I always thought that the market is efficient. But this situation makes me think it's not. I see mispricing in valuation between now and the next 12 months.
VIR Biotechnology (ticker: VIR) - developed 'Sotrovimab' COVID-19 treatment and partnered GlaxoSmithKline to manufacture it.
So many things happened within the last two months with VIR that didn't respond yet in its share price. And yesterday we've got major announcement at JP Morgan 2022 Healthcare Conference that triggers, confirms a bull thesis (link).
I predict that the company will have at least $3.5 billion in Sales of a Sotrovimab. And will have $30/share Cash on a Balance sheet.
In Q3 2021 they sold just more than 50,000 doses of a drug at ~$2100 and received ~$102M in revenue. They had contracts of 750,000 doses to deliver in 2022.
What has changed/What's the buying opportunity?
- Omicron hit in December. Covid treatments from $LLY and $REGN became ineffective against Omicron, leaving the only working monoclonal treatment - VIR's Sotrovimab
- Just yesterday they announced that they already sold 750,000 doses in 2021 and now have 1,700,000 doses contract worldwide with most in Q1-Q2 of 2022. Their manufacturing capacity increased so they will produce 2,000,000+ doses just in 1H 2022. That's a 2.26x increase from the previously known data!
- Due to the huge demand and shortage of Sotrovimab there were also a lot of concerns that the company would be able to set up manufacturing. That concern is now dismissed, as they confirmed their manufacturing capacity and delivery dates: For example, only in the US the schedule is 300,000 doses in January, 450,000 doses Feb-March or even more. The estimates were 1M doses in Q1, 1M doses or more in Q2. Due to unknown demand in Q3-Q4, there is no guidance.
- Many countries set Sotrovimab in their guidances for treatment just in the last 2 weeks. Meaning more spending/demand in the near term.
The last known contract price was $2100 per dose for the US.
Assuming the 1,700,000 contracts at $2100 - it is $3.57B in sales of a drug.
According to the contract with GSK - 72.5% of the revenue share is in favor of VIR. So that's ~2.58B of VIR's share (minus the cost of sales). Cost of Sales appears to be small:
According to VIR's Q3 SEC report Cost of Sales are :
In the third quarter, well over 50,000 courses delivered and $102.4M of sotrovimab collaboration revenue recognized
The cost of collaboration revenue was $7.8 million.
So: $7.8m from the 102.4M revenue = Gross margin is ~93%.
So, most of the money settles as a profit.
After Q3 we had several Analyst Upgrades:
️Date: 08-12-2021. Recommendation: Buy. Analyst: HC Wainwright. PT:$199
Date: 21-12-2021. Recommendation: Buy. HC Wainwright. PT: $300
️Date: 21-12-2021. Recommendation: Underperform. Analyst: Robert W Baird PT: $36
️Date: 17-11-2021. Recommendation: Buy. Needham & Company LLC. PT: $79
Analyst estimated sales for Q4 were:
|Lowest (PT $36)
|Highest (with target Price of $300)
||no guidance, but calculation gives me: 2,333-5,333M*
- Real numbers have beaten even the analyst estimates with a target price of $300/share.
- FY2022 sales now seem to be 10x-20x of what the lowest analyst predicted.
*My estimates are based on: [ the contract amount (minimum) —production capacity(maximum)].
Not just a Covid company
- This is not a Covid-19 only stock. The Pipeline includes a promising HIV Vaccine platform (in partnership with Bill & Melinda Gates Foundation), HBV treatment, Influenza Vaccine, and of course Covid monoclonal antibody cocktails. (link).
- Yesterday they announced many updates & taking forward research and development using cash that they make.
- Credible and experienced CEO & Board Member - George Scangos, which increased BIOGEN's shareholder value from $5B to $35B company from 2010 till 2017.
Concerns of future demand
- It is now common sense that Omicron will pass and there will be no need in antivirals. That will lower the demand, but will not make it 0.
- I've been analyzing the company, the COVID situation, usage of monoclonal antibodies in the US, authorizations, media, and social media, official countries Healthcare systems guidelines. The demand in latest Covid wave is around 10,000,000 doses. Even after the wave ended the demand will be there. With Sotrovimab's current market share around 11% -> with supply increasing it will be more like 30-40%.
- Sotrovimab might stay here as a Best class drug. Multiple in vitro and in vivo studies show effectiveness against Omicron for the Sotrovimab, while others are ineffective. Real-world data confirming the benefit. Scientific evidence that it will be effective against all the next variants(link).
The "Pfizer Pill"(Paxlovid) concern
- The guidelines in the US, UK, Japan, Switzerland, France, Australia, Canada have been updated in late December - Early January. The treatment of high-risk populations will stay with Sotrovimab, not Paxlovid.
- Paxlovid antiviral pills for mild/at home/early use got approved (no real-world data yet, only Phase 2 studies, but a lot of credit nevertheless ). Paxlovid already got a 14 billion contract from US Gov. Antiviral production cycle is ~8-9 months. So, no supply till June 2022.
- It will take share from monoclonals, but it's all about guidelines. And in many cases, they are in favor of Sotrovimab.
And even with 5x less demand in monoclonal antibodies, Sotrovimab can sell ~1,000,000 doses for many years to come.
The final situation now after the news (11.01.2022):
- 1,700,000 doses x $2100 each in confirmed contracts = $3.57B with most delivery Q1-Q2 2022.
- 72.5% of the revenue share with GSK is in favor of VIR.
- Gross margin ~92-93% (Cost of sales 7%) according to Q3 report
- Delivered 750,000 doses last Q (vs 50,000 in Q3)
- Updated manufacturing speed: 1,000,000 doses / Quarter
- Unknown demand in Q3-Q4 2022 (up to 2,000,000 doses ???)
- 4.5B market cap, $700M in cash & $200M in assets
- HIV vaccine (phase1) data pending in partnership with Gates Foundation
- Multiple HBV treatment in Phase ½ (I think this pipeline has itself EV~2B)
- Second COVID mAb (VIR-7832) in trials
Best case scenario: the demand of mAbs which is around 10,000,000 per year stays here for another year, with Sotrovimab staying best in class drug favored in many country's guidelines.
Most probable scenario: after successful 2022, mAb usage decreases to 2,500,000 in 2023, but Sotrovimab market share increases from 11% now to 40% for next several years, bringing the next 3-4 year sales ~ 1 million doses/year.
Worst case scenario: if Covid ends here and now within a half of the year.. you get a company with 4B cash and a rich pipeline in HBV, experience in antivirals for future pandemics.
Disclosure: I am a retail trader. My estimates and calculations might be wrong. I intentionally don't give a target price as you should consider investing on your own. I currently own more than 26000 shares of VIR Biotechnology. And I don't plan to sell near-term.