five years. Around 76% die within a year of diagnosis. There is currently no widely effective treatment for this disease.
In the US, average cost of PDAC chemotherapy treatment is between $7,900 and $10,000 per month; radiation therapy runs $11,000 to $14,000 per month.
I did an analysis over time of the costs and potential revenues from Phase 3 studies and (assuming study success) eventual adoption of a Pelareorep combination therapy as a standard of care treatment. Some of my assumptions included:
- A three-year Phase 3 period, with three studies costing a total of USD 54.4 million over the three jurisdictions
- A 12-year treatment period, with a maximum of 40% of diagnosed PDAC patients choosing the Pela therapy. This low buy-in allows for the possibility of competing therapies over time and is, I think, quite conservative. Uptake is ramped up in the first three years (10%, 20%, 30%).
- The cost to each patient of Pelareorep alone (ignoring the cost of combination drugs) is USD 24,000, spread over nine months. This is pure assumption; there isn’t much to go on here. It is based on 50% of the existing chemo cost for three months and a reduced utilization over the following six months.
- Production costs and overhead of ONC (or its purchaser) are estimated at 35% of revenue. This is based on recent Moderna figures and is deemed to include ongoing R&D costs.
- Corporate income tax of 27% in all three jurisdictions with USD 500 million available for tax writeoffs in 2022, with that amount increasing by the cost of the Phase 3 studies.
Looking first at cash flow analysis: at a 35% discount rate (seems high, but it is used in the industry apparently), the NPV is still positive (USD 652 million), indicating that this opportunity should be pursued. Please note that a 35% discount rate is deemed to include a considerable risk premium (this is typical in early stages of long-term project analysis) and the resultant NPV would be suitable to present for debt financing if needed.
In 2026 (the first year after regulatory approval) the EPS is USD 4.30. At a P/E ratio of 15 and assuming no dilution from present levels, this indicates a share value of USD 64.90. I also did a valuation using an EV/EBITDA ratio of 10; this generated a share value (again assuming no dilution going forward) of USD 43.20.
In 2030 (the first year of full take-up (i.e. 40% of diagnosed cases) the P/E share valuation is USD 189.40 per share, while the EV/EBIDTA share valuation is USD 173 per share.
Again, this analysis only considers the opportunity presented by pancreatic cancer cases only in USA, Canada and the EU. It ignores any potential success in breast cancer treatment or additional revenue which could be garnered from other countries. Share price estimates are given for 2026 and 2030; current share price estimates (assuming good results in November) would be discounted due to risk prior to regulatory approval. Comments welcome.