Wockhardt: an NiCE story

The below post is a copy paste from @phreakv6 original post on the above link:

Before I proceed, credit where its due - This idea originated with @Anant whose inputs prodded me to look deeper into this story and @Sanjay_Kumar_E who is the nuts and bolts man whose ability to wade in deeper than the rest regardless of industry is simply unparalleled. I am simply piecing together everything in a way I can explain to my 10 year old son.

Understanding Antibiotics

I usually avoid stocks with large pledging (I assume fraud), stay away from businesses that are complex to understand (complexity needn’t be in comprehension of the business but the dynamism of its moving parts as well) and ignore turnarounds. This one has got all these in troves so should be a strong avoid, yet here I am, ready to make a fool of myself.

The following is my understanding of things - it is aimed at people like me with no prior medical background and is written in layman language to develop an intuition as to how things work.

To understand WCK 5222, it is important to have a lot of pre-requisites. It is probably these pre-requisites that are keeping people out.

Antibiotics are class of compounds that are used to treat bacterial infections. All of us have had one at some point of time. Azithromycin is probably the most common we would have been prescribed at some point. Most of us have heard of Penicillin which is the first antibiotic discovered by Fleming in 1928, by accident and developed into practical antibiotic much later in 1940s. Since then it has revolutionised medicine right from its use in WW-II.

Antibiotics typically work by killing (bactericidal) or impeding growth (bacteriostatic). They do this by compromising integrity of cell wall or messing with the processes within the cell.

Since penicillin, we have discovered several classes and numerous antibiotics that work against various types of bacteria. Important thing to understand is that, as our antibiotics are evolving, so are the bacteria themselves as drug resistant varieties proliferate, needing newer antibiotics

A lot of names get thrown around and its easy to get lost in names of antibiotics. It is always easier for our brains to view things in categories based on some attributes.

Class Examples How they work?
Penicillins Penicillin, Amocixillin, Ampicillin Interferes with cell wall synthesis
Cephalosporins Cephalexin, Ceftriaxone Disrupts cell wall formation
Macrolides Erythromycin, Clarithromycin, Azithromycin Inhibits protein synthesis
Fluoroquinolones Ciprofloxacin, Levofloxacin, Moxifloxacin Inhibits DNA replication
Tetracyclines Tetracycline, Doxycycline Interferes with protein synthesis
Carbapenems Imipenem, Meropenem Inhibits cellwall synthesis in MDR (multi-drug resistant) bacteria. Most potent class

There are others like Sulfonamides, Aminoglycosides, Glycopeptides, so this is not an exhaustive list.

Few things to understand before we proceed further

In Vitro vs In Vivo

In vitro experiments are conducted outside a living organism, typically in a lab, with lab equipment (petri dishes and test tubes) while In vivo are studies conducted with living organisms (rats, mice). Important thing to understand is that even if an experiment is successful In Vitro, it could fail In Vivo, for various reasons.

MIC

MIC stands for ‘Minimum Inhibitory Concentration’. It is the lowest concentration of the drug that inhibits growth of a given strain of bacteria, typically expressed in micrograms/milliliter (ÎŒg/mL). Needless to say, this varies a lot between drugs and strains of bacteria and there are standard ways of representation of a AST (Antibiotic susceptibility testing).

A typical AST result looks like this.

In this, the SIR column is one of S/I/R which is Susceptible (Bacteria is susceptible to the dosage), Intermediate (May be effective at higher dosage) and Resistant (Drug not effective). MIC values usually have a ≀ sign when organism is susceptible. The above tables has two specimens (1) and (2) and have. SIR and MIC for the these two specimens against various antibiotics. Penicillin is not effective against (1) while Cefalotin is effective at a MIC of 2 ÎŒg/mL.

You will also notice that several different antibiotics can be effective against a microorganism. How does one choose which one to use? is the next natural question that arises

PK/PD

Just because a drug is effective In-vitro doesn’t mean it will be In-vivo. The reasons can be many but fall into these two categories Phamacokinetics (PK) and Pharmacodynamics (PD). In layman language - PK is what the body does to the drug and PD is what the drug does to the organism.

So Pharmacokinetics (PK) is the kinetics of drug absorption, distribution from where its administered, Metabolism within the body (how its used up) and Excretion (How its removed). As you can see, all these will in turn affect how much of the drug is available in the tissue or plasma to come close to the In vitro experiment if it was in fact successful

Pharmacodynamics (PD) deals with antimicrobial activity that is desirable (inhibition or killing) and undesirable (adverse effects to the host). We cannot keep increasing the concentrations of the drug if it is adverse to the host or worse, it helps to develop resistance in the microorganism thereby making it useless.

Breakpoints

This segues us nicely into the concept of “Breakpoints”

To get back to the question of which antibiotic to use when bacteria is showing sensitivity to multiple antibiotics, our intuition should tell us that lower the MIC, the better it might be. Our intuition couldn’t be more wrong.

Take this eg. of efficacy of pradofoxacin and erythromycin against staph infection. Though our intuition may tell us Pradofloxacin at MIC of 0.25 should be better than Erythromycin at 0.5, it is the latter that is a better drug since its 4 dilutions away from the breakpoint where the organism starts developing resistance to the drug.

But who sets these breakpoints? These are internationally governed by bodies like CLSI (Clinical and Lab Standards Institute), EUCAST, FDA. These get reviewed periodically based on scientifically available evidence.

If a drug can work at much lower dilutions away from breakpoint, it might be preferred - all else remaining equal

So hopefully that helps to develop the intuition between In Vitro and In Vivo

MDR/XDR

MDR and XDR stand for Multi-drug resistant and Extremely drug-resistant. You would have noticed in the Antibiotics table that Carbapenems are used in XDR cases where all else fails

Pharmacodynamics

Re-visiting this again separately, since this is important to understand further. So we know that drug is effective at MIC and above but below breakpoint. But it doesn’t tell us for how long and how much higher it needs to stay to be effective.

Based on In Vitro experiments, the effect of the drug on the microorganisms are classified as time-dependent or concentration-dependent or AUC dependent.

Time-dependent bactericidal effect

The drug needs to stay above MIC for a certain amount for time (dosing interval) for it to be effective. Typically drugs that interfere with cell-wall of the bacteria (penicillins, carbapenems) need to stay above MIC for a period of time.

image

So the percentage of time the drug spends above the MIC value is crucial here.

Concentration-dependent bactericidal effect

Max MIC or CMAX is the most-important predictor of success here. So achieving max safe concentrations at the site of infection is crucial

image

AUC/MIC

This is a combination of time-dependent and concentration-dependent as it requires a cumulative exposure of certain concentration over a period of time

AUC simply stands for Area under curve - so efficacy depends on maximising this area - its intuitive to understand here that if CMAX or T% is low, this treatment becomes ineffective - so both needs to be maximised to maximise the area under curve.

When CLSI sets breakpoints, it goes by this information from the reports - what it specifically looks for to set a susceptible breakpoint is a the highest MIC achieved for efficacy in 90% of patient population

There are more nuances here in terms of MIC and %T which we can get into at a later point but for now this should suffice.

The effectiveness of the drug on the bacteria is measured through base-10 log notations. So 1 log would be a 10^1 reduction and 2-log would be 10^2 reduction and so on in orders of magnitude. So in a colony of 1 million microbes, 1-log would achieve a 90% kill, 2-log a 99% kill and 5-log a 99.999% kill and so on. FDA is happy with a 1-log kill (90% reduction) to approve a drug.

This much is of course is table-stakes to understand papers on WCK-5222 - in terms of chances of approval, in terms of market size and so on (if it can replace existing drugs, market size will be bigger). I will try to summarise the rest in another post or two next week, if time and interest permits.

References:
microbiology-guide-interpreting-mic.pdf (235.1 KB)
Understanding Pharmacokinetics (PK) and Pharmacodynamics (PD).pdf (437.6 KB)

Disc: Invested (This is just an academic exercise at understanding antibiotics and then on to WCK 5222 and hopefully inspire others to pursue this. This could be a very high-risk bet, so please don’t go by fancy jargon in this post to plonk your money. Effort required to understand doesn’t translate to returns, and in fact could be inversely correlated)

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This post is collaborative work between @Anant , @Sanjay_Kumar_E and myself. To understand what follows, please read the post above first.

We looked at classes of antibiotics in the previous post but missed classification for bacteria, so perhaps that’s a good place to get started.

Classification

Gram staining method is used to classify bacteria into gram-positive or gram-negative based on their cell wall structure and composition. Gram-positive bacteria have simpler cell wall structure thats made of a thick wall of peptidoglycan and appear blue under microscope. Eg. Staphylococcus aureus, Streptococcus pyogenes etc. Gram-negative bacteria have more complex cell wall structure made of thin wall of peptidoglycan surrounded by another lipid membrane and stain pink/red under microscope. Eg. E. coli, Pseudomonas aeruginosa. The reason for bringing this up is to put across the point that the complex cell-wall structure makes gram-negative bacteria relatively less susceptible to antibiotics.

Moving onto some common bacteria and treatments, so you can get an idea of how diverse these things are in terms of what they affect and what treatments exist.

Bacteria Causes Treatment
Staphylococcus Aureus Skin infections, pneumonia Vanomycin, Daptomycin, Linezolid
Streptococcus Pneumoniae Pneumonia, Meningitis, Ear infections Penicillin, Ceftriaxone, Macrolides (Azithromycin)
E. coli Stomach infections, UTIs Ciprofloxacin, TMP-SMX, Nitrofurantoin
Pseudomonas Aeruginosa Complex infections in Hospital settings Ciprofloxacin, Ceftazidime or Carbapenems
Clostridum difficile Diarrhea and Colitis Metronidazole or Vancomycin
M. tuberculosis TB Isoniazid, Rifampicin, Pyrazinamide
H. Pylori Peptic ulcers, gastritis Clarithromycin, Amoxicillin, Metronidazole

Antibiotic Resistance

Before we move onto WCK 5222, lets first understand antibiotic resistance as this is a significant piece. Resistance can happen due to genetic mutations in the bacteria, gene transfer between species, antibiotic overuse causing proliferation of resistant species, not completing courses and also use of antibiotics in the food chain. The last 3 of these are particularly more prevalent in developing countries.

According to last available statistics from 2019, AMR (Anti-Microbial Resistance) caused 1.27 million deaths around the world. In the US, the 5 most harmful pathogens with serious resistances are

Bacteria Deaths
S. Aureus 49100
E. Coli 34000
P. Aeruginosa 15300
E. Faecium 13700
A. baumannii 13,300

The ones highlighted in bold, are where WCK 5222 has proven to be very effective (Incidentally Wockhardt’s Emrok targets Methicilin-resistant S. Aureus and is a recent launch). These specifically happen in hospital settings (say ICU) alongside a organ-transplant, cancers or any other surgery, specially in immunity compromised patients

For the ones of interest to us, these are specific resistances that are known and documented

Beta-Lactams

This class of antibiotics are characterised by the presence of common-structural element which is the beta-lactam ring that looks like this.

image

Penicillin is a classic eg. of beta-alactam and you can see this ring in it.

image

Beta-lactams in common usage are Penicillin (amoxicillin, ampicillin), cephalosporins (cephalexin,cefepime), carbapenems (meropenem) and monobactams (Aztreonam).

These work by binding to PBPs (Penicillion-binding proteins) which in turn weakens the peptidoglycans in the cell-wall due to disruptions in the cross-linking. These being in use for so much for so long has caused resistance mechanisms to develop in bacteria which now produce beta-lactamase, an enzyme that breaks the beta-lactam ring in these antibiotics. By no means is this the only resistance mechanism, although its the most common.

In the previous AMR table containing the 5 pathogens, S. Aureus and E. Faecium are gram-positive while the other 3 are gram-negative. The other 3 are commonly treated with beta-lactams - but due to resistance developing against beta-lactams like carbapenems (imipenem, meropenem) and cefepime, among other things is why these deaths happen today.

BLI (Beta-Lactamase Inhibitors)

Antibiotics have move forward with the introduction of beta-lactamase inhibitors in Sulbactam and Tazobactam in the 80s. However bacteria have evolved as well to produce ESBLs (extended-spectrum beta-lactamases) and Carbapenemases on which Sulbactam and Tazobactams don’t work. So along came Avibactam which was introduced in 2015 and has been used in combination with Ceftazidime (CAZ-AVI marketed as Avycaz in the US and Zavicefta in Europe). Remember this as we will have to re-visit this later when we work out the numbers. A thing to note with these BLIs is that they are not active against all classes of beta-lactamases (Yes, there are multiple classes of beta-lactamases as well with evolved resistances)

BLE (Beta-Lactamase Enhancer)

Wockhardt molecule Zidebactam (WCK 5107) is a novel class of beta-lactamase enhancer (BLE). Zidebactam, in combination with Cefepime (Cefepime-Zidebactam or FEP-ZID)seems to be able to function not just as a beta-lactamase inhibitor that works against all four classes of beta-lactamases (Class A, B, C and D) but it also modifies the PK/PD of Cefepime. This is the most crucial factor to understand - none of the previously known beta-lactamase inhibitors do this and this is somewhat of a big deal. Cefepime binds to PBP3 and Zidebactam to PBP2 (while also functioning as beta-lactamse inhibitor) and together, they work more effectively than alone - thereby bringing down the T% > MIC (Remember this from previous post?).

By reducing the amount of time the concentration has to be above MIC, it effectively can also increase the breakpoint MIC for WCK 5222. It can also reduce the dosage requirement of Cefepime, thereby reducing for how long treatment itself is required (which will make this a first-in-class and best-in class drug)

Papers

This section can be skipped by most people not deeply interested in the science of it. There are numerous papers published by both Wockhardt folks and independent researchers since 2015 or so that document the effectiveness of WCK 5222 against Pseudomonas Aeruginosa, Enterobacteriales (a class that includes E. coli, Klebseilla) and Acinetobacter Baumannii. Lets go over each of these pathogens

Pseudomonas Aeruginosa

This commonly causes UTI, respiratory tract infections (pneumonia), bloodstream infections (sepsis) and also burn infections. While its treated with beta-lactams like Cefepime or fluoroquinolones like ciprofloxacin (Remember these from last post), Multi-drug Resistance pseudomonas (MDR P. Aeruginosa) is particularly hard to treat. Currently Polymixins like Collistin are used but they are severely toxic.

There are several papers published on WCK 5222 and its effectiveness in treating MDR Pseudomonas Aeruginosa

Who Where When Link
Emerging Antibiotic Research Unit, Fribourg, Switzerland American Society of Microbiology 31 May 2023 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10353362/pdf/aac.00339-23.pdf
Instituto de Investigación Biomédica A Coruña, Spain Journal of Antimicrobial Chemotherapy 29 July 2022 https://academic.oup.com/jac/article/77/10/2809/6651591?login=false
JMI Laboratories, USA American Society of Microbiology 27 February 2017 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5404591/pdf/e00072-17.pdf
Dept. of Pathology and Lab Medicine, University of Louisville, KY, USA Antibiotics, MDPI, Basel, Switzerland 23 March 2019 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6466586/pdf/antibiotics-08-00032.pdf
JMI Labs, USA Journal of Antimicrobiasl Chemotherapy 13 June 2022 https://journals.asm.org/doi/full/10.1128/aac.01432-20
CHINET, China American Society of Microbiology 16 December 2020 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7927829/pdf/AAC.01726-20.pdf
CHINET, China American Society of Microbiology 12 July 2022 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9431184/pdf/spectrum.01854-22.pdf

The following table is picked from one of the papers above. Here we can see that FEP-ZID at 1:1 ratio is the only drug that is consistently active against all resistances, be it ESBL or Carbapanem and at low MICs. Others like Meropenem-Nacubactam (MER-NAC) or Cefepime-Taniborbactam (FEP-TAN) are at their breakpoint dilutions against lot of the Carbapenem resistant strains, whereal FEP:ZID 1:1 is several dilutions away from breakpoint due to Zidebactam’s BLE characteristics.

Enterobacteriales

These include E. Coli, Klebsiella etc. and resistance can vary from ESBLs, Carbapanemases to MBL-producing. Pathogenic strains of E. coli that devleop these resistances can be very hard to deal with.

Here are some papers published on WCK 5222’s performance against E. coli

Who Where When Link
Instituto de Investigación Biomédica A Coruña, Spain American Society of Microbiology 15 February 2022 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8846464/pdf/aac.01676-21.pdf
JMI Laboratories, USA American Society of Microbiology 27 February 2017 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5404591/pdf/e00072-17.pdf
Center for Pharmacometrics and Pharmacology, University of Florida, USA American Society of Microbiology 19 February 2019 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6496095/pdf/AAC.00128-19.pdf
Dept. of Pathology and Lab Medicine, University of Louisville, KY, USA Antibiotics, MDPI, Basel, Switzerland 23 March 2019 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6466586/pdf/antibiotics-08-00032.pdf
JMI Labs, USA Journal of Antimicrobiasl Chemotherapy 13 June 2022 https://journals.asm.org/doi/full/10.1128/aac.01432-20
CHINET, China American Society of Microbiology 16 December 2020 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7927829/pdf/AAC.01726-20.pdf
CHINET, China American Society of Microbiology 12 July 2022 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9431184/pdf/spectrum.01854-22.pdf

The following table is picked from one of the papers above and it shows that FEP-ZID is active at fairly low MICs against all known resistance strains be it ESBL or Carbapenamase. WCK 5222 shines here too.

While couple of other drugs like MER-NACU or FEP-TAN are also effective, they are not effective against all at consistently lower dilutions. In a hospital setting where time-constraints will limit screening for the pathogens, the broadest, most-effective at lower dilution (away from the resistance breakpoint as we saw in previous post) will tend to be preferred as first-in-line defence.

Acinetobacter Baumannii

This is one of the hardest to treat and spreads in hospital settings. It is resistant to Carbapenems

Who Where When Link
Wockhardt Research Center American Society of Microbiology 27 March 2019 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6437547/pdf/AAC.02146-18.pdf
Center for Anti-Infective Research, Hartford Hospital, CT, USA Antimicrobial agents and Chemotherapy 21 December 2018 https://journals.asm.org/doi/10.1128/aac.01931-18
Dept. of Pathology and Lab Medicine, University of Louisville, KY, USA Antibiotics, MDPI, Basel, Switzerland 23 March 2019 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6466586/pdf/antibiotics-08-00032.pdf
CHINET, China American Society of Microbiology 16 December 2020 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7927829/pdf/AAC.01726-20.pdf
CHINET, China American Society of Microbiology 12 July 2022 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9431184/pdf/spectrum.01854-22.pdf

WCK 5222 exhibits a 3-log kill (99.9% if you remember from previous post) in various strains of hard-to-treat Acinetobacter Baumannii (ACBN here). WCK 5222 is consistently shown to be effective in-vivo here against all strains. The 2 to 3-log increase in growth with just FEP shows the resistance A. baumannii has against Cefepime. Remember 1-log kill is sufficient for a FDA approval.

Compassionate Use

There are a couple of papers published on cases of compassionate use that we could find. While the papers above are academic and very promising. There’s nothing more heartening than seeing real-patients on the verge of death being saved by the wonder drug.

Case 1 - https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10433839/pdf/aac.00500-23.pdf

NDM producing Pseuromonas Aeruginosa infection in 18 year old male with T-cell leukemia was cured of it at AIG Hyderabad with WCK 5222.

Some snippets from this paper

Why not Cefiderocol as per the paper. Note that FEP-ZID could go up against Ceftazidime-Avibactam the currently ineffective treatment (CAZ-AVI or Avycaz) and Cefiderocol the new challenger. In India FEP-ZID could be the preferred option against the NDM-producing P. Aeruginosa, going by this paper

The summary from the paper

Case 2 - https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10324185/pdf/12941_2023_Article_606.pdf

A 50 year old woman from Nepal was treated at Medanta, Lucknow. MBL-producing P. Aeruginosa with A. baumannii were detected in patient.

Multiple drugs were tried on the strain isolated from the patient in this case, prior to treatment

WCK 5222 seems to be the preferred option in MBL-producing P. Aeruginosa

Another happy ending post WCK 5222

image

Market Size

From whatever we have seen in the papers, FEP-ZID can go up against CZA (Ceftazidime-Avibactam) sold in US and EU as Avycaz/Zavicefta and Cefiderocol which is a new drug marketed as Fetroja by Shionogi. Both these have shown upwards of 30% growth post Covid which we presume is due to rise in AMR.

These are sales of Fetroja, as per Shionogi. 11.1 billion Yen in H1 works out to $78m, so annualising, its at ~$160m. Its growing at 38% in US and 41% in Europe.

Side Note: Orchid is going to do Cefiderocol manufacturing for LMIC

Zavicefta has sales of $130m in Q3 ‘23 for Eu+Row as per Pfizer quarterly report.

Assuming similar number in the US for Avycaz and annualising, gives us a market size of $1b for Ceftazidime+Avibactam.

It may not be outlandish to assume $500m market size conservatively for WCK 5222 globally.

If we use a different method to arrive at the numbers - based on avoidable deaths from P. Aeruginosa, Enterobacteriales and A. Baumannii which add up to 64k in the US alone (from the table earlier in this post) and considering a similar number as what Cefiderocol or Avycaz treatments cost - i.e 18k USD/patient gives us a potential $1b in the US - if you discount this to 50% patients at 50% cost - gives us ~$250m in the US very conservatively, With Europe and RoW thrown in, $500m from our earlier assumption doesn’t seem far off. Assuming a 20% royalty on this puts profits for WCK 5222 at $100m or ~800 Cr. If you value this at 15x PAT, this alone can be worth 2x of current market cap.

Other optionalities also exist where FEP-ZID becomes first-line of treatment and replaces some of the existing drugs which can play out over time.

Deals

Some of the deals that have happened in the antibiotics space

Molecule Phase Seller Buyer Year Amount
Nacubactam 1 Meiji and Fedora Roche (for worldwide rights) 2015 $750m
Meropenem + Zavicefta + Zinforo + ATM-AVI + CXL - AstraZeneca Pfizer 2016 $1.5b + double-digit royalties on sales of Zavicefta & ATM-AVI
FEP-TAN NDA Venatorx Melinta Nov ‘23 Unknown
Xeruborbactam 1 Qpex Shionogi Jun ‘23 $140m
Enmetazobactam 3 Allecra Shanghai Haini Dec ‘20 $78m

WCK 5222 is comparable to Zavicefta / Meropenem / Nacubactam and is in Phase-3 since Oct ‘22

A Note on Wockhardt Research

This company has spent $350m in research so far and it isn’t by accident that its finding itself with 6 molecules with QIDP (Qualified Infectious Disease Product) status. It has gone about it in the silliest of fashions though with public market capital that is ill-equipped to deal with the risks associated with drug development and discovery. Most innovators work with PE funding or are part of MNCs with deep pockets.

To bring a drug successfully to the market requires the synergistic inter-disciplinary functioning of medicinal chemists, analytics chemists, drug scale-up experts, formulation pharmacists, pharmacologists, microbiologists, toxicologists, vets, pharmacokinetics and metabolism experts, followed by regulatory experts, biostatisticians (to validate efficacy and safety). Wockhardt has spent 12-13% of gross revenue on R&D to sustain this team of researchers for whom the horizon can be a decade or two. Wockhardt has filed 3239 patents and has 810 granted patents. It is a proud moment for us as Indians that an Indian company has gotten this far.

WCK 771 and WCK 2349 have been launched (Emrok and Emrok O) to deal with serious Gram-positive infections, WCK 4873 (Nafithromycin) has successfully completed phase 3 - WCK 5222 is lined up next. There is WCK 4282 in the pipeline that can start phase 3 once WCK 5222 hits the market and WCK 6777 is in phase 1 (Correction: Has completed phase 1 in Nov '23. It could also go directly to Phase-3 with the QIDP status).

Conclusion

Reading too many medical-science papers can drive you mad.

WCK 5222 or FEP-ZID or Cefepime-Zidebactam seems to have very high probability of getting through phase-3 successfully going by papers, as well as the compassionate use cases. At least from a technical standpoint, this seems very promising. The company is probably on the cusp of reaping the rewards for two decades of research. It has to make sure not to goof up marketing and distribution and make sure the licensing deals it gets into capture the value of the product well.

Risks

  1. Although the phase-3 success looks likely, it is not yet a done deal and so event risk still exists (250 patients are enrolled for phase-3 and WCK 5222 requires 528 to take it to completion - 90% of patients have recovered fully as well so far)
  2. The company probably isn’t as strong in marketing the drug, manufacturing it (should they decide to go that route) - these can nullify research efforts considering compliance requirements etc. (and the company’s not so great track record)
  3. Licensing and royalties require good negotiation skills to capture the NPV if going for one-time worldwide rights or good recurring and growing royalties (growing annuities are ideal for us as shareholders)
  4. Timelines can slip and they already have - WCK 5222 was to hit the market in ‘22 as per company projections in ‘17 (WCK 5222 could get faster NCE approval with phase 3 completion due to QIDP status as well as Indian compassionate case studies when that data is made public)
  5. Company has not treated minority shareholders well and has taken larger risks in drug development and discovery - this is something we have to live with

Disc: All 3 of us are Invested

(This post focuses more on WCK 5222 and not on the whole business)

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@phreakv6, As always a great summary from your end. You have largely focused on the potential of WCK 5222. If we look at the recent news articles, they attribute the price rise to the completion of the Phase 3 study of WCK 4873 (Nafithromycin).

In Phase 3 study, three-day treatment with Nafithromycin resulted in clinical cure for 96.7 per cent of patients as against clinical cure rate of 94.5 per cent in Moxifloxacin arm.

The study also establishes that Nafithromycin represents the first ever macrolide in 30 years which has successfully completed clinical development for the indication of community-acquired bacterial pneumonia. The currently available macrolide antibiotics Azithromycin and Clarithromycin were approved in 1988 and 1991 respectively. Since then no new macrolide antibiotics have been approved despite pneumonia causing about 2.5 million deaths annually worldwide as per WHO.

Do you have any idea how WCK 5222 and WCK 4873 are different? Both seem to be targeting a similar segment of bacterial infections.

Also, if the company gets approval for WCK 4873, does it mean they can target the Azithromycin market? which is valued at 6.9 Billion $

Source: Wockhardt completes Phase 3 pneumonia study of macrolide antibiotic Nafithromycin WCK 4873 - Express Pharma

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While both WCK 5222 and WCK 4873 target bacterial infections arising from resistance to existing antibiotics, thats where there similarities end.

For starters, WCK 4873 targets gram-positive streptococcus pneumoniae while WCK 5222 targets P. aeroginosa, A. baumannii and E. coli/klebsiella which are gram-negative (harder to treat). If you see the variety of ways different bacteria can cause infections in the previous post towards the beginning, you would have noticed that some of them are airborne or spread via community (CABP or Community Acquired Bacterial Pneumonia), while some of them spread mainly in hospital settings (HABP or Hospital Acquired Bacterial Pneumonia). This also changes the way they get treated - community-acquired pneumonia is likely to cause respiratory issues like pneumonia, bronchitis, pharingitis while hospital-acquired infections are likely to cause more serious life-threatening issues in immuno-compromised patients who are already down with cancer or organ-transplant or some other issue. CABP will be 100x more prevalent than HABP but the latter more fatal in short. Also in HABP, the hospital can isolate the pathogen and do in vitro tests to choose an antibiotic that the pathogen is sensitive to, if there are no time constraints.

Consequently, everything from the way antibiotics are. administered (could be oral formulations for WCK 4873 vs via IV for WCK 5222) or marketed (you have to have good distribution for WCK 4873 while WCK 5222 might only need you to reach out to hospitals and so on) varies.

WCK 4873 or Nafithromycin is proven to be effective in the Chinese respiratory illness. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9549737/pdf/dlac103.pdf. Wockhardt has outlicensed this to Jemincare for sale in China.

Will this target Azithromycin market? I highly doubt it. I dont think stronger antibiotics like WCK 4873 will be used before Azithromycin.

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https://twitter.com/ETNOWlive/status/1739864047468822580

This is an interview by Mr. Khorakiwala. Other than that all 13 patients who have been administered have been saved by WCK5222 the most important thing that is discussed in this interview is at 1:50 sec. Outside of international phase 3 trials they have also applied for emergency use trials to DCGI in cases where a patient has meropenem resistance. Unlike the randomised double blinded phase 3 studies my guess is this is more observational and with a much smaller set of patients. This study if successful will save a lot of lives and will also allow commercialisation of WCK5222 much quickly.

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Why promotors are selling like crazy? Over the past 5yr the shareholding reduced from 75 to 55

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Wockhardt has gotten approval from Central Drugs Standard Control Organization for trials as mentioned by Khorakiwala.

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What an excellent analysis !! The way you guys have gone so deep into this subject and explained the complex aspects in such an easy to understand way, is amazing ! I can see the time and efforts that would have gone in this. I wanted to check a few things that may please be considered. I am new to this forum and has an investment in Wockhardt.

  1. You mentioned that 90% of the 250 patients recruited in the clinicals have fully recovered and 278 more need to be tested. I assume it is in India. This looks to be super promising. Do they need to repeat these trials in US or does FDA give approval based on Indian Phase 3 trails ?
  2. How much may be the business potential of WCK 4873 and does the current stock price of 450 in anyway captures this potential ?
  3. Would it be possible to do a similar analysis on WCK 6777 as Khorakiwala has said that its opportunity is 2.8 billion.
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Currently sales, net profit are on the -ve side of the axis.
Even if they get success with all the mentioned trials and go in production.
It can increase sell /revenue. But will it make enough profit as much as retail investors are expecting is yet to come out.
So far they have run the business badly.
Dilution , promoter sell offs in last 3 quarters.

Deliverables: Their team is going to deliver the solution for the Pneumonia problem.
Marketing and sales deliverable is yet to be proven.

We need to watch out the business post all the approvals.
Risk is huge here even after the success of trials.

Based on technical deliverables people are taking huge position.
Sales validation is yet to happen.

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There’s one more published case of compassionate usage of WCK 5222 on a patient with skull base osteomyelitis this week (very hard to treat)

DOC-20240228-WA0030
pdf (999.2 KB)

The microbe found was XDR pseudomonas aeruginosa (NDM-MBL producing). The failed treatments include polymyxin B and fosfomycin. Drugs considered include Cefiderocol (CFD), Ceftazidime-Avibactam + Aztreonam (AVI + AZT), Cefepime-Taniborbactam (FEP-TAN) and Cefepime-Zidebactam (FEP-ZID or WCK-5222).

In this case, whole-genome sequencing of the organism was also done and has shown multiple mutations (in genes encoding PBP3, OprD, efflux pumps and AmpC) - the reason why it was extremely drug-resistant.

Not only was the organism hard to treat, its presence in lung-tissue and bone meant in-vitro tests meant little in actual treatment - as absorption rates of drugs in lungs and bone tissue is poor. A higher dosage owing to lower MIC of WCK-5222, enabled increased dosage initially and a lowered dosage there-on leading to a successful treatment in the patient.

This study wasn’t sponsored by Wockhardt as per the Funding section in the paper.

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Putting a link to this post from another thread here. There is some relevance to the Wocky story. Seems veeeerrrry far away though - even relative to Wocky’s 5222.

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Wockhardt AR is out and there some details on the other molecules currently under trials in various stages. Some updates on WCK 4282 and WCK 6777 are new

WCK 5222 (Cefepime+Zidebactam) - USFDA Phase 3 with 392 patients signed up and expected to complete in Q4 FY25. Indian Meropenem resistance trial permission from CDSCO says the number of patients is upto 60 and as per company update it is expected to be complete by Nov '24. Compassionate use so far for 30 patients with 100% recovery rate

WCK 4282 (Cefepime + Tazobactam) - Looks like there’s a combined ph2 and ph3 trial going to get underway in India this month. Permission from CDSCO has additional details. The total subjects could be upto 324. What’s also interesting is that it says potential support from “National Biopharma Mission” - not sure if this indicates financial support for the trial.

National Biopharma Mission in its charter says its funded by GoI and World Bank for development of drugs

WCK 4873 (Nafithromycin) - It looks like India phase 3 is successfully completed and the company has filed NDA with DCGI and it should get approved by Q3 FY25 and be in the market by Q4 FY25

WCK 6777 - (Ertapenem + Zidebactam) - Phase 1 was completed as per US clinical trials. It is highly likely that this will also undergo a combined phase 2+phase 3 trial like WCK 5222.

On the two products which are already launched in India

WCK 771 & WCK 2349 (Emrok and Emrok (0)) - Anti-MRSA drug. 65000 patients have been successfully treated in India and registrations have been filed in 10 countries (Kenya, Uganda, Tanzania, Saudi, Russia mentioned in different parts of AR) and approval is expected in FY25. In India the AR says the use is expanding from CABP to bone and joint infections and febrile neutropenia patients.

Compiling the information into this thread for tracking purpose

Disc: Invested

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DCGI has recently granted permission for the manufacturing and marketing of “Cefepime+Enmetazobactam” - for a NCE manufactured by Orchid Pharma.

The use case of this drug is similar to that of WCK 5222. “treatment of complicated Urinary Tract Infections (cUTI) including acute Pyelonephritis, HospitalAcquired Pneumonia (HAP) including Ventilator-associated pneumonia (VAP), and Bacteremia when it is associated or suspected to be associated with either complicated urinary tract
infections or hospital-acquired pneumonia”

Cefepime+Zidebactam was found out to be more potent than Cefepime+Enmetazobactam as per Assessment of Activity and Resistance Mechanisms to Cefepime in Combination with the Novel ÎČ-Lactamase Inhibitors Zidebactam, Taniborbactam, and Enmetazobactam against a Multicenter Collection of Carbapenemase-Producing Enterobacterales - PMC)

How would this affect the market for WCK 5222? Will a competitor launching a similar product earlt (albeit less potent/efficient) change the pricing strategy of Wockhardt? What if this product gains distribution before WCK 5222 is released? Would love to know your thoughts on this. Disc: Invested

Thanks

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A question similar to this was raised by me a few days back. Hope this can help you understand this.

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Almost 210 cr of funding for Wockhardt’s UK vaccine program. A bit surprised to see that that there is no exchange disclosure regarding the same. Looks like the vaccine bit will get sorted in next few quarters.

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Interesting development for WCK 5222:

https://x.com/EB_Hirsch/status/1805264415844872342

Primer on CLSI and Breakpoints:

Looks like Wockhardt wanted to establish the right breakpoint (64 mg/L) for WCK 5222 for researchers & investigators. This is only the 2nd instance of an investigational antibiotic being assigned CLSI breakpoint. The proposal was approved by the full AST subcommittee:

https://x.com/EB_Hirsch/status/1805315186259374562

CLSI decides the breakpoint for drugs once its approved by FDA. But in WCK 5222’s case, many research papers 1) were using incorrect MIC determination method and 2) didn’t understand the “enhancer” mechanism of WCK 5222.

The reason why some papers consider WCK 5222 MICs of 16 to 64 mg/L as resistant is because they interpreted the data based on cefepime’s susceptibility breakpoint of 8 mg/L. Zidebactam is still under clinical trial and CLSI had not assigned any breakpoint as it was not approved by FDA. Researchers used a fixed concentration of Zidebactam at 4 mg/L which is scientifically wrong as the MIC determination criteria is 1:1.

Also, majority of researchers are driven by MIC90 value and lack ability to assess the drug based on PK/PD data. It is very challenging for experts who have been soaked into only one approach ie. beta lactamase inhibitor to comprehend other approaches.

Good read on how PK/PD impacts breakpoints by EUCAST:

The role of pharmacokinetics pharmacodynamics in setting clinical MIC breakpoints - EUCAST approach.pdf (482.1 KB)

The important point to understand is PK/PD MIC can be higher than MIC90.

Now the “enhancer” mechanism:

Unlike traditional ÎČ-lactamase inhibitors, zidebactam not only serves as an inhibitor but also directly exhibits antibacterial activity by effectively binding to PBP2, thereby deactivating this crucial enzyme essential for cell multiplication. Once the zidebactam-mediated PBP2 inactivation has occurred, stage is set for synergy with cefepime that binds to PBP3 and/or PBP1. Hence, we have to look at the combined effects of both cefepime and zidebactam.

The heart & soul of WCK 5222 is this paper by Wockhardt:

Zidebactam Augments Cefepime against Acinetobacter Baumanni.pdf (1.2 MB)

WhatsApp Image 2024-06-25 at 11.17.27_cb160052

While other drugs have to be present in the blood stream with above MIC concentration for 40-60% of the dosing interval, the combination of Cefepime Zidebactam needs only 15.5% time for 1-log kill and hence can have a higher MIC.

To explain in a picture, Cefepime usually hits 90% target at 60% fT>MIC and hence 8 mg/L but in the presence of Zidebactam, it hits 90% target at 15.5% fT>MIC and hence can have higher MIC of 64 mg/L.

PK-PD of FEP ZID

(I have made a simple graph to explain. Real world graph will look a lot different.)

What does it mean in terms of market opportunity?

Going forward, the research & medical community should be using the higher breakpoint for evaluating WCK 5222. We will get to see the real potential of WCK 5222 as it will start being looked at as a drug with a wide spectrum of activity. I think, WCK 5222 is a first-in-class and best-in-class antibiotic drug with the broadest ever therapeutic scope.

Why do I say that?

With an increased breakpoint being assigned, doctors are more likely to use a drug with more steps (or dilution) between susceptibility MIC and breakpoint MIC to reduce the chances of resistance/tolerance being developed or absorption or something else as defined by PK/PD.

Susceptibility MIC vs Breakpoint MIC: Susceptibility MIC of most Enterobacterales & Pseudomonas for WCK 5222 is <8 mg/L going by the data in previous post by Bharani. Since the Breakpoint MIC is now 64 mg/L, the increased steps (3 = 16, 32, 64) between susceptibility MIC and breakpoint MIC means that resistance to WCK 5222 is less likely than those antibiotics with less no of steps. In other words, the bacteria will take a longer time to figure out a way to defeat WCK 5222.

How does WCK 5222 compare with other drugs?

Enterobacterales (mg/L) Susceptibility MIC Breakpoint MIC No of steps Remarks
Ceftazidime-avibactam 0.125 - 128 8 0 - 6 Inactive against NDM, IMP & VIM Carba strains
Meropenem-vaborbactam 0.125 - 32 8 0 - 6 Inactive against NDM & IMP Carba strains
Aztreonam-avibactam 0.125 - 16 4 0 - 5 Inactive against PER ESBL strains
Cefepime-taniborbactam 0.125 - 16 4 0 - 5 Inactive against MBL producing isolates, NDM & IMP
Cefepime-enmetazobactam 0.125 - 128 4 0 - 5 Inactive against MBL & OXA producing isolates, NDM, VIM
Cefepime-zidebactam (WCK 5222) 0.125 - 2 64 5 - 9 Active against all strains & classes
Pseudomonas (mg/L) Susceptibility MIC Breakpoint MIC No of steps Remarks
Cefiderocol 0.5 - 16 2 0 - 2 Inactive against few strains
Ceftazidime-avibactam 1 - 128 8 0 - 3 Inactive against NDM, VIM, IMP and other Carba strains
Meropenem-vaborbactam 0.25 - 64 8 0 - 5 Inactive against NDM, VIM, IMP and other Carba strains
Aztreonam-avibactam 2 - 32 4 0 - 1 Inactive against PER, KPC and few other ESBL strains
Cefepime-zidebactam (WCK 5222) 1 - 32 64 1 - 6 Active against all strains & classes
Acinetobacter (mg/L) Susceptibility MIC Breakpoint MIC No of steps Remarks
Cefiderocol IE IE - Insufficient evidence. Clinical data on efficacy are limited
Sulbactam-durlobactam 0.25 - 4 4 0 - 4 Active against all strains & classes
Cefepime-zidebactam (WCK 5222) 32-64 64 0 - 1 Active against all strains & classes

WCK 5222 has the highest number of steps away from breakpoint in case of Enterobacterales and Pseudomonas and is active against ALL strains. In Acinetobacter, only one drug Sulbactam-Durlobactam is superior to WCK 5222. No other drug is even active against Acinetobacter.

So it could be the case that WCK 5222 is the last resort (life saving) drug for Enterobacterales & Pseudomonas and the primary drug for Acinetobacter while Sulbactam-Durlobactam be the last resort. This I think is biggest takeaway for the research & medical community including WHO because WCK 5222 was considered as “possibly active” for Acinetobacter and Pseudomonas. Now it should be considered as “active” similar to Cefiderocol.

WHO 2023:

Actual use of drugs will depend on severity, time available (AST might take few hours), doctors’ choice and many other factors given the “save the best for the last” practice followed when it comes to antibiotics. Also, most countries have protocols regarding usage of antibiotics.

The dosage and concentration used in clinical trials or usage post approval don’t change because of this development. And it doesn’t impact the phase 3 trials going on currently as Breakpoint MIC has nothing to do with trials and is done in-vitro in labs based on bacteria specimens available globally. The FDA had anyway approved 64 mg/L MIC. Dosing will continue to be 2g Cefepime and 1g Zidebactam as decided in the trial design.

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“Successful Use of Investigational Antibiotic, Zaynich (Zidebactam/Cefepime- WCK 5222) to Treat a Cancer Patient in US with Chronic Bilateral Thigh Infection Caused by an Extreme-Drug
Resistant Pseudomonas”.

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Excerpt from Chairman’s Speech at AGM, convened on June 28, 2024, at 11 am

  • Over a span of 25 years, we dedicated substantial efforts to establish a global antibiotic research organisation.
  • Fostered a culture of Research and Innovation, collaborating with more than 30 global organisations.
  • Invested over US$ 500 million in discovering antibiotics to address unmet medical needs.
  • Our diverse antibiotic portfolio tackles antimicrobial resistance across various classes, developed over 30-40 years, targeting infections in both hospital and community settings.

EMROK & EMROK O

  • EMROK & EMROK O have treated more than 65,000 patients.
  • Successfully concluded 4 new clinical studies covering bloodstream infections, bone and joint infections, community-acquired bacterial pneumonia, and infections in immunosuppressed patients.
  • Completed New Drug Application (NDA) submissions in 10 Emerging Markets countries and aiming for 5-6 additional countries by Q2 of FY 2025.
  • Anticipating substantial growth in the current year due to these expansions.

WCK 4873 (Nafithromycin), trademarked as MIQNAF

  • MIQNAF (WCK 4873) offers an ultrashort, 3-day oral treatment for community-acquired bacterial pneumonia, achieving a 97% success rate.
  • Current treatments face up to 60% resistance.
  • Filed New Drug Application (NDA) with the Drug Controller General of India (DGCI) and anticipate commercial launch in India by the second half of FY25.
  • Planning NDA filings in selected Emerging Markets and foreseeing strong sales in FY26.

WCK 5222 (Zidebactam/Cefepime), trademarked as ZAYNICH

  • A groundbreaking new antibiotic developed by Wockhardt.
  • This proprietary drug, designed to combat major superbugs, is the first of its kind discovered in the past 50 years.
  • Currently in Global Phase 3 clinical trials.
  • ZAYNICH was granted compassionate use approval by the DCGI for 30 critically ill patients unresponsive to existing antibiotics.
  • Achieving a 100% success rate, ZAYNICH saved the lives of all recipients, with notable cases published in prestigious international journals.
  • To date, ZAYNICH has saved over 30 lives, with DCGI approval secured for a small-scale clinical trial involving carbapenem-resistant patients in India.
  • Pending completion by FY25, approval would enable ZAYNICH to become available in India, marking a significant milestone in its clinical deployment.

  • The US FDA granted ‘Expanded Access IND’ approval for WCK 5222 (ZAYNICH) to treat a young cancer patient at the University of California Irvine School of Medicine, Orange County.
  • Despite nine months of unresponsiveness to current US antibiotics, the patient showed significant improvement within four weeks of ZAYNICH administration.
  • The treatment resulted in complete healing of large wounds and eradication of infections, allowing the patient to resume chemotherapy for ongoing cancer treatment.

  • CLSI, a globally-recognized US body, has approved a susceptibility breakpoint of 64 mg/L for ZAYNICH.
  • This breakpoint applies to a wide spectrum of Gram-negative pathogens resistant to multiple drugs.
  • ZAYNICH demonstrates unprecedented effectiveness with its high bacteria kill power, crucial for extreme multi-drug resistant organisms.
  • For the first time, a breakpoint of 64 mg/L covers the entire spectrum of 10-resistant Gram-negative pathogens, underscoring ZAYNICH’s clinical potency.
  • Clinical trials under compassionate use show a 100% success rate in critically ill patients, affirming its safety and efficacy over 70 days.
  • ZAYNICH’s achievement of the investigational breakpoint at a CLSI plenary session on June 24, 2024, marks a historic milestone, a source of pride for Wockhardt and India.

  • Global Phase III clinical trials for ZAYNICH are anticipated to conclude by FY25.
  • Plans include filing for regulatory approvals in the US, Europe, and other regions following trial completion.
  • Global approval for ZAYNICH’s launch worldwide is expected in FY26.
  • Strategically, we aim to maximize market value through a dual strategy: direct marketing in India and Emerging Markets, alongside licensing agreements with global pharmaceutical companies for US, Europe, and other developed regions.

Source: https://www.wockhardt.com/wp-content/uploads/2024/06/chairmans-agm-speech-2024.pdf

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Some more lenses for consideration when trying to put a value to WCK 5222/ Zaynich.

A couple of important points need to be made before I lay out my estimates.

  1. My core premise is to look at this like a VC firm would. An investment in one “Facebook” equivalent is what makes up a bulk of VC returns. One success pays for many many others that go nowhere, and then some more. The “Facebook” for Wockhardt is WCK 5222. I expect this drug to be by far the dominant driver of value for the firm.
  2. There are still many hoops to jump over before anything can materialize. While the news is encouraging, very many things can derail the whole thesis. This remains a risky bet. On another thread, I have already admitted this being an investment “driven by the heart” for me

Approach 1: Learning from Orchid
Orchid’s drug Enmetazobactum is estimated to generate global sales of US$ 200-300 mn. Orchid is estimated to get royalty of 6-8% from Allecra for US & Europe (from where, let’s face it, most of the revenue will come from). ==> Orchid Pharma Ltd - #25 by ranvir

My sense is that Zaynich has much more potential than Orchid’s drug, given what we are seeing of the drug - one may simply scroll through the thread here to get a feel. So, US$ 500 mn I believe is conservative. Similarly, Wockhardt is likely to get a better royalty deal than Orchid, which means the 6-8% is an absolute floor.

Now, Orchid’s drug has FDA approval, and it has struck its licensing deals. Where has this taken its value? Total enterprise value (market cap + debt) of Orchid = US$ 725-730 mn.

Wockhardt, with around US$ 250 mn of debt, has an enterprise value of US$ 1.8-1.9 bn today (as on 08 Jul’24) - share price of around 880.

Now, I tried to flex the key variables - the global sales for Zaynich (my conservative estimate being US$ 500 mn, and flex being from 250-1,000 mn); and the royalty/ revenue share % that Wockhard will get from a licensing deal (absolute floor being 6%, and flex from 6% to 25%). Here is what the results throw up for the resulting share price.

A B Royalty/ Rev share of Wockhardt D E F G H
6% 8% 10% 15% 20% 25%
Zaynach global sales (US$ mn) 250 201 314 427 710 992 1,274
500 540 766 992 1,557 2,122 2,687
750 879 1,218 1,557 2,404 3,251 4,099
1,000 1,218 1,670 2,122 3,251 4,381 5,511

Approach 2: DCF of royalties from Zaynich
Again, assuming a conservative number of global sales for Zaynich as US$ 500 mn. At a 7% royalty, Wockhardt would earn US$ 35 mn/ year. Assumed some ramp-up (initial year earnings at 70% discount to this US$ 35 mn, second year at 40% discount to the stable state US$ 35 mn/year), and then growth (the US$ 35 mn growing at 30% p.a. from year 4, tapering down to 10% over the next six years). Finally, applied a discount rate to get the NPV of these royalties, assuming they start coming in two years down the line.

Here’s what this looks like for a 7% royalty share and discount rate for NPV calculation of 17% (asking 20% in INR terms, and assuming USD will appreciate around 3% p.a. against INR):

Head Unit Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
Royalty earnings US$ mn 11 21 35 46 59 71 85 98 108 119
% discount to stable 70% 40% 0% 0% 0% 0% 0% 0% 0% 0%
% growth 30% 30% 20% 20% 15% 10% 10%
Discounted earnings US$ mn 8 13 19 21 23 24 24 24 22 21
NPV US$ mn 199

So NPV of US$ 199 mn. Wockhardt’s enterprise value today (as we saw in approach 1) is ~US$ 1.9 bn.

I next flexed two key drivers again, this time left the US$ 500 mn as is. I flexed the royalty %, and the discount rate for NPV (which you can say is a proxy for the returns expectation). Here’s what that threw up for the NPV for Zanynich royalties (to be seen against the current enterprise value of Wockhardt of US$ 1.9 bn):

Royalty/ Rev share of Wockhardt
6% 8% 10% 15% 20% 25%
Discount rate (expected CAGR) 12% 233 311 388 583 777 971
15% 192 256 321 481 641 802
17% 170 227 284 425 567 709
20% 143 190 238 357 475 594

So, the NPV of Zaynich even with high royalties does not seem as big. Of course, if the US$ 500 bn turns out to be, say US$ 1 bn, then these numbers go 2x.

I also did one last thing. I was curious to see, with the US$ 500 mn as global sales assumption for Zaynich, what royalty % and discount rate would make the Zaynich royalties match the current valuation of Wockhardt (the whole company; recall my initial premise that I expect Zaynich to be by faaaar the biggest driver of value for Wockhardt). One answer was 36% royalty with 10% discount rate. So US$ 500 global sales, with Wockhardt getting 36% revenue share as royalty and with expectation of 10% returns would mean that Zaynich royalties would represent the whole of Wockhardt’s current value.

It’s been a long post, and a little technical (in terms of finance calculations). Apologies if I ended up confusing you, rather than providing any insights.

Disclosure: Invested, from lower levels. Investment driven by the heart.

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