Deel 3
Sales Projection
Putting all of the above information together, I projected sales for five years with sales starting in 2017. I then took the NPV of those projected sales to determine a current fair value for Celyad if it traded at 1x the present value of projected future sales. To calculate the discount rate, I used the following calculator, in which I used the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) for my benchmark rate.
Discount rate calculator
The table below shows the NPV of projected sales to be just over $780 million, and Celyad currently has a market cap of about $450 million, which means that it has a potential upside of nearly 74%.
Europe Patient Population
3,600,000
Treatment Price
$55,000
Proj. Sales Less $1M PMT + 2% Mayo Clinic Royalty
Year
Year
Patients Treated
% of Patient Pop. Using Treatment
1
2016
0
0.0%
$0
2
2017
1,800
0.05%
$96,020,000
3
2018
3,600
0.10%
$193,040,000
4
2019
5,400
0.15%
$290,060,000
5
2020
7,200
0.20%
$387,080,000
6
2021
9,000
0.25%
$485,100,000
Total Patients Treated
27,000
Discount Rate
14.48%
NPV
$783,167,879.55
% of Pat. Pop. Treated
0.75%
Current market Cap
451,090,000
Upside
73.62%
Current Price
$49.40
Price Target
$85.77
Downside Risk
There are two potential downside drivers: weak C-Cure trial data presented in mid-2016, and the second risk is, if C-Cure is approved, will the cost of the treatment be lower than projected.
Weak Data
Because C-Cure is the lead product for Celyad and the closest to launching, any data presented that is perceived as weak or will lessen the possibility of market approval will most likely be met with a significant decline in the stock. For example, recently, Clovis Oncology (NASDAQ:CLVS) fell significantly (70%) when its trial data showed "the response rate in its ongoing clinical studies of Breakthrough Therapy-tagged rociletinib in EGFR T790M+ lung cancer is lower than expected and the FDA has requested additional efficacy data on both the 500 mg and 625 mg dosage groups." Simply put, the trial data was weak and the FDA wanted additional data. This shows the impact that weak data on its lead product and doubts about approval can have on a company that has no revenues.
Lower Treatment Price
If the treatment price for C-Cure is lower than expected, this will also have an impact on the current value of the stock. In the table below, I used the same model I used above to project future sales, except in this case I modeled for a treatment price that was 50% less than the estimated $55,000. Looking at the end result, you can see that if the sales price is 50% lower, the potential downside to the current price is just over 13%. This will be a potential risk for investors to watch for throughout 2016, as more information on pricing will be released as the potential 2017 launch approaches.
Europe Patient Population
3,600,000
Treatment Price
$27,500
Proj. Sales Less $1M PMT + 2% Mayo Clinic Royalty
Year
Year
Patients Treated
% of Pop. Using Treatment
1
2016
0
0.0%
$0
2
2017
1,800
0.05%
$47,510,000
3
2018
3,600
0.10%
$96,020,000
4
2019
5,400
0.15%
$144,530,000
5
2020
7,200
0.20%
$193,040,000
6
2021
9,000
0.25%
$242,550,000
Total Patients Treated
27,000
Discount Rate
14.48%
NPV
$390,323,775.18
% of Pat. Pop. Treated
0.75%
Current market Cap
451,090,000
Upside
-13.47%
Current Price
$49.40
Price Target
$42.75
Closing Thoughts
In closing, I believe Celyad is a quality speculative play in the biotechnology sector because it will be presenting data on its lead product C-Cure and its immuno-oncology treatment in mid-2016. In addition, in January, CYAD is attending the J.P. Morgan Healthcare conference and it has the potential to find a partner for the Phase III FDA trial for C-Cure. The conference will also give Celyad exposure to institutional investors and analysts, which should be a positive for the stock going forward into 2016. Based on my sales projection for C-Cure in Europe and the other potential positive catalysts I discussed, I see Celyad with the potential for 73.62% upside. For the downside risks that are quantifiable, I see a potential downside of 13.47%. This means that based on my projections of upside and downside risk, the company has just over a 5/1 reward/risk ratio. Since Celyad is a small-cap biotech company with no current revenues and trades at low volumes, it is wise to use proper position sizing and limit orders when considering CYAD or any small-cap biotech stock in general. In addition, it is possible that shares could significantly decline if the company presents weak data or the treatment price comes in lower than expected.
Disclaimer: See here.
Additional disclosure: I plan on purchasing Celyad in the near future.