The unicorn in INMB: a good Alzheimer’s drug is worth far beyond $100 billion

Introduction

The $10 billion unicorn in INMB. I came up with that right after the Phase 1 results. If the title of these blogs felt like it was not a gimmick, it was not, it represented my thoughts on XPro’s valuation after the Phase 1 study. Now we’re at the end of Phase 2, and that phase is placebo-controlled. If that small Phase 2 trial hits statistical significance, it means its results are repeatable. If that small Phase 2 trial sees an efficacy signal, but misses on stats, it would mean INmune would have to design a bigger, perhaps longer, Phase 3 trial.

How high can the stock price go on a positive readout? What’s a drug that treats Alzheimer’s worth? It’s actually far more than $10 billion. INmune say that if big pharma wants to partner in case of success, they have a lofty figure in their head. Confidence of management is high. Insider participation in recent financings, including employees and some for high amounts, shows that. Let’s dive into that.

With a patient population of 55 million patients worldwide, the Alzheimer’s market may be the largest total addressable market in drug industry history, if we get an effective drug. Safety is something we should not really worry about at this stage, I think.

The present exercise is an effort to figure out what the drug is worth if it works and is approved, so it’s not your typical valuation model. One could say DCF valuations are perfect, but they are also inherently flawed, which can be seen by the constant valuation updates Wall Street analysts make.

Alzheimer’s disease in numbers

There are 7.2 million Americans living with Alzheimer’s in the US.

Add in Europe, you get 13.5 million.

In Japan and Australia combined, about 5 million people suffer from dementia. Alzheimer's is the most common form of dementia, accounting for 60-70% of cases, so I would add about 3.25 million patients for these territories.

Simplified, in Western countries with decent healthcare systems, about 16.75 million people are living with Alzheimer’s dementia. In the entire world, because around 55 million people in the world have dementia, that would be about 35.75 million.

INmune considers it can address 70% of patients. Assuming an addressable Alzheimer’s market in Western countries of 16.75 million people, that would be 11.725 million patients, of which 42% would be American.

Though exact numbers are missing, about 55% of all patients with Alzheimer’s are using non-disease-modifying drugs such as donepezil.

As a reminder, this is donepezil’s ADAS-Cog chart at 174 weeks. Look at the drop after six months, and the pattern identical to placebo at that point.

I expect XPro to outperform donepezil, which it should easily do as it’s safe, should lead to immediate benefits higher than acetylcholinesterase inhibitors, and should have continuous effects.

I am assuming that at this time, at peak penetration, 6.45 million patients could use XPro, replacing non-disease-modifying drugs (55% of 11.725 million), of which 42% would be American citizens. Those numbers grow at a rate of 4% per year.

Uptake

I expect a modest 25% of the entire addressable market at peak penetration, which would be 2.933125 patients. I am also modelling for 55% and 15% peak penetration. Chances are these numbers may end up being far lower than actual uptake; as mentioned above, in case of good results XPro could see sales as much as patients currently on acetylcholinesterase inhibitors.

I am expecting uptake to happen rather quickly. If XPro significantly outperforms anti-amyloid antibodies, this would be world news.

I expect news headlines such as: “XPro finally provides significant benefit for patients suffering from Alzheimer’s disease.” or “There is finally a drug that can cure Alzheimer’s.”

Fast uptake depends on high unmet medical needs, strong efficacy, effective marketing, or unique circumstances. A study of 61 innovative drugs launched in the U.S. between 2000–2002 found a median time-to-peak sales of 6 years, with first-in-class drugs averaging 5.65 years and subsequent entrants 6.93 years. However, exceptional cases like those above can achieve peak penetration in 2–4 years. Drugs with fast growth may achieve 50% of peak market share in the first year and reach peak within 3 years, particularly in less competitive markets or with high unmet needs.

Alzheimer’s is, by far, the number one unmet medical need in the world right now. If one could disregard the Covid drugs given the special circumstances surrounding their approval, examples could be:

- Sovaldi, a direct-acting antiviral for hepatitis C, which revolutionized treatment with its high cure rates (>90%), launched in December 2013, generating $10.3 billion in sales in its first year, and reaching peak penetration within 2–4 years.

- Viagra, launched in 1998, seeing peak penetration within 3–5 years. 

I am assuming peak uptake within five years.

Existing pricing for anti-amyloid antibodies

Leqembi’s annual sales price in the U.S. is $26,500, for the drug only. Leqembi treatment could cost U.S. taxpayers $82,500 per patient per year, on average, for genetic tests and frequent brain scans, safety monitoring, and other care.

Leqembi’s price in Japan is close to $20,000, and in Europe, pricing is expected to be similar to that of the U.S. Individual EU countries will negotiate coverage/pricing and may impose reimbursement restrictions; total annual cost including administration may reach €40,000. That indicates that an often-made assumption that drug pricing in the U.S. could be much higher than outside of Europe could be wrong.

Pricing expectations

If XPro significantly outperforms the efficacy of anti-amyloid antibodies, I’m expecting drug pricing at $35,000 for 42% of the eligible patient population (reflecting US sales) and $24,000 for the remaining 58% (representing EU, Japan, and Australia). I think that’s realistic based on the above.

This may be an underestimation. In 2022, pricing for Humira on an annual basis was still estimated at $90,000.

Market growth expectations

That TAM grows at a rate of about 4% per year.

Royalty discount

I discount 5% royalties due to Xencor. This would be normal; the asset was licensed in the preclinical stage.

Gross margin

I’m assuming a gross margin of 80%, in line with that of TNF inhibitors.

Timeline for approval

When approval can happen is more difficult. If a Phase 3 would be necessary, approval could occur by 2030.

If an accelerated approval pathway would be possible either in the US, EU or elsewhere, which cannot be excluded if biomarkers come in as good as in the Phase 1 or in any case much better than any other therapies currently available (see blogs here and here), I assume approval could occur by 2027.

EBIT calculation

I’ve included some EBIT calculations for different scenarios: 55% f the addressable ‘Western’ market which would effectively replace Donepezil, 25% and 15%.

Scenario at 55% peak market penetration:

Scenario at 25% peak market penetration:

Scenario at 15% peak market penetration:

Application of EBIT multiple

As for valuation, the exit multiple approach estimates the terminal value by applying an appropriate multiple (e.g., EV/EBITDA, EV/EBIT) to a relevant financial metric projected for the last year of the explicit forecast period.

For biotech companies, enterprise value to EBIT (or EBITDA) multiples are commonly used for valuation. Though EBITDA multiples for biological producers could be much higher (this report mentions a 15.1x EBITDA multiple for biological producers with revenue $50-$200 million), a conservative EBIT multiple range of 5x to 10x will be applied, with a base case of 7.5x.

I’ve included scenario’s for 10% market peak penetration up to 55% market peak penetration (replacing acetylcholinesterase inhibitors entirely).

If we are truly ending up with a 10x or 15x multiple, these numbers could be much higher, but let’s for now assume values in between $215 billion and $1.051 trillion.

A good Alzheimer’s drug is easily worth more than $100 billion

It follows from the above that, at peak penetration which could be achieved some years after commercialization, at an EBIT multiple which is below that which is usual, valuation could be in between $215 billion and $1,051 billion. In a scenario where EBIT may be 10-15x, we are looking at much higher numbers.

This also aligns with what I had quoted from Martin Shkreli’s note on Cassava: “A great AD drug could easily command a $100,000 price”, which would mean “that a truly transformative AD drug could be the first medicine ever to break the $100 billion in annual revenue barrier.”

There are several scenario’s that I did not account for. One could expect uptake to be instant if the drug shows stabilization of cognition or some value close to that. One could even imagine that, with reimbursement, 90% of the patients now on acetylcholinesterase inhibitors will be prescribed XPro within a few years. Or beyond that, that XPro will be administered to, say, 75% of the entire addressable market.

Also, in a scenario in which commercialization would occur in 2027, revaluation would be more aggressive.

Competitive threats could occur, but I don’t think XPro is immediately threatened by a drug in the pipeline that is similar. There are a number of companies which have similar mechanisms of action, but I don’t believe they are as powerful as XPro.

Furthermore, it is INmune Bio’s intention to address a number of additional neurological markets, including Parkinson’s, ALS, treatment-resistant depression, … The above does not take those into account.

The above neither takes into account possible off label prescriptions as a replacement for traditional TNF inhibitors, nor does it take into account valuation of CORDstrom, but for reference, Krystal Biotech’s valuation is currently $4 billion.

Fully diluted shares

INmune Bio currently has 23.21 million shares outstanding. The float is 15.21 million shares. Insiders, including Xencor, hold 28.19%. Institutions own 25.67%.

Exercise of warrants could add 3.89 million shares, 2,341,260 exercisable at $6.40 per share, 571,592 at $9.152 and 986,000 shares at $9.84 as of 30 trading days following the reporting of top-line data in the Phase 2 Alzheimer's program of XPro1595.

The total number of shares that could potentially be issued if all outstanding options are exercised is 7.3 million shares. This represents the maximum potential dilution from options alone, assuming all options are exercised.

So, fully diluted, we have about 34.4 million shares.

I also expect the company to issue additional shares at higher prices, currently estimated at $6 million shares.

In a fully diluted scenario at 34.4 million shares, a valuation of $215 billion would lead to a share price of 6,250 per share (six thousand, two hundred fifty). In such a scenario, a valuation of $1.051 trillion would lead to a share price of $30,552.

In a fully diluted scenario with 40.4 million shares issued, a valuation of $215 billion would lead to a share price of $5,321.78 per share. When valuation is $1.051 trillion, that would be $26,014.85 per share.

I want to make this point here, because I think that at a current share price of $7.62, the stock has tremendous upside in case of success. In a fully diluted scenario with 40.4 million shares issued, the upside would be 698x for a $215 billion valuation, and 3.422x for a $1.051 trillion valuation. These numbers feel out of this world, but the biggest TAM in drug history is essentially untapped by a proper safe and disease-modifying therapy, and that may soon change. There may be more or less dilution, we don’t know that. But any dilution would hurt insider ownership, and in the past that has proven an effective way to run the company as efficiently as possible.

The 2021 warrant repurchase: a vote of confidence

I want to point out a strategic decision that INmune made and that’s often neglected here. Insiders dilute the least possible. The 2021 Xencor warrant repurchase is a good example of that. In June 2021, INmune announced to have taken out a loan from Silicon Valley Bank ‘to reduce further dilution’. The loan was used to repurchase warrants owned by Xencor. In fact, the Xencor stock warrants came with an anti-dilution clause, meaning Xencor could exercise warrants for 10% of the shares which would be outstanding at the time of exercise. If INmune were to issue new shares in a financing, which it has done over time and may still after Phase 2 results, Xencor warrants would proportionally increase in share count.  INmune paid $18 million to Xencor to repurchase those warrants, which was a discount to the intrinsic value of the warrants, which had a value of about $26 million at the time ($36 million, less the $10 million exercise price). The loan from Silicon Valley Bank has been repaid in December 2024.

Conclusion

The $10 billion unicorn in INmune Bio sounded catchy at the end of the Phase 1, and for historical reasons, it still does I think. But if XPro does what we think it can do, its value for Alzheimer’s alone could be well north of $100 billion, with reasonable pricing, reasonable uptake and a low valuation multiple.

That means that the potential upside for the stock is not 5x or 20x, but much much higher, even in a fully diluted scenario. I have sketched some scenarios above. I believe this is perhaps why INMB investors seem to welcome the shorts. A 40% short interest could make for a nice squeeze.

Valuation is a debatable thing. Others may have other opinions, and an exercise like this one can go different ways. But the mispricing appears tremendous.