they surged to 250p when they announced the deal with Shire but have drifted as an institution has sold out from the original ipo (perfectly normal). Merrills have said the shares should be worth around 400p. This looks a wondeful opportunity to buy a huge successs story, some great links below and www.chart-breakouts have bought today.

http://news.independent.co.uk/business/analysis_and_features/article2692526.ece

long winded but great research from Fool.co.uk board

I posted this on Motley Fool earlier, thought it might generate some interest here....

I have been tinkering with some spreadsheets, trying to put a value on Juvista alone. After the initial surge in the immediate aftermath of the Shire deal announcement (up to 250p at one point intraday), the SP has settled back to around the 200p mark. At this price, I think Renovo is a real steal, but wanted to get my head around some figures, rather than have some vague woolly feeling, more akin to random prognostications via entrail throwing than proper analysis. Goldman Sachs apparently have put a figure of 330p on Juvista.

So what I did was hunt down some ready-made biotech valuation models on the web, and plugged some figures in. The spreadsheet I used is based on a risk adjusted net present value model from BioGenetic ventures - the .xls file and a paper describing the methodology can be downloaded from the links below...

http://www.biogeneticventures.com/news/Bioval60.xls
http://www.biogeneticventures.com/news/feature2.pdf

Based on the info disclosed in the Webcast and Q&A and on Renovo's website I used the following

Renovo peak sales ~1.6bn USD per annum. Royalty rate payable to Renovo on sales was described by Mark Ferguson as being of an "industry standard" rate for Phase 3. The industry standard is 15-20% - (http://www.medius-associates.com/Resources/Royalty%20Rates%20Current%20Issue.pdf)
so I used a figure of 17.5% - I did not use 20% as OSI Pharma are due a royalty from Renovo for licensing of the composition of matter patent that OSI own covering TGF-beta3, which was described by Mark as being "low single digit". I think the relevant patent is WO199200330 - which has a filing date of 25th June 1991 - and which is thus due to expire in 2011, so it seems unlikely that OSI will be due any significant years worth of sales royalties, if any at all. This could be the wrong patent, I am not entirely sure. Thus I am entirely comfortable with 17.5% figure as a compromise. In addition, I presumed 1 further year of Phase 2, 3 years of Phase 3, and a further year till market (i.e. expected launch 2011-2012, which is consistent with Renovo's own forecasts). You can adjust the number of patients in the various stages of clinical trial. I decided to go a bit over the top and enrolled 3000 into the Phase 3 trials, just to be on the safe side, but this does allow for 4 large-ish Phase 3 trials in mole removal, breast augmentation, scar revision and breast reduction.

You can also alter the chances of success in the phases of clinical trial. I set these at 80% for Phase 2 (which I believe to be too low in this case) and at 67% for Phase 3 (which is the industry standard success rate), and left the FDA rate also unchanged at 81%. I have assumed peak market penetration of 15% - this may seem low, but I thought it better to err on the side of caution. This 15% figure is to be reached after 5 years on the market, with a total product lifespan of 11 years (11 years is the industry average). I costed Juvista at $250 - I am sure I saw this figure on a Renovo presentation, but can no longer find it. Anyway, it seems a reasonable price to me. If anyone knows different, let me know!



First up is the model for the US http://www.box.net/shared/yr7pk8p4c5

The royalty rate box is set at zero - I wanted to see the total dollar rNPV of the product, then adjust it myself [which is what the yellow-out boxes describe, with additional conversion into pounds and pence]. The most relevant data can be found in rows 194 onwards.

The model comes out predicting peak sales of approx $1.6bn USD, which is consistent with the company projections. The risk adjusted NPV under these circumstances for Juvista alone in the US is 155p....however I think the important factor here is the rNPV of the revenues, which for Renovo are worth 68pps

**[I am presuming royalties are based on gross sales not on sales net of costs]

Equivalent analysis for the EU market** http://www.box.net/shared/9aqzfbxap3

which comes out with a rNPV for Juvista of 119pps

** This includes a 2.5% royalty to OSI - setting this at zero gives a rNPV of 127pps,
** Product cost of $200 (lower than in the US)]
** Development costs for Phase 2 and Phase 3 are included this time

These two combined give an overall value for Juvista alone of 187pps - it thus seems to me that Renovo still represents extremely good value at its current levels when you factor in the other candidates, especially Zesteem, which is currently in Phase 3.

If you fiddle with the probability of success in Phase 2 and 3 trials, you can analyse how the rNPV values change; i.e. Given successful Phase 2 trials (remember to modify the length of Phase 2 trial to zero years), the rNPV increases to 198pps).

If anyone has any additional thoughts I would love to hear them.

Alastair

HOLDS RNVO

PS It looks as if Super-Juvista is on the horizon. A patent filed by Renovo covers novel formulations/compositions of TGF-beta3 as being pharmaceutically superior to TGF-beta3 as known - see
WO2007007095 (linked here http://www.box.net/shared/alcvykbjmz)

looks like the seller has finished judging by fridays move, bring on 300p for starters.