Cancer research is always one of the most critical and advanced areas in the medical field because of the importance of finding new ways to prevent, detect, and treat cancers. Navidea Biopharmaceuticals (NAVB) strives to achieve breakthroughs in cancer detection and determination and currently has three major products under development: Lymphoseek, NAV4694, and RIGScan. Lymphoseek, its first flagship product, is in the last stage of FDA approval and could receive clearance to notify the market any time before April 30, 2013, which is the set PDUFA date.
The NAVB page on InvestorVillage contains very rich information. According to the list of analysts on page 8, the analysts covering the stock have opinions ranging from market outperform to strong buy and target prices ranging from $5.75 to $9.00. Among these evaluations, LifeSci Advisors' report is the latest and one of the most comprehensive, in our opinion (although LifeSci did not give an investment opinion or a target price). Their report estimated that Lymphoseek's potential global market for the treatments of all cancers that the drug can be applied for (including ones that are currently being applied for and ones that may be applied for in the future) is $647 million - $200 million in the U.S. market, $189 million in the EU, and $255 million in the rest of the world. According to this report, these revenue estimates were derived by multiplying the incidents of applicable cancer treatments in 2010 by the estimated unit prices in each market. Comparing LifeSci's estimates to those by other analysts, LifeSci's estimate for the U.S. market seems to be reasonable. In our opinion, using $200 million for the U.S. market as the baseline, there is a good chance that the future market for the rest of world may be higher than $255 million due to the distribution of the world's population and these countries' GDP. Table 1 lists several major countries and their respective populations and GDP.
Table 1: Selected Countries' Populations and GDPs
Population as % of World
GDP as % of World
As the trend shows, the populations in China and India will probably increase at a faster rate than those in the U.S. and the EU. In other words, the EU and the U.S. will soon likely account for only about 40% of the world's population. In addition, the GDP of the U.S. will account for a smaller percentage of the world's GDP every year. According to the latest OECD estimate, China's GDP may surpass that of the U.S. as soon as 2016. The Reserve Bank of India estimates that the country's GDP will grow 5.5% in 2013, which is lower than previous estimates but is still significantly higher than that of the U.S. and the EU. In the rest of the world, GDPs and spending power will increase rapidly over the next 10 years. Because the large populations in developing countries are still poor and under-treated for cancer, they will add to the treatment count in the future as they become more affluent. According to an article published by U.S. News Health, multiple factors are increasing the number of cancer incidents worldwide at a fast clip. Cancer incident rates are expected to increase by 78% in major developing countries like China and India.
In conclusion, over the next decade, the total potential worldwide market for Lymphoseek will grow continuously and rapidly outside the U.S. and the EU. At present, Cardinal Health, Inc. (CAH) is the only distributor for Navidea, primarily in the U.S. As Navidea's first major product is expected to receive approval for marketing soon, it is becoming more important for the company to form partnerships with capable distributors in Europe and other major markets. For example, McKesson Corporation (MCK) is a good potential partner for European distribution. For China, Cardinal Health, Inc. should be fine for now because it has distribution networks in China and other Asian countries after buying Zuellig Pharma China in 2010. In order for Navidea to expand sales over the next two years, it must quickly apply for the labeling inclusion of head and neck, colorectal, and other cancers for Lymphoseek. If Navidea executes its growth plan well and global cancer incident rate rises fast as U.S. News Health predicted, the company may grow the market for its Lymphoseek to $1.0 billion within several years.
Disclosure: I am long NAVB.
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