Mizuho: Assessing Covid-19 Impact to our Coverage
Summary
We took another look at each of our companies under coverage to assess the potential impact from the quickly evolving Covid-19 situation (our last look was less than two weeks ago). As is often the case across industries, and in business, cash is king. Companies that have the strongest balance sheets are best positioned to weather the storm in our view. From an investment standpoint, we believe these same companies can also offer significant opportunities in a volatile price environment. Looking at Biotech, we currently cover two types of companies: first, pre-commercial biotechs, for which we believe the main risks/impact from Covid-19 revolve around clinical-trial enrollment and execution, timelines for data readouts, timely reviews of marketing applications by regulators, and of course ability to raise capital, if needed. Second, we also cover commercial-stage biotechs, for which the main risks we see are related to drug-product prescription growth, and potentially cash position if the company is not yet profitable. We highlight each of our covered names below, along with relevant statistics/trading metrics, and our views on potential impacts from Covid-19.
Key Points
From a valuation standpoint, we value our names under coverage using a ten- year DCF model and EV/Sales multiples of projected sales in future years. Our view is that Covid-19 is a temporary shock to the system, and that on a longer-term basis, valuations do not change materially. Due to the high beta nature of our coverage universe, all of our names have been hit hard during the past 3-4 weeks (on average down ~40%+). However, we do not believe that the fundamentals of our companies have declined anywhere close to 40%. When the broader market stabilizes as the initial panic phase elapses, our top picks would be Buy-rated AKBA, AVRO, NVCR, QURE, SELB, XERS, and ZGNX, reflecting a combination of most favorable risk/reward profiles, timeline to catalysts, and potential exposures to Covid-19.
Potential Business Impact from Covid-19 Situation
• Commercial: N/A
• Supply: N/A
• Clinical: uniQure's Phase 3 clinical trial in Hemophilia B is fully enrolled, we don't currently expect any major
delay in data readouts. First patient in Huntington's trial expected to be treated by end of March, followed by control patient thereafter. Potential delays here could happen depending on location of clinical trial, hospital ability to perform surgical procedure.
• Regulatory: N/A • Other: N/A
Valuation:
We applied a weighted average valuation methodology to derive our $90 PT. Our assumptions include:
AMT-061 (Hemophilia B): $629 mil peak-sales (US+EU), 85% PoS.
AMT-130 (Huntington's disease): $1,138 mil peak-sales (US+EU), 35% PoS.
AMT-180 (Hemophilia A): $863 mil peak-sales (US+EU), 50% PoS.
DCF: 13% discount rate, terminal value of 8.0x 2028 FCF. EV/Sales: sales multiple of 8.0x to 2028 sales, discounted at 13%.
Bull case: we assume a higher probability of success for HemB (100%), Huntington's (60%), and HemA (85%), resulting in a $140 PT.
Bear case: we assume a zero probability of success for the Huntington's program, and PoS for HemB (85%) and HemA (20%), resulting in a $40 PT.