Sernova Corp T.SVA

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

[MoneyMouth]

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:

1.  An upfront payment,
2. Milestone payments,
3. 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!

[Charly50]

clearly, the license agreement is the license to print money! I could imagine that Sernova is working flat out on it. Maybe this will come faster than some people think and before the general meeting. The calm before the storm. It is very calm.

[steadfast]

Good for you Moneymouth.  You have presented a challenge for some thoughtful and useful discussion.

[MoneyMouth]

Thanks, I've been looking into how licensing deals are made historically, and it seems there are 3 main methods to determine valuation of a pre-clinical company. 1. Cost To Develop 2. Or Potential Revenue 3. Or Compare Peers Cost To Develop This is basically when the licensee tries to value the company based on what it would cost them to develop a similar product. Since Sernova is patent

[BioTeck]

So where exactly are we getting the cells required for this hypothetical scenario?

[MoneyMouth]

In this hypothetical scenario its BYOC, bring your own cells. The cell pouch is a universal platform, although they are testing T1D, hemophillia and hypothyroid treatments, I don't see large pharma being too interested in sernovas cells, but rather the platform. The clinical/preclinical trials prove the effectiveness of the cell pouch in ensuring cell survival and treatment deliverability. I

[BioTeck]

Sernova should be doing preclinical testing with cell manufactuers. Sernova should be licensing out their pouch with no exclusivity to every pharma who wants to experiement with their own cells using sernovas pouch. Not give it out for free like they have been doing. Sooner or later if one of them get promising results, they will likely try to buy us out. It's pretty simple when you have a

[MoneyMouth]

I agree, I think knowing your value is very important. If i created an amazing product but only sold it for 50 cents people would think its just cheap shiiit. But preclinical trials are expensive and perhaps adding on a price tag to try out an experimental product is unappealing to large pharma. The risk could be too high. By letting them try before they buy, minimizes the risk on their end and

[BioTeck]

The big problem here is time. I don't want to hold the stock for 10 years while all this potentially plays out or falls apart. Any short term pop and my paper will be hitting the street hard and heavy.

[MoneyMouth]

10 years wait for 50 years salary doesnt seem too bad to be honest. But its not going to take 10 years and you know that. You know once they get the share price up near term they will be looking to move to the nasdaq. We all know that will do wonders for volume and share price. Thats what a year and a bit away maybe? Worth the wait in my opinion. Also, in the event of a licensing deal, there will

[MustangSalley]

Also where is the immunotherapy coating that is needed preclinical that we own over 2 years ago and that nothing has been started yet ? You won't have any of your scenarios without solving the immune suppression issue. This is going to take years and Toleikis has not even started yet .

[MoneyMouth]

So, no, you are wrong. Why would the immune protection tech prevent any and all deals from being made? See if you can try and give an objective response instead of clouding it with your own bitterness.

[BioTeck]

Without immunosuppression this technology is pretty much useless for everything except for thyroid. It is a vital part of the package.

[MustangSalley]

Moneymouth you do not understand anything related to this investment if you do not realize that without immunosuppresion solved , you will have no interest from anyone. The fact you fail to understand this concept tells me you are a novice emotional investor . Some of us have been here for over ten years , you have been her3 for a few months and do not realize how disorganized and inefficient

[MoneyMouth]

To those guys: I've been invested for the past 4 years actually. You may have me beat with the 10 year long investment, but I dont think I missed much in those 6 years... Also, I obviously know the value of the immune protection tech, but you clearly don't know the value of any thing else. I knew there would be an uproar as soon as I said the immune protection was not necessary for

[MoneyMouth]

To further my point, big pharma is just like all of us investors, except they have way more to gain. If you think immune protection technology is so important, then why did you buy into the company before it was ready? Why can't big pharma get involved for that exact same reason? You can't respond because everything you say I easily poke holes through like swiss cheese. Just delete your

[MustangSalley]

  The problem with your thesis is that nobody is arguing about the science except the immune protection has to be proven beforehand , management is completely incapable of executing . I wish they could do it but I just don't see it .  I want this to succeed . If sp goes to $2 I promise I will be gone from this blog forever .

[MoneyMouth]

My thesis is that it is not needed beforehand and I think I've argued that point stronger than you guys, so just concede.

[MustangSalley]

You have to least prove immunotherapy works preclinically . It is the cornerstone of the pouch to be viable commercially and for multiple licences . 

[MoneyMouth]

It is the missing piece in delivering the promise for a functional cure. But it is not the missing piece in striking a deal.

[Metalsguy1]

Good grief Moneymouth, why don't you spend the weekend catching up on the last 4 years of posts. People like Biotek, MustangS and myself are not bitter. We are simply tired, no, exhausted by idiots that just fell off the turnip truck trying to engage in discussions without having a fffing clue about the science and the critical value drivers, the MOST critical being immune protection tech

[Charly50]

Hello MoneyMouth - Thank you for your analysis. I think you went to a lot of trouble. It deserves recognition and it is the proof that the quality of the contributions cannot be related to the membership in the forum. I am very amazed at how every positive opinion is too Sernova, and I only now notice it, in a very bizarre way, is being torn apart. I think there's more to it than that.

[Redbaron2211]

MoneyMouth thanks for the analysis. Those that can't see past their own nose have to remember Vertex bought Semma for 950mil with only a proof of concept on animals. They had 0 clinical data not only on their cell line but also device and immunosuppressive tech. If big pharma likes what they see they will pay big bucks for a piece of the puzzle and Sernovas piece is not only proving to be the