Pl provide some specific data points to help readers understand better. If you see a few posts above, there is lot of evidence that all trials thus far based on this molecule have not delivered positive outcomes, so what new information is available that changes the odds?
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The basic CRAMS Business does a bottomline of close to 190-200 Crore, which is offset by R&D Expenses that it expenses off.
So if I just value the Crams business at 12 Times PE, the value comes to 2400 Crore market cap.
There is cash of 400 Crore , which makes EV equal to 2800 Crore.
So is the market valuing Suvn502 at Zero ?
Hopefully when Demerger date comes near, this anamoly will be corrected
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i guess purpose of demerger is to manage risk rather than enhance value - so even if new drug fails risk gets isolated ?
can somebody explain why it is getting demerged. will the resulting company be again listed. how will the NCE business survive with the case from CRAMS? thanks
Market value of SUVN502 can indeed be zero with a probability of 95% or more! This drug has value beyond zero only when it clears all phases of trials and is approved for use.
Demerger can partition the financial resources more cleanly than now, since there would be more resources needed going forward.
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CRAMS is going to provide around 300Cr initially for the research which will be sufficient for some time, They will also be looking for PE to fund the research arm.
I had a look at Suven Life sciences in view of its demerger plans.
Each shareholder of Suven will be holding one share each of Suven pharma and Suven life sciences (the drug discovery company) after the demerger. The demerger is likely to take place by 6-9 months atleast.
The logic given by management for the demerger is to unlock value in the CRAMS business because every year a lot of money spent after R&D for drug discovery was being expensed and hence seperating the two businesses would reduce the above R&D burden on the CRAMS profit and loss statement and would likely increase the profits by an amount equivalent to that spent on R&D.
The reason why this is being done now and not before — Management says that now the cash kitty in balance sheet is close to 300 crores and once demerger is on, this amount would be transferred to the suven life division which could take care of the R&D expenses for 3 years atleast. Post that management says the option is open to bring in a strategic investor with a higher risk appetite to fund the projects. Or maybe by then some milestone payment may be received by monetising the SUV 502 molecule.
Market participants are excited that the CRAMS business would benefit out of this because it would no longer be subsidising the research costs going forward. And hence profitability would increase.
As of now the net profit is in the region of 145-150 crore and if the R&D expenses were to be reduced by 70% profit could increase by around 40-50 crores per year. So at net profit of around 200 crores the guess would be that it could fetch valuations of 4000 crores and the drug discovery company holding would be a lottery ticket if it works out.
Some concerns:
The growth of the company has never been consistent and even now management is guiding for a sedate 10% topline growth. This kind of topline growth is not likely to excite markets even if it materialises.
If the whole demerger process were to be thought of from a different vantage point, management may be in the process of washing its potential sins by demerging the businesses and after some time declaring failure of the SUV 502 molecule. (This is only a thought process to kill the idea and not a concrete hypothesis.) By that time the drug discovery business would be thought by markets to be a lottery ticket by markets and failure of the molecule would not induce a big hit on market cap of the crams business as both businesses would be differently listed.
As of now I am not too excited by the demerger process because I am not too confident of consistent growth happening in the CRAMS business even post the event.
Those invested and bullish on the company would obviously have a different view but listening to concall of last qtr results today did not induce too much excitement for me.
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Here are my thoughts:
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Timelines -
The timeline for demerger will be atleast 6-9 months. My guess is it will be atleast 1 year. The result of the SUVN-502 phase 2 clinical trials will be out by Aug’19. So, the demerger will actually take place after the results are already known to the public. So, if it fails, the stock will take a beating. -
In the CRAMS business for Suven, it supplies to companies which are in clinical trials, and if those moelcules go on to commercialization, they end of supplying more quantities. Their pipeline for the commercial products is good. But, here the revenues could be lumpy as the NCE (new chemical entities) may fail in clinical trials.
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The management is fairly conservative. It can be evidenced from the fact that they have historically expensed the entire R&D on NCEs in the P&L without capitalising. So, we should give them some leeway.
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The cost of phase 3 clinical trial is nearly 4 times that of phase 1 + 2. If SUVN-502 goes through phase 2, Suven does not have the financial wherewithal to conduct phase 3 on their own. It will cost them about $100mn. They will either have to outlicense or get a strategic investor. Any strategic investor or PE fund who wants to come in may not be interested in the CRAMS business, and hence demerging the base business from the drug discovery business makes sense to cater to them.
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At the current price (market cap), for the CRAMS business, you are getting a 40% EBIDTA business growing at 10% and I consider the entire NCE segment as free.
Let’s see how the situation unfolds.
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Sir was this timeline mentioned in concall?
Very well articulated by both @hitesh2710 and @basumallick. Thats the beauty of looking from two vantage points.
We should know both view points to make informed decisions.
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Yes. It has been in the public domain for a while. The trail will end by Jun-Jul and the result would be available by Jul-Aug time period.
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True, well articulated. It also strengthens the case that irrespective of the outcome, the demerger is a sensible decision by the company.
Biogen Inc. and Eisai Co. to terminate two late-stage studies of an Alzheimer’s drug after determining it would likely fail to help patients.
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Good results
Communication to investors
Study results / Presentation for SUVN-502 Phase-2 study will not happen on 17 July 2019 as planned originally due to some technical reasons. To be followed up in the next conf call / AGM in August.
Quite disappointed with the delay and the lack of explanation for the reason for it.
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Did anyone attend the AGM, any update on SUVN502 would be most appreciated
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The AGM is scheduled for the 14th August 2019. The dates for the quarterly Earnings update / Board meeting / Concall are not yet published. So we will have to wait till AGM unless the Concall happens earlier.
The AR for 2018-19 is available now. From a top level it talks about the upcoming de-merger of CRAMS / NCE businesses as a defining moment in the journey of the company.
As regards updates on SUVN-502 in the AR - some significant portions are -
“we completed the Clinical Trial (Phase II) of our lead molecule SUVN-502, masupirdine. Our molecule has gone through mulঞ ple DSMB (Drug Safety Monitoring Board) meeঞ ngs without any major observaঞ ons, and we are confi dent that our molecule will have a good safety margin. Its effi cacy will determine the journey ahead. If the molecule can make it through to Phase III, Suven will emerge as one of the very few Indian companies to secure a posiঞ on in the coveted global innovator community. If it does not, it goes to the shelf. However, our journey does not stop here. For our second molecule, SUVN-G3031, samelisant is on course to enter the Clinical Trials (Phase II) for a new indicaঞ on - Narcolepsy [excessive day time sleep disorder] by August 2019”
Also -
“During the year, the Company enrolled 564 patients against the required 537 patients. Some of the patients came back for the drug post their trial period.”
So at this point still waiting on further clarity for the delay in discussion of results. Yet to go through the complete AR.
Disclosure - Invested
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