Concert Pharmaceuticals: Negative Spread But Interesting CVR

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Concert Pharmaceuticals, Inc. (NASDAQ:CNCE) is simply a $400 cardinal market-cap biotech pinch 1 superior plus successful deuterium. Sun Pharma is acquiring nan company. Sun is nan world's fourth-largest specialty generic pharmaceutical institution and India's largest pharmaceutical company. Concert stockholders get $8 successful rate and a contingent worth right. The marketplace places sizeable worth connected nan contingent value, arsenic nan banal presently trades astatine $8.35. The maximum payout nether nan CVR is $3.50 per share. The woody is system arsenic a tender (which thin to adjacent overmuch faster) and should adjacent successful Q1 2023. Most of nan worth tin beryllium ascribed to deuruxolitinib:

Concert pharma pipeline

Concert pharma pipeline (Concert Pharma)

Deuruxolitinib is an oral inhibitor of Janus kinases JAK1 and JAK2 for treating Alopecia Areata. Alopecia Areata is an autoimmune dermatological disease. It results successful nonaccomplishment of hairsbreadth connected the scalp and nan assemblage because nan immune strategy attacks nan patient's ain hairsbreadth follicles.

Concert has completed nan information of nan efficacy and information of deuruxolitinib successful big patients pinch mean to terrible Alopecia Areata successful its THRIVE-AA Phase 3 objective program, and 2 open-label, semipermanent hold studies are ongoing successful North America and Europe. Concert is preparing to taxable deuruxolitinib to get trading support successful nan U.S. Sun plans to proceed connected that path.

The milestones of nan CVR look for illustration this (emphasis mine):

(I) $1.00 per stock of communal stock, payable nan first clip that successful immoderate fiscal year betwixt nan clip of nan first commercialized waste of deuruxolitinib successful nan U.S. and March 31, 2027, net income of deuruxolitinib is adjacent to aliases exceeds $100 million, and (II) an further $2.50 per stock of communal stock, payable nan first clip that successful immoderate play of four consecutive fiscal quarters betwixt nan clip of nan first commercialized waste of deuruxolitinib successful nan U.S. and December 31, 2029, net income of deuruxolitinib is adjacent to aliases exceeds $500 million.

First of all, location is simply a clip constituent to these milestones (things request to hap earlier 2027 and 2029). I do get nan belief nan companies are fresh to spell get trading support from nan astir caller earnings call:

Within Concert, we've had a halfway squad successful spot for immoderate clip to hole our NDA filing, which we scheme to taxable successful nan first half of 2023. The information from our ample Phase 3 tests forms nan ground of our NDA application. However, location are respective supporting studies and of course, CMC activity that we person conducted aliases are wrapping up to support nan filing. We person a well-defined scheme going forward, and I person each assurance that our squad will proceed to consistently execute to our timelines arsenic they person passim nan program.

In closing, fto maine underscore that we're highly committed to bringing deuruxolitinib to marketplace arsenic quickly arsenic possible, and I'm highly proud of what our squad has accomplished and wherever we're headed.

At existent prices, we are paying $0.35 cents for a contingent worth correct that settles successful portion successful 4 years and nan mostly of which will settee successful 6 years. The CVR is not free, truthful it is basal to look astatine our chances of really picking up these milestone payments.

The income request to return spot wrong nan U.S. to suffice truthful we don't person to see world imaginable for our purposes.

The institution is citing information of astir 1.5 cardinal patients wrong nan U.S. The fig is based connected scope of 700k - 1.5 cardinal from a 3rd statement source.

Alopecia TAM

Alopecia TAM (Concert Pharmaceuticals)

On pricing, we person nan pursuing guidance from nan institution (provided Sun doesn't return an wholly different direction)

Nancy Stuart

Hi. This is Nancy, and acknowledgment truthful overmuch for nan question. Yeah. We -- what we person said is we expect that our pricing will beryllium successful statement pinch different JAK inhibitors successful nan autoimmune derm space, including alopecia. That value parity is what we will beryllium going for.

My knowing is that JAK inhibitors are presently priced betwixt $26k/year to $60k/year successful nan U.S.

This curen has nan imaginable to beryllium best-in-class pinch a favorable information profile. There are, to my understanding, astatine slightest 2 different akin curen options owned by large pharma successful nan market.

Something other to see is that astir 50% of patients were satisfied pinch nan curen a fewer months in. Before/after photos of nan curen show it being remarkably effective, but if personification starts taking it, it doesn't mean they will needfully instrumentality pinch it.

Let's presume 700k imaginable patients. Let's presume Concert takes 30% marketplace share. Sells nan curen astatine $26k per year. Around 50% of patients instrumentality pinch it. All these assumptions are astatine nan little extremity of nan range, but it besides assumes each diligent trying it and a afloat saturated market. At that point, you extremity up pinch $2.9 cardinal successful revenue. That's acold supra figures cited successful nan milestone agreement, which indicates nan companies expect overmuch much humble figures. Still, it is amended to spot a theoretical maximum that's good up of nan targets than nan reverse.

Going done nan mathematics above, I was near a spot dissatisfied that I was apt overestimating really easy this will be. As a biotech tourist, it is easy to miss things. The awesome point astir Seeking Alpha is that location is simply a wealthiness of authors sharing opinions connected companies. Even connected a micro-cap Biotech, location are aggregate absorbing articles. There was 1 article that I recovered particularly adjuvant to understand nan competitory position of this (potential) curen better. It was this one by C.C. Abbott. Here's a quote (emphasis successful original):

3. While each 3 companies admit nan blockbuster (annual waste of $1B) imaginable of nan AA space, CNCE is nan only 1 that mentions CTP-543 being perchance Best-in-class.

This could mean champion successful position of efficacy, arsenic seen supra successful nan cross-trial comparison of CNCE's first p3 information to LLY & PFE's data, which whitethorn beryllium repeated/confirmed successful CNCE's 2nd p3 data.

It could besides mean champion successful position of information profile, arsenic LLY's OLUMIANT, an oral JAK inhibitor carries a boxed warning astir superior infections, malignancies, awesome adverse cardiovascular events (MACE) and thrombosis successful its support explanation for rheumatoid arthritis (RA) and atopic dermatitis (AD).

She seems somewhat optimistic that nan mini biotech tin carve retired a portion of nan market, and nan backing of Sun Pharma would apt only amended nan likelihood of that.

I besides recovered this article by Sage Advisors very adjuvant to understand really my estimate is overshooting. Sage Advisors dives into factors that explicate why nan existent number of patients that will extremity up taking nan supplier is smaller than projected above. A quote (emphasis added):

Concert apt has a best-in-class JAK inhibitor for AA. Mizuho's $400 m highest income forecast appears imaginable based connected premium pricing. The AA marketplace will apt beryllium a competitory 1 pinch Eli Lilly's Olumiant, Pfizer's ritlecitinib and CTP-543 yet vying for marketplace share. 543 is apt to beryllium past to marketplace giving competitors a chance to summation marketplace share.

Sage concludes that $400 cardinal successful highest income is possible.

Luckily we don't request to pinpoint income very nonstop to make money here. The milestones are for U.S.-based income (yearly and consecutive quarters) of $100 cardinal and $500 million.

The $100 cardinal appears very doable, fixed only 1 competitor has conscionable entered nan market. If we deed that milestone and we salary $0.35 for nan CVR that's a awesome return correct there.

I really don't request nan $500 cardinal to hit. The Mizuho $400 cardinal forecast (which whitethorn person served arsenic a ground for nan CVR milestones) appears difficult to hit. However, nan institution has until 2029 to hit. Inflation moving astatine 7% per twelvemonth helps supplier pricing. Finally, nan milestone is for 4 consecutive quarters alternatively of yearly income (slightly easier to hit). Not going to lie; nan 2nd milestone is nary shoe-in. But I position it arsenic an charismatic out-of-the-money action I'm efficaciously not paying up for (or astatine slightest not very much).

ChartCNCE value change

CNCE value alteration (YCharts )

The transaction is expected to beryllium completed successful nan first 4th of 2023. Over 50% of shareholders request to tender (which will apt happen), and I don't expect immoderate regulatory objections. Even though I judge nan likelihood are minuscule that this tender connection someway falls through, it is bully to return statement of nan pre-deal price. The banal traded up only 21% connected nan announcement, which suggests nan downside isn't nan emblematic biotech script wherever it is down 50%-60% connected a woody break.

Editor: Naga

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