Smart investors should understand that Tekmira benefits here too. With its Alnylam's lead core drug candidate poised to enter pivotal trials before the end of the year, and a goal to bring four more to advanced clinical trials by the end of 2015, the company says it will ultimately need all of the $400 million in cash in its coffers for advancing its own pipeline.
When ALNY advances, TKMR does too. You see, Alnylam's drugs use RNA interference, or RNAi, technology which works by turning off or silencing disease-causing genes. ALN-TTR02 is one of the company's most advanced experimental products. It is designed to treat transthyretin familial amyloid polyneuropathy, a rare condition that is normally treated with a liver transplant. Tekmira would become a $1B company on ALNY's TTR02 approval alone. That simple extrapolation comes from documented research. Remember, also Alnylam has other clinical products that Tekmira has a financial stake in (ALN-PCS and ALN-VSP) but TTR02 is the most advanced. Investors and analysts are placing the majority of Alnylam's value on this drug.
There are a wide range of estimates on what peak annual sales could be for TTR02 if it is approved. Certainly we have seen figures ranging from $800M to upwards of $2B. Tekmira is entitled to a single-digit royalty on sales of this product. So Tekmira could, at peak, be receiving an annual royalty of approximately somewhere between $40 to $80M.
Since there are no COG/COS associated with a royalty, this would flow straight to the bottom line. Looking at mid-point of the royalty range, Tekmira with a $60M bottom is earning $3.50 per share (using their fully diluted share count). Using a P/E ratio of 25 you arrive at a share price of $87.50 and a valuation of $1B+.
Again, this is a simplistic calculation that takes no account for R&D spending and any future dilution, but we think it demonstrates how lucrative the TTR02 royalty could be by itself. Some argue that a $1B valuation for Tekmira after a TTR02 approvable could be conservative.
From a qualitative standpoint, TTR02 has the potential to be the first RNAi drug approved by the FDA. Regardless of the sales figures, the approval will be a huge win for RNAi as a new class of medicine. All companies developing drugs in this space will stand to benefit but none more than Tekmira.
Add that to statements that Dr. Mark J. Murray, Tekmira's President and CEO, made in November: "We recognize that the primary value driver for Tekmira will be the clear demonstration of the clinical value of our own pipeline of RNAi products in a range of therapeutically important, commercially attractive markets. We expect that our lead oncology product, TKM-PLK1, will enter a Phase 2 trial in 2013; we continue to advance our TKM-Ebola product in collaboration with the U.S. Department of Defense's TMT program; and, we continue to generate data to support near-term decisions around further development of other product candidates within our pipeline. In addition, we are entitled to future royalty payments based on sales of Marqibo, which was recently approved by the FDA."
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