Good question - quantifying the prize seems to be the logical extension.
Given the company currently holds granted patents in Australia, Europe and various pending application in other jurisdictions including the US, you could use something like the following back of the envelope ("BOE") framework to assess addressable market, potential sales and discount that based on probability of success. (Depending on your aversion to risk you should apply a further sensitivity analysis to the 10% of 'at risk' population I've used):
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
Column 9
Column 10
Column 11
1
Probability Weighted Sum of parts Base Case Valuation Summary
2
Jurisdiction
Population between 50-74 years old
Screening participation rate
Sensitivity analysis at 10% participation of at risk population
First fiscal year of sales (est.)
Revenue (A$90 per test) at 10% market
Profit (95% margin est.) assumes the company successfully completes and secures/controls its own biological reagents
Probability of success
Probability adjusted Profit
Value per share (A$) at P/E: 10
multiple of current share price
3
Australia
6,400,000
46.60%
640,000
2020
$ 57,600,000
$ 54,720,000
75%
$ 41,040,000
$ 4.07
25.46
4
Europe
153,400,000
38.20%
15,340,000
2021
$ 1,380,600,000
$ 1,311,570,000
50%
$ 655,785,000
$ 65.09
406.81
5
USA
91,200,000
62.60%
9,120,000
2022
$ 820,800,000
$ 779,760,000
25%
$ 194,940,000
$ 19.35
120.93
Notes:
1. This Ignores Japanese and Chinese markets, which would add significantly to the potential valuation, upon approval, however I am unaware of the approval regs within these jurisdictions. For background, China's at risk population (defined as 50-74 y/o) is circa 350m and Japan's is 40m.
2. While the company hold patents in both EU and AU, I've applied a lower POS% in Europe than Australia merely because the Directors have stronger experience and relationships locally with both regulators and diagnostic companies (e.g. a board member is a current director of one of Australia’s largest blood pathology companies, Sonic Healthcare and former CEO of Melbourne Pathology), relationships that will accelerate distribution and increase peak market share potential, realistically beyond the 10% level used.
Summary:
Though, before you mortgage your home to buy more, I should add I think the dynamics described within this post point to a company that will attract investment from a larger partner well and truly prior to getting to the high end valuation potential (specialty pharma/diagnostic companies tend to look for 2 things in M&A targets: data & the rev ops. RHY have successful trials with both high sensitivity/specificity and end markets annually are significant as the BOE 'analysis' above highlights).
(20min delay)
