THE TEN BILLION DOLLAR UNICORN IN INMUNE BIO: PARTNERSHIP/BUYOUT AND VALUATION CONSIDERATIONS

My views on possible partnership/buyout and valuation of INMB will be set out below.

The highlights are the following.

- I consider a partnership or buyout for each of both platforms, and mostly for XPro, likely in the near future.

-Taking into account the current drug pipeline and its timeline, my valuation exercise amounts to $ 32,66 B. for the XPro platform’s current pipeline and $ 2,41 B. for those cancers that are already in sight in the INKmune platform.

- I consider that a buyout by a big pharma player, for a price of around than $ 10 billion, which is 62,5 times the current market cap of 160 million, may occur at any stage.

I combine both the partnership/buyout and valuation/pricing theme, as I believe one does not go without the other. I only make a valuation exercise of the current pipeline, although the list of out of sight programs that should one day be added, both for the XPro as INKmune platforms, is quite impressive.

PARTNERSHIP AND BUYOUT CONSIDERATIONS

Partnership considerations

I believe INMB may announce a partnership in the short term. That partner could be different for XPro and for INKmune.

Particularly both in the neuro-immunological as in the immuno-oncology field, big pharma seems quite eager to partner with promising biotech companies. As for XPro, if INMB is seriously considering possibly moving this drug through an accelerated approval process as announced on 3 November 2021, then I would say it may be better to partner in 2022. As for INKmune, what I see with other NK-focused companies is that generally partnerships are announced around this stage of drug development or even before.

I use the word neuro-immunological for XPro as that is, in my eyes, what differentiates INmune Bio from players such as Annovis, Trappsol Cyclo or Anavex, which have not (yet) partnered. In that field of immuno-oncology, I see Alector (+ GSK) and Denali Therapeutics (+ Biogen / Takeda) as other players, with market caps of respectively 1,46 B. and 5,08 B., their approaches at the stage of drug development being more genome-based. As a reminder, at the time of writing, INMB’s market cap is 160 million. Alector has partnered with GSK and Abbvie, and Denali has partnered with Biogen and Takeda. In the field of immuno-oncology, the list of partnerships is too big to start mentioning (Fate + J&J / Century + Bayer) / …).

INMB has stated at different times that combination therapies could work. See, for example, the following quote of its CEO:

“Nobody has written a rule that Alzheimer's disease has to be treated with monotherapy, that is to say that Alzheimer's is a complex disease. We expect that most patients will get combination therapy and we expect that almost everyone will need a neuro inflammatory strategy to go with that combination therapy. For instance, we would predict that if you combined our drug with Biogen's drug, that not only would it improve the safety profile of Biogen, but it would also dramatically improve efficacy.

It is impossible to predict which big player may partner. Among investors, the name Eli Lilly has been mentioned quite some times. I would say don’t forget Roche, looking at its history of drug failures in Alzheimer’s, continuous commitments to fight that disease, and amyloid drug candidate gantenerumab.

The FDA has changed its stance on drug approvals In Alzheimer’s, making it more likely for XPro to be approved short term. In that light, on 7 July 2021, Maxim Group has decided price targets, among others INmune Bio’s from $32 to $42 (Maxim note: ‘Aducanumab's Outcome is Driving a Re-Calibration of Alzheimer's Players – Raising PTs on SAVA, ANVS & INMB’).

The chances that big pharma has already been sniffing into all of what INMB has to offer, and makes an offer at this point or in the future, is much more realistic than a year and a half ago.

Accelerated approval of XPro would require manufacturing and commercialization capacity to be ready in time. Since two months now, INMB is very outspoken in its desire to move its XPro program ahead at an accelerated pace, in view of the FDA’s recently changed stance. INMB itself is unequipped to commercialize an Alzheimer’s drug on a massive scale, and has not made any steps to that purpose (apart from renting more office space). For drug approval, even on a provisional basis, the FDA requires manufacturing and production guarantees. A partner will need time to set up massive commercialization capacity. Production doesn’t happen overnight. Cfr. how Pfizer and others struggled to produce and deliver the vaccines after approval about a year ago. I see only one way forward in that respect for INMB, and that is to find a partner soon enough, i.e. not at the last minute. Management is experienced enough to know that too. And so, I assume there is mutual interest in a partnership with big pharma in the short term, at least for XPro.

A partnership with big pharma may have a quite considerable effect on the share price.

I give some examples in that respect.

- Alector’s share price jumped about 1,3 billion USD in one day when it announced in October 2020 that it was collaborating with GSK on develop progranulin-elevating monoclonal antibodies for a range of neurodegenerative diseases, including ALS, Parkinson’s disease and Alzheimer’s disease.

- When Denali Therapeutics announced its partnership with Biogen, the run-up was slower, eventually also doubling, and I attribute a 50% raise to the announcement of this partnership.

- Cardiff oncology recently announced a fairly limited 15 million involvement by Pfizer, which the market did not appraise at first, but one now sees a slow run-up after an enlightening article on Seeking Alpha on the involvement being an indication of a possible future buy-out.

Buyout considerations

INMB’s CEO was questioned on 14 July 2020 as to whether INMB would consider being open to be bought out one day (in a video on the Ameritrade website that has unfortunately meanwhile been deleted). If I recall well, the CEO replied that, at that very time, he considered this to be soon, but that with more information having come to light, a buyout was certainly an option. What’s been added over the past year has unveiled the potential in INKmune, and more than confirmed the effectiveness of XPro. The data XPro has meanwhile produced, both in July and September 2021, is truly astounding.

I personally believe that INMB has its minimum buyout price in its head for a while now, and that minimum may be moving up as its progress is yielding all the more positive results. Well-managed biotechs such as this one get their act together soon enough, and this management has the required seniority and experience behind it, including in M&A. If I were them, I would have around $ 10 billion in my head, which is still cheap considering my below exercise in valuation.

The next question then is: how much would a realistic price be in view of INMB’s current pipeline?

INMB’s PIPELINE AND TIMELINE

INMB’s active pipeline is as follows.

The duration of the Phase 2 trials for XPro, which should all be initiated in the first half of 2022, is either short or extremely short:

I expect a phase 2 trial for ALS to be added on the XPro platform at a given point, as funding has been received for this trial a while back.

The Phase I trial for INKmune in high-risk MDS is ongoing, enrolling a total of 9 patients, each with treatment follow-up over 3 months. I expect the pandemic-related delay in the UK to end soon.

The Phase I trial for INKRoc (INKmune for ovarian cancer) is due to start 1H 2022, enrolling a total of 6 patients with treatment over a 246 day period from the start of dosing. This trial should not suffer from Covid delays – ovarian cancer is not high-risk MDS.

The out of sight programs are quite impressive in both platforms:

XPro: Parkinson’s, Multiple Sclerosis, frontotemporal dementia (FTD), Lewy-body dementia (LBD), traumatic brain injury (TBI), post-traumatic stress disorder (PTSD), autism, bi-polar disease, and much, much, more.... (slide 6)

INKmune: acute Myeloid Leukemia (AML), multiple myeloma (MM), lymphoma, renal cell carcinoma (RCC), lung cancer, prostate cancer and breast cancer

AN EXERCISE IN VALUATION

Caveat: I see valuation of biotech companies is first and foremost an exercise to sketch the potential. I put out the below numbers as a retail investor, having done my due diligence, yet do not pretend to be a professional analyst, and therefore the exercise may be flawed. If so, I am happy to receive comments, and will make adjustments if need be.

Valuing XPro in MCI and AD: 30,56 B.

I make the valuation exercise both for AD and MCI at the same time. Mild cognitive impairment is seen by many as an early-stage form of AD, so I see no need to differentiate markets.

However, the MCI readout, expected in the first half of 2023, could nonetheless be a game-changer. It will essentially impact XPro’s potential in AD on the one hand. On the other, neurodegeneration in AD is said to start occurring up to 15 years before symptoms of the disease appear, so if one can start detection ánd treatment of Alzheimer’s at an earlier stage of the disease, treatment duration may be longer, in which case drugs could be sold over a longer period of time. One could even think further and treat proactively, even though that feels like a faraway future at this point. Roche is already thinking in that direction.

I have valued INmune Bio on a DCF analysis basis, for XPro1595 for the Alzheimer's market only (including the MCI market). The potential market size is 6 million patients for the US and 7 million for Europe, totaling 13 million patients. These markets keep growing steadily at a steady pace each year (on average 2% per year as estimated). Let’s not ignore in this respect that the European market remains untapped; Biogen’s aduhelm has been refused in Europe due to its conflicting results and lack of effectiveness.

Although I consider approval much more likely, I take into account 50% chance of success in a rather short time frame at this stage, essentially for the following four reasons.

- To me, what speaks most in favor of approval of XPro is perhaps that it is essentially a novel generation TNF antagonist. Several of such TNF agonists have already been approved in several major diseases, and have been on the market for several years. That adds to value of precedent. Moreover, XPro removes many of the side effects of the old generation of TNF inhibitors. Hence, the FDA would not need to overcome a large hurdle to approve the concerned drug, contrary to pretty much the entire competition in the neurodegenerative space.

- Blogs one and two have shown that INMB has already proved it is working and is safe.

- The recent FDA decisions on Biogen, Eli Lilly and Eisai show that the FDA’s approval criteria have changed from a cognition-based only criterium to a broader approach including acceptance of biomarkers as is the case in many other diseases, which majorly bodes in favor of INMB. Biogen’s aduhelm has been approved provisionally for removing amyloid plaques without improving cognition. Amyloid plaques are a hallmark of the disease, and their removal is proven through the use of biomarkers. The FDA has gone so far as to approve a drug that may lead to brain-edema, which was known in advance, or death which has been alleged afterwards.

- I consider that XPro is de-risked, and is actually closer to approval than others. INMB’s CEO has stated on 3 November 2024 that INMB is considering accelerated approval. Likelihood of such accelerated approval has risen considerably due to the recent approval under an accelerated program for Biogen, Eli Lilly requesting the same, and Eisai/Biogen also having received fast track designation for their amyloid antibody lecanemab, which had received breakthrough therapy designation last year in June. This all to say, the FDA is taking the entire Alzheimer’s problematic very serious at this moment, and is willing to move things ahead faster than before. Noteworthy here is also that I take into account, in line with management’s confirmation, that accelerated drug approval may lead to the drug being on the market towards the end of 2023 or some time in 2024. I’m progressive in this respect, taking recent actions of the FDA into account.

I assume market penetration of 25%. This is not moderate, but I believe it is reasonable based on the results XPro has shown at this point. It can go fast for a company with good results.

I take into account a free cash flow to revenue rate of about 30%, and apply the biotech-typical discount for weighted average cost of capital of 8,17. I estimate the cost of capital to be 24%. In light of the 5% licensee fee agreed with Xencor, which is a deductible cost to INmune, I apply a 3,5% discount after tax.

I take a moderate estimate for the sales price of about 15,000 per year. This is still largely under Biogen’s Aduhelm™ initial price of $ 56,000, and even its adapted one of $ 28,000, taking into account Biogen did not improve cognition, nor even slow it down. At this point, this pricing is low in comparison with other drugs, and so one could end up with a much higher price. In its September 1, 2020 analyst report, BTIG wrote:

“In neurodegeneration, the clearest similar therapeutics are the drugs for MS that are all priced at about $70,000 annually. In other indications like cancer drugs are even more expensive. The existing TNF modulators are slightly less expensive at about $60,000 annually.

As one sees, the numbers can quickly get out of control.

This would give the following values:

Taking into account the 50% chance of approval, I end up with a 30,56 B. valuation for XPro in MCI and AD. As mentioned, the above numbers can get quickly out of control, once treatment would start in case of much earlier diagnosing, which is essentially the goal of the MCI study, and pricing goes up. In case of approval, the number moves up to 61,13 B.

Valuing XPro in TRD: 2,1 B.

The above valuation modelling could remain similar for TRD, but I will assume the market of patients changes as well as the pricing of the drug, which I’ll estimate here at $ 4,000 / year. I assume about 7 million patients may be affected, this number being stable, and take a 10% market penetration which I believe to be moderate, but also taking into account this treatment is not oral (cfr. the drug candidate of Compass Pathways, psylocibin as the working substance of ‘magic mushrooms’, is oral but in my eyes comes with quite some adverse effects which CMPS claims to be normal but the market reacted otherwise). If AD and MCI could be approved under an accelerated approval process, then I would assume the FDA allows the same for TRD.

This would give the following values:

I hence come to a valuation of $ 2,1 B for TRD. This may be largely underestimated if one modifies pricing or market volume. It would in any case double in case of approval.

Out of sight diseases for XPro

The present valuation should be updated once additional diseases are added to INMB’s trial pipeline. Taking into account the spectrum of treatable diseases where neuroinflammation is a hallmark, the addition of these diseases is only a matter of time and the chances of success are reasonable.

A couple of these diseases are major neurodegenerative diseases with billions of dollars in market size.

One could easily see here that, with any of these diseases and the drug pricing expected to be similar, and the market cap could well grow with an additional couple of tens of billions for each drug candidate.

Valuation of INKmune: general

For INKmune, I set a treatment price range of $ 100,000 per patient, which is largely inferior to existing CAR-T therapies which come at a price of about $ 300,000 or more. As set out in my fourth blog, I provisionally estimate INKmune’s manufacturing cost to be one third to one tenth of the price of the other immuno-oncology based therapies and therapy candidates. With such a price, the treatment would be available to many, and could lead to impressive profits, if it is really that cheap to manufacture. More could be revealed in that respect in the upcoming allogeneic cell therapy summit Europe, where I expect Prof. Lowdell to address this on 19 January 2021. In INMB’s words:

INKmune is a unique cellular medicine in having been designed from the very concept as an off-the-shelf and affordable therapy which can be scaled to many thousands of doses. Companies often overlook the real-world challenges of getting cell therapies into hospitals, and we developed our INKmune platform to solve many of the commercialization challenges of cell therapies.

In light of the already approved CAR-T therapies, I don’t expect the approval process to encounter major hurdles. As to timing, I note that many other biotech companies in the NK with much higher valuations actually have most of their drug candidates still in preclinical development, some in Phase I trials, and less in Phase 2 trials. The most blatant one to me is Century Therapeutics, with current market cap at 722 million, and its four drug candidates still in a preclinical or discovery stage. Looking at Fate’s valuation in the billions of dollars, it is rather INmune Bio that is ridiculously underpriced here, with a drug progress that is not behind the others, even ahead of them (all of Century Therapeutics’ pipeline is still in the development or preclinical stage).

The likelihood of approval is high, as the drug is safe, has no side effects, and in light of the approval of the existing CAR-T therapies.

Valuing INKmune in high-risk MDS: 1,8 B.

MDS is one of the most common malignant hematological diseases that affects five out of every 100,000 people in the U.S. annually. An estimated 60,000 people in the U.S. live with MDS, and approximately 10,000-15,000 new cases are reported each year. I assume the same amount for the rest of the world, which I believe to be moderate. My estimate is a total of 120,000 treatable patients. I take into account a moderate market penetration of 20%, which I consider realistic and could end up higher as I believe this potential treatment in immuno-oncology is the first to actually be affordable to patients worldwide, and possibly the best. It could even become the standard of care in immuno-oncology, for the reasons set out in the fourth blog, and could hence at least in part also be covered by medicare.

This would give the following values:

I hence come to a valuation of $ 1,81 B. for INKmune in high-risk MDS. This may be underestimated if one modifies pricing or market volume, and especially the latter is realistic as it could be the only affordable immuno-oncology treatment for many. It would in any case double to 3,62 B. in case of approval.

Valuing INKmune in ovarian cancer: 0,61 B.

For ovarian cancer, only the treatable market changes compared to the exercise for high-risk MDS. Ovarian cancer is the fifth most common cause of cancer related death among women in the U.S. The American Cancer Society estimates that about 21,410 women will receive a new diagnosis of ovarian cancer while about 13,770 women will die from ovarian cancer in 2021. On that basis, for the entire world, I estimate a market size of about 40,000 treatable patients. I again take into account a moderate market penetration of 10%, which could be much higher as I believe this potential treatment in immuno-oncology to be the first to actually be affordable to patients worldwide, and possibly the best.

This would give the following values:

I hence come to a valuation of $ 0,61 B. for INKmune in ovarian cancer. This may be largely underestimated if one modifies pricing or market volume, and especially the latter is realistic as it could be the only affordable immuno-oncology treatment for many. It would in any case double in case of approval.

Out of sight cancers

At this point, I do not provide valuation for Myeloid Leukemia (AML), multiple myeloma (MM), lymphoma, renal cell carcinoma (RCC), lung cancer, prostate cancer and breast cancer. Obviously, there is considerable potential here. The bigger markets here are those for MM, lung cancer, prostate cancer and breast cancer.

CONCLUSION

Whereas a buyout could occur at any stage, I consider a partnership of INmune Bio with a big pharma player in the near term for either of INMB’s platforms likely.

My valuation exercise ends up with $ 32,66 B. for the XPro platform’s current pipeline and $ 2,41 B. for the INKmune platform’s cancers in sight, totaling $ 35,07 B. This would double in case of approval. Add to that all the potential in the other mentioned neurodegenerative diseases and the potential in other cancers, some of which with much bigger market sizes. There are more cancers with bigger market sizes out of sight at this point than there are in sight.

As to pricing of INMB in case of a buy-out, I have a $ 10 B. price tag in my head, and I believe the above has shown proper justification for that. In light of the current market cap, this may seem ridiculous, but as I see it, the market has chosen to ignore most of INmune’s results in my eyes, perhaps due to all of the focus and discussions around Cassava Sciences lately, which creates an all the bigger opportunity, as if there would only be one company that could end up successful in this area.

The title to this series then does not come across as so exceptional. Admittedly, doing the math does look a bit insane: a $ 2,000 investment right now may one day turn into $ 125,000 in such a case, that’s a 62,5x potential that I have not come across yet as an investor. Only four months ago, at the high of $ 30, that was 18x. But that’s the stock market, too.

The title to this series is therefore far from far-fetched, in my eyes. I see a ten billion dollar valuation as a fairly moderate approach of the potential of INMB in the not so far-away future. Actual commercialization may lead to a much higher market cap, but clearly INMB is not equipped for that at this stage, and I do not believe it wants to be either, all the while suggesting it may go for approval within two years, which adds to the short term opportunity. There are still plenty of billions to make for big pharma in case of a buy-out for the above price tag.

This is neither investment advice, nor a professional valuation.