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Financial Analyst hearing the Tobira deal for the first time ;°)

I followed with an amused look the reactions of the financial community to the premium offered by ALLERGAN to buy TOBIRA.

Obviously, financial commentators and analysts were falling from the clouds, some admitted that they had never seen it before, others tried to explain somehow to their listeners what, apparently, they were unable to understand themselves.

Yet, this offer Allergan offering a valuation premium of 500% combined with conditions that could increase the premium to 2,000% only reveals the full gap between the financial community and the world of drugs and labs on this new pathology that is NASH.

We are before a textbook, a good investor will normally places his money on what he understands, and for all observers, including me, it is clear that apart from a few exceptions, investors and financial analysts understand little about  NASH.

Imagine, a disease pulled out of a hat, which was never heard before, and of which we have never encountered a patient or a relative who was diagnosed and even of which your family doctor does not even know the name.

For an investor, it looks more like a delusion of a bio tech CEO who wants to sell his sauce than an existing significant market in which he can invest.

So when pharmaceutical companies bring to the table billions of dollars to buy small biotechs, with a single drug candidate in a preliminary clinical study phase, with even an obvious clinical failure in NASH dating from a few weeks, we can understand that those analysts and investors are disoriented.

Those who closely follow what happens in what I call the race for NASH are not surprised.

A few time ago, GILEAD purchased for an aggregate of $ 1.2 billion (split between a contribution of $ 400 million and milestone payments of $ 800M) the only NASH program of the company Nimbus Therapeuthics (i.e. which should understand as no acquisition of the company itself). The program just finished its clinical phase 1 and had not begun its Phase 2a. It was so far from the market and statistically the chances of success were between 21% and 30%

Nimbus is not listed on the stock market, that's why they escape to the financial radars, therefore they do not marvel at what could amount to a monstrous premium largely located above 500%

The deal Allergan / Tobira is in the same vein but the company is on the stock exchange and the premium offered boosted the small world of finance, not me.

I think the deal is not surprising and even a bit low.

Tobira was not in a good position to negotiate, it had just finished a Phase 2b or it had completely missed the metabolic component NASH and had only positive results on the second part concerning fibrosis. When the results were announced it had lost 60% of its value after a big release for investors, as I already mentioned, they do not understand the specificities in NASH clinical studies.

Tobira announced plans to launch a Phase 3 still in fibrosis and had made a deal of $ 80 million with Korean Dong ST to get the rights of a new diabetic, the evogliptin, trying to offer a combo evogliptin / cenicriviroc in phase 3 in NASH. In exchange it had assigned its license rights to Cenicriviroc in Korea.

Tobira was obviously unable to fund its Phase 3 alone, and the market, which had only noted the failure of the Phase 2b was not a solution.

The deal was therefore logical and mandatory, which led me to draw the attention of readers of this site on that biotechs as a potential target. I imagined GILEAD would position itself if the results of simtuzumab were disappointing. 

Allergan has taken the lead.

Tobira which just came out of a failure in NASH, had no cash to launch a phase 3 and was therefore in a difficult situation. Not easy to negotiate under these conditions, which explains the moderate supply of Allergan.

Indeed if we compare the GILEAD deal of a molecule in Phase 1 with probabilities of success between 21% and 30% of that proposed by Allergan for a Phase 2b with probabilities of success between 40 to 60% and clinical results on fibrosis. We realize that this is not a whopping deal.

Of course, financial considerations remind me that a bonus of 500% is enormous , but it is clear they are far to understand the true value of some active molecules in NASH.

We cannot talk about bonus, the value of Tobira after falling 60% was ridiculous ($ 80 million), Tobira was not in good condition to negotiate, nevertheless, Allergan put $ 1.7bn on the table. 

A good investor will normally put his money on what he understands and Allergan understands where it puts his money.

Laboratories, unlike most financial analysts are well equipped to analyze future markets. They know what is a disease carried by the epidemic of junk food and obesity, they are already seeing the consequences in hospitals through their correspondents and they know that the silent epidemic is just beginning.

In this context of an announced pandemic, where no drug is approved to date, any molecule with any few effect on the disease is worth a fortune and on this point they analysis is far ahead the finance's one .

INTERCEPT is already priced over 4 B$ but  what to say about the valuation of companies like GENFIT  (700 M$) in Phase 3 (68% probability of success) with a drug candidate which was the only drug that has shown clinical efficacy meeting the new stringent regulatory end-point, which have not conceded any rights on the drug and high chances to have the first drug approved for this huge market in 2019 ?

Investors and financial analysts will have to review their copy of the evaluation of the most advanced biotechs in NASH, or  they will end up on TV trays and will be surprised again by the enormous deals to come,



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