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Blockbuster Threshold

The key to understanding the effect that a BTD will have on a stock is related to its potential patient population. Valuation is very much tied to the patient population along with the expected revenues. Blockbuster status is defined as drugs that generate over $1.0 billion in annual sales. In general, this threshold, according to the analysis, seems to lead to a value for BTD drugs of $10.0 billion, like Neurocrine Biosciences Inc. (NBIX). In 2018, they had revenues of $451 million. Credit Suisse is projecting $786 million in 2019 and $1.18 billion in 2020. There are exceptions to this rule because Alnylam Pharmaceuticals (ALNY) has a much richer valuation than its revenue supports, but it has a deep pipeline and has been awarded 3 BTDs.

BTD Stocks to Watch

High Flyers

Dicerna Pharmaceuticals (DRNA): Delivering RNAi is a novel platform technology. Their first indication is for primary hyperoxaluria which is a rare genetic liver disorder that is characterized by the overproduction of oxalate which can cause severe damage to the kidney and liver if it is not removed. This disease affects less than 200,000 patients in the United States, but the company expects peak sales between $500 million and $1.0 billion. Results showed normalization in 14 out of 18 patients. They received BTD in July 2019. If they meet the endpoints in a larger trial, there is a good chance of approval.

Big pharma also weighed in on the results and Roche Holding AG (OTCQX:RHHBY) is set to license their treatment for Hepatitis B for $1.47 billion in milestone payments. They also struck a deal in November with Novo Nordisk (NVO) for their GALXC platform technology to treat metabolic disorders. NVO made a $50 million equity investment plus an upfront milestone payment of $175 million with additional milestone payments and royalties possible. The company has a $1.8 billion market capitalization and could have at least 2 partners should trial results confirm their findings.

Nektar Therapeutics (NKTR): The Company has amassed an impressive pipeline of drugs. They have a number of partnerships including BMY in oncology, Biogen (BIIB) in Lupus, PFE in oncology, and LLY in psoriasis and atopic dermatitis. Their BTD came in August 2019 for the treatment of unresectable metastatic melanoma. Their lead candidate NKTR-214 was used in conjunction with Opdivo to boost the production of Natural Killer cells by targeting the IL-2 pathway. NKTR has a $3.7 billion market capitalization but $1.7 billion is in cash and marketable securities. Their enterprise value is $2.0 billion but their numerous cancer indications make them an ideal pipeline filler for the right big pharma. They are courting 5 at the moment.

Iovance Biotherapeutics (IOVA): The Company is focused on immuno-oncology drugs that treat melanoma, cervical cancer, head & neck squamous cell carcinoma (HNSCC), and non-small cell lung cancer (NSLC). Interim data show a 36.5% ORR in melanoma and a 44% ORR in cervical cancer. The company has a BTD for advanced cervical cancer. They have a $3.3 billion market capitalization and they raised $425 million. What has likely captured the imagination of investors is that they are one of the first to truly personalize medicine. However, they are not alone. They do have a competitor called Marker Therapeutics (MRKR) with a similar-sized pipeline and arguably similar trial results utilizing similar personalization techniques. The market capitalization of MRKR is tiny in comparison, coming in at $144 million. Both companies take T-cells from a biopsy, expand the colony, and then inject it back into the patient. The primary difference is that the IOVA treatment lympho-depletes the patient, whereas the MRKR treatment leaves the immune system intact. In the final step of the IOVA treatment is an injection of interleukin2 (IL-2) to activate the Tumor Infiltrating Cells (TILs). Immuno-Oncology is becoming a crowded space, so caution is warranted when evaluating two companies doing essentially the same thing, getting similar results that have such a large disparity in market cap. The only difference is the BTD and cash in the bank.

Deciphera Pharmaceuticals (DCPH): The Company's lead candidate ripretinib was granted BTD on November 4th for Gastrointestinal Stromal Tumors (GIST). The Company currently has a $3.0 billion market cap, up from $2.3 billion before the announcement of the BTD. The Company maintains a solid cash position of $635 million. They expect to submit their NDA in Q1 2020, and investors have been bidding up the price of the stock in anticipation of approval. The company estimates the accessible market is 4,700 patients annually. The data from the trial was very good, median survival moved from 1 month to 6.6 months. There were a lot of minor side effects, but they were well tolerated given the severity of this deadly form of cancer. The ORR was 19% and progression free survival was 46 weeks. The development is still very early, so investors need to be cautious given the limited patient population and the low ORR, which could be improved by competitors looking to go after this indication with a combination therapy.

Value Propositions

Eiger BioPharmaceuticals (EIGR): This biotech only has a market cap of $318 million but can boast 3 BTDs. They have 2 BTDs for their lead candidate Lonafarnib. One for Hepatitis Delta Virus (HDV) and another for Progeria and Progeroid Laminopathies. Another drug, Avexitide, received BTD for Post-bariatric Hypoglycemia. All these are orphan drugs, but the HDV has greater than 2.0 million HDV patients in China and could represent serious upside should they get approval. The total addressable market is 300,000 patients and that represents over $1.0 billion in peak sales for this indication alone. The 2019 EASL study showed a 100-fold increase in antiviral activity with combination therapy, which makes their DLIVR phase 3 study so important. Investors who are heavily discounting the possibilities in China and the earnings potential of HDV could be creating an opportunity for value investors. The company only has 4 drugs in their pipeline and 3 are BTDs. This stock is valued oriented on many fronts.

CytoDyn Inc. (OTCQB:CYDY): Leronlimab is their lead candidate. This HIV drug is on the cusp of filing a BLA in the coming weeks. They believe that approval should not be far behind, they are expecting approval by Q2 2020, for combination use of HAART antiretrovirals and leronlimab in HIV, for patients that failed previous treatments. Other results demonstrated a 95% responder's rate in monotherapy. This allows them to file for BTD in HIV monotherapy. They have also said that if their results continue to be positive in Triple Negative Breast Cancer (TNBC), they will file for BTD by the end of January 2020. The company reported a reduction in Circulating Tumor Cells (CTCs) to zero with only 2 injections. They expect to have 4 more patients enrolled in the coming days which could allow them to file for a BTD, assuming the results continue to track. The significance of the data is that keeping CTCs below 5 copies/dL, dramatically increased the 5-year survival rate. Leronlimab is a platform technology drug and they could see a minimum of 2 to 4 BTDs in the coming year. They are ready to start dosing leronlimab in their NASH and Graft Versus Host Disease (GvHD) trials. They expect readouts next year that could add to the validity. Conservative revenue forecasts call for $2.1-4.2 billion, exceeding all measures of blockbuster status. This is clearly one to watch.

Investment Summary

It is clear that getting a BTD adds significant value to a company. Based on historical averages, a pure play company with a BTD for a significant population could be worth $8.3 billion. Companies that meet these criteria should be thoroughly evaluated for their blockbuster (over $1.0 billion in peak sales) potential. Other companies should be evaluated for their potential as a platform technology and the ability to put up more than 1 BTD. The other thing that investors need to consider is that not all BTDs are created equal. There is clearly a correlation between the size of the potential patient population and the valuation.