(wow) Words Of Wonders Level 2863 Answers – Our analysis concludes that the shares of OptiNose, Inc. (NASDAQ: OPTN ) are up ~300% and continue to trade with earnings and forward EPS multiples in line with its peers. Our analysis concludes that OPTN has sufficient runway to break even in fiscal year 2022/2023 if the contract revenue forecast is correct. Our analysis clearly concludes that OPTN stock is undervalued at $4.30/share.
OptiNose Inc. is a privately held biotechnology company specializing in otolaryngology (“ENT”) treatments and was founded in 2010 with approximately 225 employees in Yardley, PA. OPTN's flagship product is Xhance (fluticasone propionate), a nasal spray approved by the FDA on September 18, 2017 for the treatment of nasal polyps due to chronic rhinosinusitis. In English, nasal polyps are painless growths in the nasal passages that are usually the result of allergies, asthma and/or certain physical conditions. Whatever the cause, nasal polyps are not serious, but benign (benign) growths that hang down the nose like little grapes, leading to a runny nose, nasal congestion, or post-nasal drip (simple quality-of-life issues).
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OPTN launched Xhance in the second quarter of 2018. Revenue growth was significant as OPTN performed the tasks required to bring new treatments to market, including building the commercial infrastructure, educating the medical community and underwriting . Today, OPTN says 75-80% of potential patients are insured and expects further efficiency and growth in average cost per prescription (SOURCE: OPTN Q3 2020 earnings conference call. Third to last question answered by Peter Miller). The impact of the COVID-19 phenomenon on OPTN's business and growth in the first half of 2020 is likely to be limited. Xhance's tree trunks are growing quarter after quarter. Product sales were $15.4 million in Q3 2020, an increase of approximately 50% from Q2 2020. The average Xhance patient now receives Xhance 4.9 times. In the third quarter of 2020, a total of 69,000 Xhance prescriptions were issued at a net price of $244/net to OPTN (SOURCE: OPTN Investor Presentation).
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Below is a historical overview of OPTN's revenue reports for the past 7 quarters, tracking recent sales, fixed and gross margin growth, and forecasts for OPTN's airlines (assuming revenue growth has stalled):
Below is an excerpt from OPTN's investment statement dated November 5, 2020, which notes that the number of physicians prescribing Xhance continues to grow.
Taking OPTN by stock price, sales of OPTN products in the third quarter of 2020 were $15.4 million, up from $61.6 million for the year. OPTN's market cap of $4.30 per share is only $220 million (table below). So today OPTN is trading at just 3.6x annual revenue for Q3 2020. The revenue margin was 86% in the third quarter of 2020 and 83% in the second quarter of 2020. Most importantly, the revenue estimates for FY 2021 are an estimated revenue from $90 million to $113 million for 2021. (6 analysts mean earnings of $103 million per alpha for FY2021). In other words, OPTN is trading at twice its estimated revenue for FY2021. This is primarily a data point that shows that OPTN is not cheap (perhaps double or triple). OPTN cannot negotiate an additional $20 million deduction from its credit facility if Xhance's revenue exceeds $26 million in Q2 2021. That's why we have OPTN's “blessed” data area showing that the $103 million in revenue for FY 2021 is realistic (if it was). compared to a $26 million revenue milestone in Q2 2021, $103 million for the year seems reasonable).
Below is a summary of these data points compared to other small biotech companies that have recently (2018-2020) launched their therapies:
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According to the OPTN, about 30 million people in the United States suffer from chronic rhinosinusitis, of which about 10 million have nasal polyps. Of the 10 million Americans with sinusitis, about 500,000 will need surgery each year. Today, the standard treatment for nasal polyps is intranasal steroids followed by surgery. In September 2020, the American Rhinological Society (ARS) announced that they were updating their polyp management guidelines and advised patients with nasal polyps to try Xhance before surgery (SOURCE: OPTN, 9/16/2020 Cantor Investor Conference). Since approximately 500,000 people with OPTN are operated on for nasal polyps each year, our analysis complements the new ARS guidelines, in which the value of Xhance and OPTN has changed. If doctors adhere to the new ARS rules, up to 60% of patients will comply, or 300,000 patients per year. Approximately 6 prescriptions per patient suggest that 1.8 MM Xhance prescriptions could be filled from this patient segment alone. With 1.8 million prescriptions, $250/prescription is close to $500 million/year in sales.
OPTN's capital structure is simple, with one class of common stock and the company's traditional securities in the typical biotech lifecycle stage. Below is a summary of OPTN's market cap and enterprise value of $4.30 per share:
As noted, OPTN ended Q3 2020 with $143 million in cash and, according to OPTN's Q3 2020 Form 10Q (footnote 9), received an additional $20 million to settle existing debt of $14.5 million in Q3 2020. We created an OPTN cash flow series starting with $143 million in cash and created a work forecast based on average revenue estimates (required for Alpha) and average operating expense growth as follows:
Taking into account our above analysis, which is accompanied by published sales estimates and a reasonable increase in recent actual costs (and without taking into account the additional HUF 20 million available under the credit line), our analysis concludes that OPTN does not need to be liquidated to become. The current loan is with Pharmakon Advisors (a respected biotech investor) and is not due until December 15, 2022, when the principal of the loan is due in 8 quarterly installments and the loan “matures” September 14. /2024. Our analysis concludes that OPTN will be profitable if it has enough cash to easily repay the loan.
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OPTN's pipeline includes two ongoing Phase 3 clinical trials for the treatment of chronic sinusitis (now called chronic sinusitis). Bost's Phase 3 trial is expected to be examined in the fourth quarter of 2021. If Phase 3 clinical data is good enough for final approval, OPTN noted that the Xhance market will double. Note that during OPTN's Q3 2020 earnings conference call, an analyst noted that OPTN's Phase 3 trial of chronic sinusitis is the next possible treatment. We were unable to determine who was developing a potentially competing treatment. We should also note that Gossamer Bio (GOSS) recently reported that their rhinosinusitis treatment in development failed a phase 2 trial.
For all of these reasons, our analysis concludes that the analyst estimate of more than $700 million in sales for Xhance seems reasonable. These include:
Perhaps most importantly, OptiNose closed a $40 million funding round at $5.85 per share in late August 2020. Our analysis concludes that OPTN's business has improved since closing at $5.85 per share as OPTN beat consensus estimates for Q3 2020 and received an additional $20 million credit facility (and GOSS default). As written, investors can buy OPTN for 25% less than these investors did a few months ago.
Our net analysis concludes that in addition to all of the aforementioned third-party assurances, as OPTN trades at a much lower profit multiple than its competitors, OPTN appears to have a number of ways to make the company more attractive to shareholders, even without its merger, the analysis concludes that OPTN is so undervalued.
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Boston-area biomedical professionals with more than 100 years of experience in the biomedical industry. We are not professional analysts and lack the resources of professional analysts. Our articles contain information for the future. You should never place undue reliance on forward-looking statements, as facts and circumstances may change materially without notice. In Hungarian, don't take it so seriously.
Disclosure: I am/am a tall OPTN. I wrote this article myself and give my own opinion. I don't get any compensation for it (other than I'm looking for Alfa). I do not have a business relationship with any of the limited liability companies mentioned in the article.
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