DISQUS

BIR · 1 year ago

The acquisition is somewhat perplexing for people interested in the HSP90 space. The deal includes a licensing deal (which will be effective if the meger doesn't go through) for KOSN's epothilone platform: 25M upfront licensing fee + 400M milestone payments - if we approximate a risk adjusted PV for this at 100M - then the value of the HSP platform is roughly 90M. This is signfiicantly less than what conforma, serenex, and infinity got for their HSP90 inhibitors - which were sold at much earlier developmental stages. Granted, Kosan's HSP90 candidates are not scientifically the best - they have reactivity/solubility issues associated with the quinone group in 17AAG - it is still surprising that a promising phase III cancer candidate, in a very hot therapeutic area, sold for so little...

TheEben · 1 year ago

Excellent comment. I have two in return.
1.) It doesn't seem you took royalty stream into consideration in your rNPV analysis. Tiered double-digit royalties would be standard and change the rNPV by a huge amount (300%-400%), especially since the probability of success in phase 3 is reasonable.

2.) I am only barely familiar with the space, but the low valuation might (and I'm just guessing here), stem from an initial indication of combination therapy. Currently, velcade is not a first line treatment (though that might change soon) and this significantly cuts down the patient population.

Since Dec when interim data showed less than stellar results, the stock has taken a pounding and is down from the $5-7 range it has been trading since 2005ish. BMS clearly struck at the right time.

Is the company undervalued? Sure, but so are 500 other small biotech/pharma companies.

BIR · 1 year ago

thanks for the reply. maybe i'm missing something here, but isn't the epothilone platform sitll in phase II? (the licensing agreement is not for HSP90 - in which case I would agree with your rNPV comment) The 400M to me seems like biomoney (bear in mind that they do not get the 25M + 400M in milestones if the merger goes through)...heck, if they are buying the company for 190M and it includes two promising HSP targets - the epothilone platform can't be worth more than 130 - even if we are being ultrapessimistic about the value of the HSP90 program (unless they are getting HSP for free!).

with regards to your last point, i couldn't agree more - who wants to invest in smallcap biotech/pharma plays in a market like this? however, the recent HSP90 deals have set the bar much higher than what kosan received. this lends me to feel that either the science behind kosan's platform isn't great (which comparitively to 2nd generation semi-synthetic or fully synthetic inhibitors, it isn't) and the IP position is somewhat weak (which i also feel is true). moreover, this deal was initiated by talks about the epothilone platform - and clearly the installment of the licensing agreement in case of no deal demonstrates where BMS' real interests are - in the epothilone area. would've been nice to see the licensing agreement with BMS and then divest the HSP90 platform to another bidder....oh well, if you're a kosan shareholder and you get in around 1.60-170...you're laughing.

btw, i enjoy reading your blog.

TheEben · 1 year ago

You are totally right about the licensing of epothilone rather than the hsp90 drug, I was confused and neglected to review the press release again before replying and I retroactively take back every thing but the last few sentences.

Again, great comments. If you don't read it all ready, check out The In Vivo Blog. They'll probably have a commentary on this deal by tomorrow afternoon and I'm sure they won't miss the parts I did. They posts there are always incredibly insightful.