ROS1 Lung Cancer Leadership And Glioma Opportunity Will Transform Long Term Oncology Impact

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?

• IBTROZI is rapidly emerging as the preferred therapy in ROS1 positive non small cell lung cancer, with best in class durability, strong brain penetration and growing first line use. This positions the drug to drive sustained prescription growth and expanding recurring revenue over many years.
• Global expansion for IBTROZI, including recent approvals in China and Japan, imminent reimbursement in Japan with a 25 million dollar milestone, and advanced partnering discussions in Europe, creates a high visibility path to diversified ex U.S. royalties and milestone income that can meaningfully augment total revenue.
• The large and underpenetrated ROS1 testing opportunity, supported by a shift from DNA to more sensitive RNA based diagnostics that could increase identified patients by roughly 30 percent, structurally enlarges the addressable IBTROZI population and supports multi year revenue compounding as the treated prevalence pool builds.
• Safusidenib targets a substantially larger glioma market than ROS1 lung cancer, with differentiated response data in both low and high grade IDH1 mutant disease and an FDA aligned pivotal Phase III design. This positions the asset as a potential second major commercial pillar that can accelerate long term revenue and earnings growth.
• A strong balance sheet of approximately 549 million dollars in cash, no need to fund a costly head to head safusidenib trial, and a lean, already built out commercial infrastructure enable Nuvation Bio to scale IBTROZI, advance its pipeline and pursue additional business development while improving operating leverage and supporting a path to profitability.

Assumptions

This narrative explores a more optimistic perspective on Nuvation Bio compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Nuvation Bio's revenue will grow by 169.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -813.1% today to 7.3% in 3 years time.
• The bullish analysts expect earnings to reach $38.0 million (and earnings per share of $0.09) by about December 2028, up from $-217.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $-226.2 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 192.2x on those 2028 earnings, up from -14.9x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 19.8x.
• The bullish 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 means the pivotal safusidenib trial will run through at least 2029 with limited interim disclosures. Any slower than expected enrollment, PFS results that fail to clearly differentiate from vorasidenib, or evolving standards of care over this extended period could delay or diminish the second commercial pillar management is counting on, weighing on long term revenue growth and future earnings.
• The bullish view assumes IBTROZI becomes and remains the new standard of care in ROS1 positive non small cell lung cancer. However, competing ROS1 TKIs and emerging targeted or combination regimens, including a near term competitor filing for approval and potential future brain penetrant agents, could cap share gains, compress pricing power, and limit the stacked prevalence effect that underpins the optimistic trajectory for IBTROZI driven revenue and margin expansion.
• The rare disease nature of ROS1 lung cancer and current underutilization of RNA based diagnostics mean the market is structurally dependent on broader genomic testing adoption. If payers resist funding higher cost RNA panels, laboratories are slow to shift from DNA platforms, or guideline updates lag, the expected 30 percent increase in identified ROS1 patients may not materialize, constraining IBTROZI’s addressable population and dampening long term revenue and earnings growth.
• Although management highlights a strong cash balance and scaled commercial team, the business is still early in its commercial life cycle. Sustained investment in sales infrastructure, medical education, global partnering, and multiple late stage trials could keep R&D and SG&A elevated for longer than anticipated, delaying the transition to positive net margins and pushing out the path to sustainable profitability.
• The strategy relies heavily on ex U.S. expansion and new partnerships to diversify revenue. Reimbursement negotiations in Japan, NRDL dynamics in China, and complex pricing and access decisions in Europe may lead to slower uptake, larger than expected gross to net discounts, or lower royalty rates, which would reduce the contribution of international markets to consolidated revenue and limit upside to long term earnings and cash generation.

Valuation

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

• The assumed bullish price target for Nuvation Bio is $16.8, which represents up to two standard deviations above the consensus price target of $11.25. This valuation is based on what can be assumed as the expectations of Nuvation Bio's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $18.0, and the most bearish reporting a price target of just $8.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $522.3 million, earnings will come to $38.0 million, and it would be trading on a PE ratio of 192.2x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $9.44, the analyst price target of $16.8 is 43.8% 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.