Emerging Glioma Therapy And Lung Cancer Expansion Will Transform Long Term Oncology Franchise

Catalysts

About Nuvation Bio

Nuvation Bio is an oncology focused biopharmaceutical company developing and commercializing targeted therapies for difficult to treat cancers.

What are the underlying business or industry changes driving this perspective?

• Rapid adoption of IBTROZI in ROS1 positive non small cell lung cancer, combined with a 50 month median duration of response and expanding testing from DNA to RNA based assays, can steadily increase treated prevalence and drive multi year growth in product revenue.
• Global expansion of IBTROZI, with approvals in China and Japan and advanced partnering discussions in Europe and other territories, may diversify and grow royalty and milestone streams while leveraging fixed commercial infrastructure to enhance operating margins.
• Life cycle management of IBTROZI into earlier stage adjuvant non small cell lung cancer via the TRUST IV trial can materially enlarge the addressable patient pool and support a longer treatment duration per patient, which may improve long term revenue visibility and earnings power.
• Advancement of safusidenib into a pivotal Phase III high grade IDH1 mutant glioma maintenance study, targeting a population underserved by existing therapies, could position the company to tap into a durable brain tumor market and add a second meaningful revenue pillar that has the potential to scale earnings beyond IBTROZI.
• Disciplined capital allocation, including the decision to forgo a costly head to head low grade glioma study and a strong cash balance that is expected to fund operations through profitability, may create flexibility to invest in pipeline assets like NUV 1511 and opportunistic business development, supporting future top line growth and potential margin expansion.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Nuvation Bio's revenue will grow by 151.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -813.1% today to 1.2% in 3 years time.
• Analysts expect earnings to reach $5.2 million (and earnings per share of $0.02) by about December 2028, up from $-217.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $37.2 million in earnings, and the most bearish expecting $-221.5 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 853.6x on those 2028 earnings, up from -13.1x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 19.7x.
• Analysts expect the number of shares outstanding to grow by 1.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long natural history of IDH1 mutant glioma and a pivotal safusidenib trial that is not expected to read out until 2029 introduce multi year timing risk. Any delay in recruitment, regulatory feedback or competitive readouts could push out or reduce the contribution of this second revenue pillar, limiting earnings growth and margin expansion over the medium term and leaving the company more dependent on IBTROZI for net income.
• Rapid evolution in targeted oncology, including potential next generation ROS1 TKIs or alternative modalities with superior efficacy, safety or pricing, could erode IBTROZI's first mover advantage in ROS1 positive non small cell lung cancer. This could compress future pricing power and slow the projected ramp in product revenue and operating margin.
• Global expansion plans for IBTROZI rely on successful reimbursement in Japan, NRDL listing in China and securing attractive partnership terms in Europe and other territories. Any pricing pressure, access delays or weaker than expected ex U.S. uptake would diminish anticipated royalty, milestone and product supply income, weighing on top line growth and free cash flow.
• The strategy to avoid a costly head to head safusidenib study against vorasidenib in low grade glioma preserves cash today but may structurally limit the drug's label and competitiveness in that large, long duration market. This could cap peak sales potential and reduce the long term uplift to consolidated revenue and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $10.25 for Nuvation Bio based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.0, and the most bearish reporting a price target of just $8.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $427.2 million, earnings will come to $5.2 million, and it would be trading on a PE ratio of 853.6x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $8.31, the analyst price target of $10.25 is 18.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.