Author Topic: GUD.V - Knight Therapeutics  (Read 32467 times)

bz1516

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GUD.V - Knight Therapeutics
« on: April 30, 2014, 12:53:48 PM »
Anyone following this newly public company?

It was founded by the former founder and CEO of Paladin Labs, who recently sold out to ENDP, after building a $2 billion company in less than two decades.  The company is essentially trying to pick up where paladin left off, doing very similar things, without of course the legacy earnings stream. 

The company raised over $250mm net on their balance sheet in two quick offerings.  In addition they have an asset to sold in the not to distant future of an FDA voucher for expedited review.  This has a valuation of based on three analyst reports of anywhere from $10mm to $300mm.  I did a quickie analysis and came up with $100mm.

Adding the value of the voucher, to be monetized in due course, with the cash puts a TBV on the company of ~$4.50/share.  The current premium based on a price of CXAD5.83 is 1.3x TBV.

In a nutshell.  Company goes public two months ago.  Raises over one quarter of a billion dollars.  Repeating same business model of successful low risk company sold for $2B.  Brings on some of the old team.  Starts off with valuable voucher.  Paladin multiple of BV was many times TBV.   

So, I ask the question, where do you get a "story" like this for 1.3x TBV?

« Last Edit: April 30, 2014, 01:02:06 PM by Parsad »


Liberty

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Re: GUD.v, Knight Therapeutics
« Reply #1 on: April 30, 2014, 01:02:00 PM »
It's on my 2nd level watchlist. I'm certainly interested in learning more about it, as I really like that model.

One worry is that the CEO might not be at his peak performance (wasn't he on medical leave for a long time after a brain injury?). It's a bit delicate... I'm not sure how to find out more about that. Has this been covered anywhere?
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Liberty

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Re: GUD.V - Knight Therapeutics
« Reply #2 on: April 30, 2014, 01:20:28 PM »
Thank you very much, 50centdollars, that was very helpful.
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

bz1516

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Re: GUD.v, Knight Therapeutics
« Reply #3 on: April 30, 2014, 02:17:25 PM »


One worry is that the CEO might not be at his peak performance (wasn't he on medical leave for a long time after a brain injury?). It's a bit delicate... I'm not sure how to find out more about that. Has this been covered anywhere?

I spoke to him about 10 days ago on the phone for 5 minutes.  He sounded like any other CEO.  He answered my somewhat probing questions very well.  He was very gracious.  No traces of any problems whatsoever.

Drokos

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Re: GUD.V - Knight Therapeutics
« Reply #4 on: April 30, 2014, 05:11:25 PM »
He has admitted that he is not, and will never again be, 100%.

You can not compare the P/BV ratio of a pile of cash (what GUD currently is) to the P/BV of an operating pharmaceutical company (Paladin). Well you can, but it's foolish and doesn't actually provide any value.

I'd take the under on the value of the voucher. For 1) these days almost all blockbuster potential drugs are treating some sort of rare disease/oncology so they will get some sort accelerated approval/breakthrough status so the voucher will be of no use to them. That means it will likely have to be used on a me-too drug with peak sales in the hundreds of millions, which means the value of a faster approval is significantly lower than it is for a blockbuster. 2) there are some issues, such as the fact that you need to alert the FDA a year in advance of the day you want to file in order to the voucher, which limit the desirability of the voucher. The pediatric priority review voucher that Biomarin received has less restrictions and will be more valuable.

Full disclosure: I am long a small position. Hoping to get a more material position if this converges to the cash value. I think there is too much optimism surrounding the voucher, so there's a good chance the sales price disappoints.

bz1516

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Re: GUD.V - Knight Therapeutics
« Reply #5 on: April 30, 2014, 06:35:28 PM »
He has admitted that he is not, and will never again be, 100%.

You can not compare the P/BV ratio of a pile of cash (what GUD currently is) to the P/BV of an operating pharmaceutical company (Paladin). Well you can, but it's foolish and doesn't actually provide any value.

I'd take the under on the value of the voucher. For 1) these days almost all blockbuster potential drugs are treating some sort of rare disease/oncology so they will get some sort accelerated approval/breakthrough status so the voucher will be of no use to them. That means it will likely have to be used on a me-too drug with peak sales in the hundreds of millions, which means the value of a faster approval is significantly lower than it is for a blockbuster. 2) there are some issues, such as the fact that you need to alert the FDA a year in advance of the day you want to file in order to the voucher, which limit the desirability of the voucher. The pediatric priority review voucher that Biomarin received has less restrictions and will be more valuable.

Full disclosure: I am long a small position. Hoping to get a more material position if this converges to the cash value. I think there is too much optimism surrounding the voucher, so there's a good chance the sales price disappoints.

1 He's admitted to short term memory problems and feeling tired.  He's specifically stated there is no diminution of intellectual abilities.

2 I hope you're not suggesting I think there is a current realtime P/BV arbitrage between a full blown operating company and one just starting out?  The concept is quite sound to compare what the P/TBV is now when it is mostly a pile of cash to what it will be when the company is more fully up and running in a couple of years.  At that time the company should sell at a multiple of P/TBV.  And why wouldn't Goodman be successful in resuming where he left off with paladin? 

I note you are using the same metric i am, P/BV to justify reasonable price paid, just different levels for what we consider a reasonable risk/reward.

Sounds like you have more knowledge of the industry than I and are able to make a determination of the value of the voucher from that.  That said $10-30mm seems way to low for the value of saving five months time on the review?  The value is based on the highest and best use of the voucher, the top two contenders, not the value to the average drug in phase 3 and I'm betting there are two players that will pay significantly over $30mm and Goodman seems to be betting his credibility on it being a lot higher also. 

EliG

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Re: GUD.V - Knight Therapeutics
« Reply #6 on: April 30, 2014, 07:20:42 PM »
Head injuries have uncertain outcomes. Some patients remain stable. Some continue to improve. Some deteriorate. See the studies referenced in this review:

Patients after a head injury face an uncertain long‐term future
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2077536/

I agree with Liberty, this is a delicate subject. My best wishes to CEO.

Drokos

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Re: GUD.V - Knight Therapeutics
« Reply #7 on: May 05, 2014, 04:34:25 PM »
He has admitted that he is not, and will never again be, 100%.

You can not compare the P/BV ratio of a pile of cash (what GUD currently is) to the P/BV of an operating pharmaceutical company (Paladin). Well you can, but it's foolish and doesn't actually provide any value.

I'd take the under on the value of the voucher. For 1) these days almost all blockbuster potential drugs are treating some sort of rare disease/oncology so they will get some sort accelerated approval/breakthrough status so the voucher will be of no use to them. That means it will likely have to be used on a me-too drug with peak sales in the hundreds of millions, which means the value of a faster approval is significantly lower than it is for a blockbuster. 2) there are some issues, such as the fact that you need to alert the FDA a year in advance of the day you want to file in order to the voucher, which limit the desirability of the voucher. The pediatric priority review voucher that Biomarin received has less restrictions and will be more valuable.

Full disclosure: I am long a small position. Hoping to get a more material position if this converges to the cash value. I think there is too much optimism surrounding the voucher, so there's a good chance the sales price disappoints.

1 He's admitted to short term memory problems and feeling tired.  He's specifically stated there is no diminution of intellectual abilities.

2 I hope you're not suggesting I think there is a current realtime P/BV arbitrage between a full blown operating company and one just starting out?  The concept is quite sound to compare what the P/TBV is now when it is mostly a pile of cash to what it will be when the company is more fully up and running in a couple of years.  At that time the company should sell at a multiple of P/TBV.  And why wouldn't Goodman be successful in resuming where he left off with paladin? 

I note you are using the same metric i am, P/BV to justify reasonable price paid, just different levels for what we consider a reasonable risk/reward.

Sounds like you have more knowledge of the industry than I and are able to make a determination of the value of the voucher from that.  That said $10-30mm seems way to low for the value of saving five months time on the review?  The value is based on the highest and best use of the voucher, the top two contenders, not the value to the average drug in phase 3 and I'm betting there are two players that will pay significantly over $30mm and Goodman seems to be betting his credibility on it being a lot higher also.

Correct, I use the P/BV ratio to justify a fair price now while it is still a pile of cash. My point was that P/BV is essentially a worthless metric for pharmaceutical companies. If one company develops a drug through internal R&D that is expensed, it is going to have very little on the balance sheet and will be at a high P/BV versus a company that acquired the drug externally which will have the big asset on the balance sheet. Even if they both spent the same amount of money to develop/acquire the drug and the drugs will produce the same exact cash flow, the P/BV's will not be comparable.

Drokos

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Re: GUD.V - Knight Therapeutics
« Reply #8 on: July 30, 2014, 05:11:40 PM »
Seems Knight voucher will fetch a price much lower than the $100 million some were hoping for. Biomarin just sold its voucher for $67.5 million. As a reminder, Knight's voucher is significantly less valuable (any user would need to notify the FDA 1 year in advance of using it) so I would expect it to sell for significantly less than this price.

I am also not completely confident in Knight management's ability to monetize it. They seemed to be dragging their feet, saying 'they have no idea what route they'll go to sell it' and 'they expect it to take a long time'. I would have assumed they would have already been in contact with interested parties before the approval and could have quickly engaged a banker to organize the sale.

http://blog.sfgate.com/techchron/2014/07/30/biomarin-sells-special-fda-voucher-for-67-5-million/

snowball82

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Re: GUD.V - Knight Therapeutics
« Reply #9 on: July 30, 2014, 07:01:02 PM »
You shouldn't under estimate J. Goodman capacity to build another Paladin.

Snowball82
30-7-2014