Now that we have crossed the chasm into being a commercial stage company, the valuation metrics that will be used will differ from when we were a clinical stage company (with just some Japan revenue).
I figure now is the time to start taking a serious look at how we might value the company based on current indications alone.
Now, the biggest caveat to all this valuation talk is this: The primary value in Mesoblast remains in the Revascor product, and in additional indications for the Ryoncil product.
The first part of this valuation effort has to focus on the revenue potential for Ryoncil, so I will start with that. The first thing I note is that the approval was specifically for children 2 months or older, versus the competitive product. It is unclear how many of the target patients fall within the 2 months to 12 years range, but it is clear that the approval is more valuable than Jakafi's product.
The second observation is that the approval is for steroid refractory, but doesn't require the patient to have failed any other sort of therapy, such as Jakafi. That positions Ryoncil as a second line treatment after steroids for aGVHD. It's not likely it will become a first line treatment because of cost, but we will see.
So in summary the product will be a solid second line treatment for a high probability event in stem cell transplants. That market is materially higher than one could have imagined last year. The indication was always for 'pediatric' patients, but reasonable people might not have expected that children as young as two months would quality.
The best available data from years ago would suggest that a top line revenue of 800,000 per treatment would be appropriate. Maybe there is some increase in that due to inflation and other factors. We should hear more about that from the company soon, according to the CEO. Given there is no treatment option for kids under 12 years, this will be Mesoblast's market, as there is no need to convince a center to switch (but may need to cease off-label use). As mentioned before, I don't know what percent of these transplants are for kids under 12, so it's hard to assess this market size. Given the better safety profile vs Jakafi, I expect to see a meaningful amount of switching of patients considered 'pediatric'. I think an estimate of 50% switching would be reasonable by year 2 (they won't give up that market without a fight).
Unknowns that we need to figure out include SGA expenses, and marketing expenses specifically. With enough inventory in place already, I don't expect COGs would be significant. We haven't seen any major expenses for the free expanded access programs, so I don't think there is much expenses that would now be considered COGS. With long historical R&D expenses, and lots of carry forward losses we shouldn't have much in terms of taxes for a few years.
Other considerations include off label use, specifically for Adult indications, and for inflammation related conditions not related to aGVHD. It is impossible to forecast or value this business.
Still a few holes to fill in, and welcome others to try to put in their pieces to develop a clearer picture.
Again, this is for Ryoncil only. The majority of the value is still in other products, but Ryoncil value presents a floor under the stock value.
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