I first wrote about Biohaven Pharmaceutical (BHVN) in May 2020, just 3 months after the launch of its first product Nurtec ODT. I was bullish on the company’s prospects, and since that time, Biohaven has seen substantial share price appreciation although it has fallen back a bit of late.
Figure 1: Biohaven Stock Chart (source: finviz)
In this article, I discuss Biohaven’s continued progress with the Nurtec ODT launch and its pipeline as well as whether I still think Biohaven is undervalued.
The Nurtec ODT Launch Is Going Better Than Expected
Although the pandemic has delayed or slowed launches of numerous new drugs, the Nurtec ODT launch, Biohaven’s treatment for acute migraines, has seemed largely unaffected. After launching in February, Biohaven reported selling 46,314 prescriptions in Q2 alone, totaling $9.7 million in net sales after the company registered just $1.2 million in Q1. Biohaven feels that Nurtec ODT is a substantial improvement over existing migraine therapies, both in its rapid onset and sustained effects for up to 48 hours, and this quick uptake seems to signal at least tentative support for that idea.
Figure 2: Nurtec versus Ubrelvy comparison (source: Biohaven’s Q2 Presentation)
Perhaps most impressively, Nurtec has already taken over 50% market share in the new oral CGRP class of acute migraine therapies despite competitor Ubrelvy launching first. This fast start will hopefully continue to pick up steam, with future peak sales estimates for Nurtec ODT as high as $1.6 billion by 2025, including the potential for a label expansion into preventive treatment. Speaking of that indication, Biohaven has continued to say the sNDA for preventive treatment will be filed by year-end. If that happens as expected, Nurtec ODT could be marketed for both treatment and prevention by next summer which would likely speed the pace up even more for prescription growth.
Pipeline Looks Strong With Multiple Upcoming Catalysts
In addition to the Nurtec ODT sNDA filing later this year as mentioned above, Biohaven has several catalysts next year that might move the stock higher in conjunction with sustained sales growth.
Figure 3: Biohaven Upcoming Catalysts (source: Biohaven’s Q2 Presentation)
The most important of these seems likely to be the Alzheimer’s data release in Q1 next year. Peak sales are expected to be around $1 billion if successful, and I like Biohaven’s odds of approval a little better than those for many of the other Alzheimer’s therapies currently in development because Biohaven is more focused on treating symptoms rather than targeting disease progression which has been notoriously difficult.
Rounding out the back half of 2021 are data releases in both spinocerebellar ataxia and multiple system atrophy, and the first half of 2022 will bring data in OCD and ALS, both huge potential markets, as well as a likely zavegepant approval. Overall, this is a very robust pipeline, and at a market cap around $3.6 billion, Biohaven could end up being a very successful long-term investment with only a few of these indications ultimately hitting the market.
That being said, investing in a biopharma like Biohaven is not without risk, despite these reasons why downside might be limited. None of these developmental stage therapies are guaranteed to ever be approved, and sales of Nurtec ODT could still end up disappointing despite the current rosy outlook.
Biohaven Has Made Some Savvy Deals To Strengthen Its Balance Sheet
While the Nurtec ODT launch is going well, it’s still an expensive proposition. Biohaven reported a loss of $181 million in Q2 which annualizes to about $720 million. Of course, Nurtec ODT sales will start offsetting an increasing portion of that loss, but in the meantime, Biohaven is left in the position of having to float a large loss for likely at least 3 more years. Dilution is always a big concern in such a scenario, so I was pleased to see Biohaven engaging in 2 separate, non-dilutive financing deals recently.
The first was a deal with Sixth Street for a $500 million non-dilutive, term loan. $375 million of that was immediately available at closing, and Biohaven did go ahead and draw down $275 million, leaving $100 million available at will. The other $125 million will become available if Nurtec ODT sales exceed $45 million by Q1 or Q2 of 2021 which seems very likely.
Biohaven then struck a deal with Royalty Pharma (RPRX) related to both zavegepant and Nurtec ODT. First related to Nurtec ODT, Royalty Pharma agreed to pay Biohaven $200 million spread out between 2021 and 2024 in exchange for Biohaven agreeing to pay that amount back with about a 12% return in several equal, fixed payments between 2025 and 2030. Royalty Pharma also agreed to pay Biohaven $250 million in exchange for a 0.4% royalty on worldwide Nurtec ODT sales and up to a 3% royalty on worldwide zavegepant sales as well as some potential success-based milestone payments related to zavegepant. $150 million of that amount is available immediately, but the other $100 only becomes available once Biohaven initiates a Phase 3 trial for zavegepant.
Figure 4: Biohaven Cash Position (source: Biohaven’s Q2 Presentation)
As you can see in Figure 4, these deals provided Biohaven with an immediate boost of $525 million in available cash. This should leave Biohaven with enough cash for at least one more full year, even completely excluding the continued sales ramp-up that will likely be seen in Nurtec ODT. Despite the fact that Biohaven stands to receive an additional $425 million from these deals down the road, I will still not be very surprised to see another modest dilution in the future, but hopefully, any further dilution will be small enough to not substantially impact shareholders now that Biohaven has access to this additional cash.
Biohaven Still Presents A Clear Value Proposition As Sales Expectations Increase
Despite a significant 20%+ rally since my prior article, I still think Biohaven presents a great long-term return scenario at present. Since May, Biohaven’s revenue estimates have been adjusted meaningfully higher, likely reflecting the faster than expected pace of Nurtec ODT sales.
Figure 5: Biohaven Revenue and Earnings Estimates (Source: Seeking Alpha)
These increased estimates in turn have increased my present value estimate for Biohaven substantially. As I normally do, I discounted these revenue and earnings estimates at 10% per year.
Figure 6: Biohaven Present Value Estimate (Source: revenue and earnings estimates from Seeking Alpha and my calculations based on that data)
As you can see from Figure 6, some of these estimates produce a present value as high as about $96/share. Given that this is over 50% above current levels, I still feel very confident in holding onto all of my Biohaven shares long term while I wait for higher levels and sales and more product approvals to begin to unlock this value potential. This wide of a margin of safety suggests that Biohaven could still provide good returns, or hopefully at least not lose investors much money, even if things don’t go as well as expected over the next few years.
Disclosure: I am/we are long BHVN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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