Initial Report - favorable risk-return profile
Biotie is a specialized drug development company focused on products for neurodegenerative and psychiatric disorders. The company has an interesting development pipeline, holding treatments with very high market potential. Biotie has a solid financial position and at present a relatively low cash burn rate, but due to the nature of the drug development process the risk profile of the investment case is high.
Biotie’s spearhead product is Selincro for alcohol dependence. Biotie’s partner Lundbeck launched Selincro in several markets in Europe in 2013. While we believe that Selincro is the most valuable product of Biotie at the moment, tozadenant (for Parkinson’s disease) and SYN120 (for Alzheimer’s disease) hold an even larger potential than it. These products are in the development pipeline and it will probably take in excess of 5 years before they could reach the markets; the probability of success isn’t high. Still, the market opportunity is so large that they have significant value even with the high risks.
We believe Biotie’s current fair value to be around 145 M€. The value is driven mostly by Selincro (rNPV of 87 M€), tozadenant (rNPV of 47 M€) and SYN120 (rNPV of 25 M€). Our short term focus is on tozadenant, as Biotie needs to find a partner before progressing to Phase 3 development. Our recommendation is buy with a target price of 0.32 euros. We note that Biotie is a very high risk investment, but the upside potential in a positive scenario is very rewarding.
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