EV/revenue multiples for companies targeting the JAK-STAT signaling pathway + Relative valuations for CTIC, GLPG, SRRA

Below are EV/revenue multiples for publically traded companies with exposure to the JAK inhibitor drug sub-class. 

The multiple calculations were split into three: approved compounds, compounds in clinical trials, and pure-play JAK inhibitor companies (JAK inhibitors make up a significant portion of current or projected revenues, x > 70%). 

Approved Compounds 

In current markets, JAK inhibitors are approved for myeloproliferative disorders (myelofibrosis (MF) and polycythemia vera (PV)), psoriatic arthritis (PA), and rheumatoid arthritis (RA). Larger players have concentrated the domestic revenue streams in psoriatic arthritis and rheumatoid arthritis for JAK inhibitors, with Pfizer and Eli-Lily dominating 98% of the market share for the fiscal year 2019. The only other active player treating RA and PA with jakinibs is Abbvie, who just recently entered the market with their recent approval of upadacitinib (Rinvoq) on 8/16/2019. 

Treatments for myelofibrosis and polycythemia vera through the use of JAK inhibitors are even more concentrated. Incyte is currently the "top dog" in this indication with 99% of the market share, followed by Bristol Myers who, with the recent acquisition of Celgene, has become a player with Inrebic.  

Other approved JAK inhibitor compounds include oclacitinib (Apoquel) and peficitinib hydrobromide (Smyraf), owned by Zoetis and Smyraf respectively. Apoquel is used in the treatment of allergic dermatitis in dogs, which is not particularly interesting considering the vast difference in sizes between the animal healthcare market versus the human counterpart. Investors should however keep an eye on Smyraf, which has been recently approved in Japan and Korea. 

In Clinical Trials  

While not shown in the chart, many players with currently approved compounds also have compounds in clinical trials. Lily is currently making a play at myeloproliferative disorders with Gandotinib, which is currently in phase 2 clinical trials and is estimated to show results by Q4 of 2021. Pfizer also has another JAK on the way, this time targeting atopic dermatitis, with Abrocitinib. Abrocitinib is closer to the finish line, with the compound passing phase 3 clinical trials back in November. The final largest player is BMY with a compound named BMS-986165 (Deucravacitnib), which recently demonstrated superiority to placebo and Otezla in a phase 3 psoriasis study. 

Smaller players are also running the race in clinical trials. Investors are seeing the most promise from Galapagos NV based on their trading multiple of 1.3 vs a median of 0.8. Galapagos' (+Gilead)  Filgotinib was approved for use in the EU and Asia for treatment of rheumatoid arthritis, however, was denied FDA approval over toxicity concerns. Gilead, in partnership with Galapagos, announced positive topline results in a phase 3 trial with filgotinib in ulcerative colitis and is currently conducting a phase 3 study in Crohn's disease. Other smaller players include Sierra Oncology with momelotinib and CTI biopharma with pacritinib. Both momelotinib and pacritinib are in phase 3 clinical trials for myelofibrosis.  

Finally, Alexion is a larger company with no previously approved compounds, their acquisition of Portola pharmaceuticals back in July of 2020 made them a player in the jakinibs space. Portola's Cerdulatinib is in phase 2 trials for peripheral T-cell lymphoma and cutaneous T-cell lymphoma. 

Below are analyst estimates for approved domestic compounds. 

Finally, below are the implied share prices for the pure-play JAK inhibitor companies. One included Incyte into the median calculation and one without. The intuition behind this was due to Incyte having approved compounds, it is not very comparable to the three smaller companies with unapproved compounds.  

 

As shown above, a DCF valuation would be better suited to value smaller R&D focused pharmaceutical companies as all three companies chosen are trading at a discount based on a relative valuation model, with the case for Sierra Oncology trading at a serious discount to the implied price. What if there is a chance that all three of these companies are being undervalued? In my opinion, this is not likely, and intuitively it makes more sense to value a stock based on projected cash flows and expertise than a median of companies with vastly different growth potentials.

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If you want to learn more about what JAK inhibitors actually are, here is a build-up of knowledge that is efficient in learning about this technology. Think of it as a trail of breadcrumbs to understanding the product in this industry. 

JAK inhibitors, knowledge build-up

Kinases are enzymes that catalyze the transfer of a phosphate group from ATP to a specified molecule. Out of the 20 amino acids in your body, only 3  can be phosphorylated: tyrosine, serine, threonine. Based off of this, three groups of kinases emerge:

1. Serine threonine kinases: Serine and threonine are indistinguishable for kinases, so the ones that can phosphorylate serine can also phosphorylate threonine  
2. Tyrosine kinases   
3. dual-specificity kinases: can phosphorylate both serine-threonine and tyrosine

When a protein is phosphorylated, the phosphate on serine-threonine or tyrosine acts as a flag to other proteins. The protein then binds to the phosphorylated protein and binds on top of the phosphate  

• This binding can result in a variety of outcomes for the cell. Examples include: cell division, cell migration, and even cell death
• Faulty hyperactivated kinases can transmit too many phosphorylation signals and this can lead to diseases such as cancer.

What are cytokines?

Cytokines are cell signaling small proteins that aid cell to cell communication in immune responses and stimulate the movement of cells towards sites of inflammation, infection, and trauma.

What is the Janus kinase or JAK protein family?

Janus kinase is a family of intracellular, non-receptor tyrosine kinases that transduce cytokine-mediated signals via the JAK-STAT pathway

The protein family consists of:

1. JAK1
2. JAK2
3. JAK3
4. TYK2 (Tyrosine Kinase 2)

•  These kinases play an important role in signal transduction pathways for multiple pro-inflammatory cytokines including (IL-2,4,7,9,13,15,17,21,23) 
• JAK1 and JAK3 modulate an adaptive immune response via IL-2,4,7,9,15,21 signaling

So, what is the JAK-STAT pathway?

• First, the cytokine binds to a receptor
• JAK is then recruited intracellularly and actives a number of phosphorylation events
• Activated JAK then phosphorylates the intracellular domain of the receptor first
• Then STAT proteins dock to the receptor and become phosphorylated by JAK
• The phosphorylated STAT proteins then disassociate from the receptor to form a STAT dimer
• The STAT dimer then moves into the cell nucleus
• The STAT dimer then activates gene transcription

**Note: the unique combination of cytokines, receptor, JAK protein, and STAT determines a specific cellular response.  

• For example, JAK1 is believed to signal the production of cytokines while JAK2 is implicated in cell proliferation (mitosis).

So, the final question, what do JAK inhibitors do?

Janus kinase inhibitors (JAK inhibitors or jakinibs) inhibit the activity of one or more of the Janus kinase family of enzymes (JAK1, JAK2, JAK3, TYK2), thereby interfering with the JAK-STAT signaling pathway.