February 10, 2013

#China: A $30B #Pharma Opportunity for #Biotech $PVCT?

If you look at Provectus' most recent website presentation, which can be found here (n.b., this link will remain the same; however, the presentation to which it is linked will change as the presentation is changed), the bottom of slide/page no. 21 indicates management sized the company's opportunity in China (the four cancer indications of interest there being melanoma, liver, bladder and lung) as $30 billion.

How did they arrive at this number? Management used:
  • Counsel and input from several key Big Pharma executives,
  • A customary DCF calculation,
  • A conservative 10-year time frame, and
  • Conservative penetration rates.
"Conservative" above is the company's viewpoint, and not mine. Other assumptions, which Provectus has either not yet confirmed or not commented on, should include:
  • A discount rate (for management's DCF analysis) of the company's WACC,
  • A price of $5,000 per single use vial of PV-10 (although this may have changed),
  • Upfront and milestone payments gross of the agent's* success fee, and
  • A certain double digit royalty percentage, also gross of success fee.
The $30 billion is an NPV figure. Most folks, on first blush, probably would laugh not only at the perceived deal value but at management's attempt to secure anything remotely close. This topic, of the perceived value (among other valuation aspects) of a China deal, is a worthwhile blog thread to pursue further.

Management, if pressed, might simply say the China deal could be worth about $1 billion, with customary features:
  • 4-5% upfront payment,
  • 11-15% milestone payments, and
  • 75-80% royalty payments (i.e., the balance of a $1B NPV value).
It appears Peter is traveling to China the week of February 25th. I imagine he could return with (i) no deal, (ii) a deal (reportable event) or (iii) an exclusive agreement (i.e., letter of intent) for a certain period of time (e.g., 60 days) with the chosen/target strategic partner to consumate a deal (reportable event, too). I plan to write more on this topic as his trip nears and as it progresses.

* Successfully entering, networking (guanxi), navigating and ultimately securing business in places like China often requires the use of experienced, well-connected and often in-country intermediaries and agents such as the one Provectus has utilized for China and India.

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