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Reviewing the Three Best Cruise Line Stocks to Buy Now

Three best cruise line stocks to buy now include an exotic adventure-tourism agency, a media and entertainment giant and the third-largest cruise line…

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2 years ago

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Three best cruise line stocks to buy now include an exotic adventure-tourism agency, a media and entertainment giant and the third-largest cruise line in the world.

Cruise lines have been some of the hardest-hit stocks over the past two years due to the COVID-19 pandemic. While the original strain of COVID-19 shut down the industry, successive waves of Delta and Omicron variants have forced companies to implement multiple stop-start operations on the road to recovery.

As a result, most cruise lines remain at a fraction of their pre-COVID-19 original share price, while many other industries have experienced a quick rebound. However, the discounted share prices in the cruise line industry are a blessing rather than a bane for investors, since the industry is on the brink of its own rally.

At the end of 2021, Cruise Lines International Association (CLIA), an industry trade association, reported over 75% of its members’ ocean-going capacity had returned to service. The CLIA expects nearly 100% ocean-going capacity by the end of July 2022.

Global passenger numbers are projected to return to 95% of its 2019 levels, up from 17 million in 2021 to reach an estimated 95 million in 2022. The rally is due to the industry’s resilient and robust consumer base that gives cruise lines the potential for long-term success. In addition, 80% of cruise line travelers report a willingness to travel again, matching pre-pandemic levels.

Similar shocks have slowed the industry in the past. Resurgence of COVID-19 cases have repeatedly hampered reopening efforts by cruise lines. However, this recovery possesses different energy. The Omicron variant of COVID-19 is “outcompeting” the more dangerous but less contagious Delta variant, giving hundreds of millions of people worldwide an additional layer of natural immunity against the virus.

It is no longer just cruise lines attempting to lift restrictions. National governments across the globe, ranging from Israel to the United Kingdom, have begun pursuing return to normalcy policies. At home, even states with the most stringent COVID-19 policies have begun lifting mask mandates.

Cruise lines have laid largely dormant over the last two years, but the light at the end of the tunnel is getting much stronger for investors. Multiple industry stocks have received triple-digit revenue growth and double-digit return projections for 2022. By picking the right cruise line stocks, savvy investors have the opportunity to generate returns similar to growth stocks, while retaining the safety of investing in a traditional mature industry with large barriers to entry.

3 Best Cruise Line Stocks to Buy Now: #3

Norwegian Cruise Line Holdings Ltd (NYSE:NCLH)

Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) is an American cruise line founded in 1966 and headquartered in Miami, Florida. The company operates 28 ships across three brands: Norwegian, Oceania and Regent Seven Seas. Norwegian is the third-largest cruise line worldwide by passenger count and has a market capitalization (market cap) of $8.5 billion.

Norwegian has seen its revenue plummet by 86.7% over the past 12 months and by 69.% over the last three years. NCLH also has seen its stock drop by 15.1% over 12 months due to the emergence of the Delta and Omicron variants. NLCH’s change in share price is graphed below along with a 50-day moving average.

Chart provided by Stock Rover.

However, evaluating a cruise line by its performance over the last few years is untenable. The global cruise line industry has seen limited action due to the spread of COVID-19 and its variants, a factor in which the companies have little control. With the industry seemingly on the brink of returning to normalcy, 16 new cruise ships by CLIA members are due to set sail in 2022 to meet increasing demand. Financial figures from recent years are unreliable for future projections; Norwegian presents cruise line investors with the best opportunity to capitalize on the coming rebound.

Norwegian has historically been one of the largest and most profitable cruise lines globally. From 2014 to 2019, the company experienced a compound annual growth rate (CAGR) of 15.6% in revenue and a CAGR of 22.4% in net income. Pre-COVID-19, Norwegian maintained a 9.0% market share in the industry.

The company pioneered the idea of freestyle cruising, which ditched the idea of dress codes and formal nights for a more relaxed atmosphere. The flexibility of freestyle cruising has allowed Norwegian to readily appeal to families and younger travelers since its founding, a reputation that remains with the company.

For investors, Norwegian’s main appeal is the company’s aggressive approach towards reopening. The company is set to be one of the first cruise lines back to near-normal operations. Chief Executive Officer Frank Del Rio announced in October 2021 that all 28 ships in Norwegian’s fleet would be back in operation by April 2022. The company is forecast to experience a 31,668.1%  surge in sales for Q2 2022 as it returns to relative normalcy

However, Norwegian also maintains one of the strictest COVID-19 safety protocols of any cruise line. Guests are required to present proof of vaccine and a negative COVID-19 test, as well as submit to an antigen test on arrival. Although possessing stringy COVID-19 policies is not full proof, it does give the company the best chance to resist the turbulent reopenings and re-closings that have hampered the travel industry during the pandemic.

Norwegian’s commitment to freestyle cruising and aggressive approach towards combating COVID-19 has allowed the company to garner sky-high projections for the coming months. The company is projected to see a 753.2% increase in revenue and return to profitability with an earnings per share (EPS) of $1.42 in 2022. The cruise line has placed orders for seven additional ships of its new Prima class cruise liners to meet increasing demand in the coming decade.

Although Norwegian was one of the cruise lines that garnered potential bankruptcy concerns in 2020 due to COVID-19 causing the travel industry to grind to a halt, it primarily has quashed most of those fears. Norwegian maintains a cash stockpile of $1.9 billion and a manageable current ratio, a measure of a company’s ability to cover near-future liabilities, of 1.1. With Norwegian ripe for rebound and possessing a healthy balance sheet, the light at the end of the tunnel has become bright for its investors.

A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $30.00, 49.8% higher than its latest closing price of $20.03, earning NLCH a “BUY” recommendation from Stock Rover and a place among our three best cruise line stocks to buy now.

3 Best Cruise Line Stocks to Buy Now: #2

Lindblad Expeditions (NASDAQ:LIND)

Lindblad Expeditions (NASDAQ:LIND) is a New York-based tourism and adventure-services company. Lindblad offers interactive trips, primarily centered around cruises, to exotic locations around the globe to connect consumers to nature, wildlife and history. The company possesses a market cap of $843 million and owns 10 expedition ships, with another five chartered seasonally.

Lindblad Expeditions was founded in 1979 as Special Expeditions. It initially offered expeditions primarily centered around Antarctica and the Galapagos Islands. The company experienced modest growth in its first few decades, adding trips to Canada, Alaska and Baja, California, in the 1980s and permanently stationing ships in the Galapagos in the late 1990s. However, the turn of the 21st century brought about a sharp increase in consumer interest towards the environment, and Lindblad quickly took off.

To capitalize on growing worldwide interest in green initiatives, Lindblad Expeditions signed a strategic alliance with National Geographic in 2004. The partnership remains strong to this day, with all 10 ships owned by Lindblad bearing the National Geographic name. In 2013, the company performed an initial public offering (IPO) and acquired Orion Expedition Cruises before joining the NASDAQ in 2015.

Lindblad Expedition has increased its fleet capacity by 70% since its 2015 IPO, including a 40% expansion in 2021. However, we have only just begun to enter Lindblad’s growth stage. The global adventure tourism market, valued at $112.2 billion in 2020, is forecast to balloon to $1.2 trillion by 2028, equaling a CAGR of 20.1%. Lindblad’s unique partnership with National Geographic’s 912 million consumers provides access to a significant portion of the adventure tourism market worldwide.

The company has a smaller customer base than major cruise lines like Royal Caribbean (NYSE:RCL) or Carnival (NYSE:CCL). However, adventure tourism to Antarctica or French Polynesia attracts a loyal consumer group that many tourism-related companies are eager to obtain.Plus, 40% of Lindblad’s guests are repeat customers, and travelers possess a median net worth of over $2 million.

Long-term customers are the most important source of revenue for nearly every company. Satisfied customers buy or use a company’s product at higher rates, are less sensitive to price fluctuations, provide referrals and are less expensive than finding new clients. Lindblad’s unique and dedicated consumer base enables it to be an attractive investment despite being more niche than other cruise lines.

Lindblad is projected to see its revenue skyrocket by 160.4% in 2022 as the global economy recovers from the COVID-19 pandemic. Expedition bookings are already up by 51% year-on-year compared to the same time of 2021. The company will only see increased interest in the coming decades as citizens around the globe become more dedicated to environmentalism. Generation Z has quickly proven to be the most environmentally conscious generation ever, even in emerging markets like China and India.

LIND has seen growth by 9.3% over the past 12 months, graphed below alongside a 50-day moving average.

Chart provided by Stock Rover.

Like other cruise lines and travel companies, COVID-19 hit Lindblad Expeditions hard. The company saw its 2019 revenue of $343 million plummet to $82 million in 2020 and $82 million in 2021. The company had yet to report 2021 revenue by press time.

Lindblad has managed to counter its drop in sales by raising its balance sheet cash from $102 million in 2019 to $156 million in 2020. Using debt to finance a company’s operations can be risky. Still, Lindblad has managed to keep its current ratio steady at 0.9. Lindblad’s projected rebound and growth in 2022 should ease any fears of potential insolvency.

A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $20.25, 22.6% higher than its latest closing price of $16.52, earning LIND a “BUY” recommendation from Stock Rover and a place among our three best cruise line stocks to buy now.

3 Best Cruise Line Stocks to Buy Now: #1

The Walt Disney Co (NYSE:DIS)

The Walt Disney Co. (NYSE:DIS), commonly known as Disney, is an international media and entertainment corporation headquartered in Burbank, California. Founded in 1923 by film producer and animator Walt Disney, the company rapidly emerged as a powerhouse in the entertainment industry. Led by aggressive acquisition strategies, Disney has since reached a market cap of $258.3 billion with over a dozen major subsidiaries in its portfolio, including Pixar, Hulu, Marvel Entertainment and 20th Century Fox, among others.

Although Disney’s cruises may fall under the shadow of its movies and theme parks, they have become an integral part of the entertainment giant’s brand and cash flow. Disney’s cruise ships provide an opportunity for consumers to interact and bond with the company’s iconic characters and images in a way not available in other venues.

As a sign of Disney’s commitment to the cruise industry, the Disney Wish, the new flagship of Disney Cruise Lines, is set to begin its maiden voyage on July 19, 2022. The ship, possessing a multitude of Disney-themed attractions, from Marvel-themed dining experiences to a Star Wars lounge, is a testament to the entertainment giant’s ability to bring its characters from the screen into life.

The mix of traditional entertainment of shows and exotic islands combined with iconic Disney characters from blockbuster shows and movies, provides a way for Disney Cruise Lines to differentiate itself from its competitors. It is no coincidence that Walt Disney ranks the highest in customer satisfaction among cruise lines.

Disney also provides a buffer against the uncertainty of COVID-19. The company has two business segments. Disney’s Parks, Experiences and Products business segment, which includes theme parks and cruises, only accounts for approximately 25% of the company’s revenue. Media and Entertainment Distribution, the business segment responsible for shows and movies, has had an 18.8% growth in revenue since the end of 2019, in large part due to its streaming platforms.

Disney Plus and Hulu have seen their combined subscriber count jump by 284.5% since Q1 of 2020. However, Disney’s streaming success is not confined to Media and Entertainment Distribution.

Walt Disney’s main asset is its brand. The appeal of its theme parks and cruises primarily arises from the connections individuals make with the Disney brand through its characters, shows and movies. The company currently possesses the seventh most valuable brand in the world, ahead of McDonald’s, Nike and even Louis Vuitton. The success of its streaming platforms has allowed Disney’s brand to grow by 18% in 2020 (most recent available data). For comparison, the brand values of Apple (Nasdaq: AAPL) and Walmart (NYSE: WMT) saw 17% and 12% increases in the same year, respectively.

The additional success of recent shows and movies since 2020 like The Mandalorian, Spider-Man: No Way Home and WandaVision has only bolstered Disney’s brand. Furthermore, the company’s original content is only expected to expand as the streaming wars between Walt Disney, HBO and Netflix Inc. (NASDAQ: NFLX) heat up. As a result, Disney Cruise Lines should expect a significant trickle-down effect from the success of its Media and Entertainment Distribution by way of new customers as soon as this summer with tourism expected to recover. DIS is expected to see its sales rise by 26.2% in 2022.

DIS has seen its share price drop by 20.9% over the trailing 12 months due to lower-than-expected Disney Plus subscriber numbers in 2021. However, the platform remains red hot and is expected to surpass Netflix for the number one spot in the streaming industry for subscribers by 2025. Disney’s stock movements over the past year are shown below alongside a 50-day moving average.

Chart provided by Stock Rover.

A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $197.13, 40.8% higher than its latest closing price of $140.03, earning DIS a “STRONG BUY” recommendation from Stock Rover and a place among our three best cruise line stocks to buy now.

Capison Pang is an editorial intern who writes for www.stockinvestor.com and www.dividendinvestor.com.

 

The post Reviewing the Three Best Cruise Line Stocks to Buy Now appeared first on Stock Investor.

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KIMM finds solution to medical waste problem, which has become a major national issue

A medical waste treatment system, which is capable of 99.9999 percent sterilization by using high-temperature and high-pressure steam, has been developed…

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March 13, 2024

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A medical waste treatment system, which is capable of 99.9999 percent sterilization by using high-temperature and high-pressure steam, has been developed for the first time in the country.

Credit: Korea Institute of Machinery and Materials (KIMM)

A medical waste treatment system, which is capable of 99.9999 percent sterilization by using high-temperature and high-pressure steam, has been developed for the first time in the country.

The Korea Institute of Machinery and Materials (President Seog-Hyeon Ryu, hereinafter referred to as KIMM), an institute under the jurisdiction of the Ministry of Science and ICT, has succeeded in developing an on-site-disposal type medical waste sterilization system that can help to resolve the problem caused by medical waste, which has become a national and social issue as the volume of medical waste continues to increase every year. This project was launched as a basic business support program of the KIMM and was expanded into a demonstration project of Daejeon Metropolitan City. Then, in collaboration with VITALS Co., Ltd., a technology transfer corporation, the medical waste treatment system was developed as a finished product capable of processing more than 100 kilograms of medical waste per hour, and was demonstrated at the Chungnam National University Hospital.

Moreover, the installation and use of this product have been approved by the Geumgang Basin Environmental Office of the Ministry of Environment. All certification-related work for the installation and operation of this product at the Chungnam National University Hospital has been completed, including the passage of an installation test for efficiency and stability conducted by the Korea Testing Laboratory.

Through collaboration with VITALS Co., Ltd., a corporation specializing in inhalation toxicity systems, the research team led by Principal Researcher Bangwoo Han of the Department of Urban Environment Research of the KIMM’s Eco-Friendly Energy Research Division developed a high-temperature, high-pressure steam sterilization-type medical waste treatment system by using a high-temperature antimicrobial technology capable of processing biologically hazardous substances such as virus and bacteria with high efficiency. After pulverizing medical waste into small pieces so that high-temperature steam can penetrate deep into the interior of the medical waste, steam was then compressed in order to raise the boiling point of the saturated steam to over 100 degrees Celsius, thereby further improving the sterilization effect of the steam.

Meanwhile, in the case of the high-pressure steam sterilization method, it is vitally important to allow the airtight, high-temperature and high-pressure steam to penetrate deep into the medical waste. Therefore, the research team aimed to improve the sterilization effect of medical waste by increasing the contact efficiency between the pulverized medical waste and the aerosolized steam.

By using this technology, the research team succeeded in processing medical waste at a temperature of 138 degrees Celsius for 10 minutes or at 145 degrees Celsius for more than five (5) minutes, which is the world’s highest level. By doing so, the research team achieved a sterilization performance of 99.9999 percent targeting biological indicator bacteria at five (5) different locations within the sterilization chamber. This technology received certification as an NET (New Excellent Technology) in 2023.

Until now, medical waste has been sterilized by heating the exposed moisture using microwaves. However, this method requires caution because workers are likely to be exposed to electromagnetic waves and the entrance of foreign substances such as metals may lead to accidents.

In Korea, medical waste is mostly processed at exclusive medical waste incinerators and must be discharged in strict isolation from general waste. Hence, professional efforts are required to prevent the risk of infection during the transportation and incineration of medical waste, which requires a loss of cost and manpower.

If medical waste is processed directly at hospitals and converted into general waste by applying the newly developed technology, this can help to eliminate the risk of infection during the loading and transportation processes and significantly reduce waste disposal costs. By processing 30 percent of medical waste generated annually, hospitals can save costs worth KRW 71.8 billion. Moreover, it can significantly contribute to the ESG (environmental, social, and governance) management of hospitals by reducing the amount of incinerated waste and shortening the transportation distance of medical waste.

[*Allbaro System (statistical data from 2021): Unit cost of treatment for each type of waste for the calculation of performance guarantee insurance money for abandoned wastes (Ministry of Environment Public Notification No. 2021-259, amended on December 3, 2021). Amount of medical waste generated on an annual basis: 217,915 tons; Medical waste: KRW 1,397 per ton; General waste from business sites subject to incineration: KRW 299 per ton]

As the size and structure of the installation space varies for each hospital, installing a standardized commercial equipment can be a challenge. However, during the demonstration process at the Chungnam National University Hospital, the new system was developed in a way that allows the size and arrangement thereof to be easily adjusted depending on the installation site. Therefore, it can be highly advantageous in terms of on-site applicability.

Principal Researcher Bangwoo Han of the KIMM was quoted as saying, “The high-temperature, high-pressure steam sterilization technology for medical waste involves the eradication of almost all infectious bacteria in a completely sealed environment. Therefore, close cooperation with participating companies that have the capacity to develop airtight chamber technology is very important in materializing this technology.” He added, “We will make all-out efforts to expand this technology to the sterilization treatment of infected animal carcasses in the future.”

 

President Seog-Hyeon Ryu of the KIMM was quoted as saying, “The latest research outcome is significantly meaningful in that it shows the important role played by government-contributed research institutes in resolving national challenges. The latest technology, which has been developed through the KIMM’s business support program, has been expanded to a demonstration project through cooperation among the industry, academia, research institutes, and the government of Daejeon Metropolitan City.” President Ryu added, “We will continue to proactively support these regional projects and strive to develop technologies that contribute to the health and safety of the public.”

 

Meanwhile, this research was conducted with the support of the project for the “development of ultra-high performance infectious waste treatment system capable of eliminating 99.9999 percent of viruses in response to the post-coronavirus era,” one of the basic business support programs of the KIMM, as well as the project for the “demonstration and development of a safety design convergence-type high-pressure steam sterilization system for on-site treatment of medical waste,” part of Daejeon Metropolitan City’s “Daejeon-type New Convergence Industry Creation Special Zone Technology Demonstration Project.”

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The Korea Institute of Machinery and Materials (KIMM) is a non-profit government-funded research institute under the Ministry of Science and ICT. Since its foundation in 1976, KIMM is contributing to economic growth of the nation by performing R&D on key technologies in machinery and materials, conducting reliability test evaluation, and commercializing the developed products and technologies.

 

This research was conducted with the support of the project for the “development of ultra-high performance infectious waste treatment system capable of eliminating 99.9999 percent of viruses in response to the post-coronavirus era,” one of the basic business support programs of the KIMM, as well as the project for the “demonstration and development of a safety design convergence-type high-pressure steam sterilization system for on-site treatment of medical waste,” part of Daejeon Metropolitan City’s “Daejeon-type New Convergence Industry Creation Special Zone Technology Demonstration Project.”

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IFM’s Hat Trick and Reflections On Option-To-Buy M&A

Today IFM Therapeutics announced the acquisition of IFM Due, one of its subsidiaries, by Novartis. Back in Sept 2019, IFM granted Novartis the right to…

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March 13, 2024

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Today IFM Therapeutics announced the acquisition of IFM Due, one of its subsidiaries, by Novartis. Back in Sept 2019, IFM granted Novartis the right to acquire IFM Due as part of an “option to buy” collaboration around cGAS-STING antagonists for autoimmune disease.

This secures for IFM what is a rarity for a single biotech company: a liquidity hat trick, as this milestone represents the third successful exit of an IFM Therapeutics subsidiary since its inception in 2015.

Back in 2017, BMS purchased IFM’s  NLRP3 and STING agonists for cancer.  In early 2019, Novartis acquired IFM Tre for NLRP3 antagonists for autoimmune disease, which are now being studied in multiple Phase 2 studies. Then, later in 2019, Novartis secured the right to acquire IFM Due after their lead program entered clinical development. Since inception, across the three exits, IFM has secured over $700M in upfront cash payments and north of $3B in biobucks.

Kudos to the team, led by CEO Martin Seidel since 2019, for their impressive and continued R&D and BD success.

Option-to-Acquire Deals

These days option-based M&A deals aren’t in vogue: in large part because capital generally remains abundant despite the contraction, and there’s still a focus on “going big” for most startup companies.  That said, lean capital efficiency around asset-centric product development with a partner can still drive great returns. In different settings or stages of the market cycle, different deal configurations can make sense.

During the pandemic boom, when the world was awash in capital chasing deals, “going long” as independent company was an easy choice for most teams. But in tighter markets, taking painful levels of equity dilution may be less compelling than securing a lucrative option-based M&A deal.

For historical context, these option-based M&A deals were largely borne out of necessity in far more challenging capital markets (2010-2012) on the venture front, when both the paucity of private financing and the tepid exit environment for early stage deals posed real risks to biotech investment theses. Pharma was willing to engage on early clinical or even preclinical assets with these risk-sharing structures as a way to secure optionality for their emerging pipelines.

As a comparison, in 2012, total venture capital funding into biotech was less than quarter of what it is now, even post bubble contraction, and back then we had witnessed only a couple dozen IPOs in the prior 3 years combined. And most of those IPOs were later stage assets in 2010-2012.  Times were tough for biotech venture capital.  Option-based deals and capital efficient business models were part of ecosystem’s need for experimentation and external R&D innovation.

Many flavors of these option-based deals continued to get done for the rest of the decade, and indeed some are still getting done, albeit at a much less frequent cadence.  Today, the availability of capital on the supply side, and the reduced appetite for preclinical or early stage acquisitions on the demand side, have limited the role of these option to buy transactions in the current ecosystem.

But if the circumstances are right, these deals can still make some sense: a constructive combination of corporate strategy, funding needs, risk mitigation, and collaborative expertise must come together. In fact, Arkuda Therapeutics, one of our neuroscience companies, just announced a new option deal with Janssen.

Stepping back, it’ s worth asking what has been the industry’s success rate with these “option to buy” deals.

Positive anecdotes of acquisition options being exercised over the past few years are easy to find. We’ve seen Takeda exercise its right to acquire Maverick for T-cell engagers and GammaDelta for its cellular immunotherapy, among other deals. AbbVie recently did the same with Mitokinin for a Parkinson’s drug. On the negative side, in a high profile story last month, Gilead bailed on purchasing Tizona after securing that expensive $300M option a few years ago.

But these are indeed just a few anecdotes; what about data since these deal structures emerged circa 2010? Unfortunately, as these are mostly private deals with undisclosed terms, often small enough to be less material to the large Pharma buyer, there’s really no great source of comprehensive data on the subject. But a reasonable guess is that the proportion of these deals where the acquisition right is exercised is likely 30%.

This estimate comes from triangulating from a few sources. A quick and dirty dataset from DealForma, courtesy of Tim Opler at Stifel, suggests 30% or so for deals 2010-2020.  Talking to lawyers from Goodwin and Cooley, they also suggest ballpark of 30-50% in their experience.  The shareholder representatives at SRS Acquiom (who manage post-M&A milestones and escrows) also shared with me that about 33%+ of the option deals they tracked had converted positively to an acquisition.  As you might expect, this number is not that different than milestone payouts after an outright acquisition, or future payments in licensing deals. R&D failure rates and aggregate PoS will frequently dictate that within a few years, only a third of programs will remain alive and well.

Atlas’ experience with Option-based M&A deals

Looking back, we’ve done nearly a dozen of these option-to-buy deals since 2010. These took many flavors, from strategic venture co-creation where the option was granted at inception (e.g., built-to-buy deals like Arteaus and Annovation) to other deals where the option was sold as part of BD transaction for a maturing company (e.g., Lysosomal Therapeutics for GBA-PD).

Our hit rate with the initial option holder has been about 40%; these are cases where the initial Pharma that bought the option moves ahead and exercises that right to purchase the company. Most of these initial deals were done around pre- or peri-clinical stage assets.  But equally interesting, if not more so, is that in situations where the option expired without being exercised, but the asset continued forward into development, all of these were subsequently acquired by other Pharma buyers – and all eight of these investments generated positive returns for Atlas funds. For example, Rodin and Ataxion had option deals with Biogen (here, here) that weren’t exercised, and went on to be acquired by Alkermes and Novartis (here, here). And Nimbus Lakshmi for TYK2 was originally an option deal with Celgene, and went on to be purchased by Takeda.

For the two that weren’t acquired via the option or later, science was the driving factor. Spero was originally an LLC holding company model, and Roche had a right to purchase a subsidiary with a quorum-sensing antibacterial program (MvfR).  And Quartet had a non-opioid pain program where Merck had acquired an option.  Both of these latter programs were terminated for failing to advance in R&D.

Option deals are often criticized for “capping the upside” or creating “captive companies” – and there’s certainly some truth to that. These deals are structured, typically with pre-specified return curves, so there is a dollar value that one is locked into and the presence of the option right typically precludes a frothy IPO scenario. But in aggregate across milestones and royalties, these deals can still secure significant “Top 1%” venture upside though if negotiated properly and when the asset reaches the market: for example, based only on public disclosures, Arteaus generated north of $300M in payments across the upfront, milestones, and royalties, after spending less than $18M in equity capital. The key is to make sure the right-side of the return tail are included in the deal configuration – so if the drug progresses to the market, everyone wins.

Importantly, once in place, these deals largely protect both the founders and early stage investors from further equity dilution. While management teams that are getting reloaded with new stock with every financing may be indifferent to dilution, existing shareholders (founders and investors alike) often aren’t – so they may find these deals, when negotiated favorably, to be attractive relative to the alternative of being washed out of the cap table. This is obviously less of a risk in a world where the cost of capital is low and funding widely available.

These deal structures also have some other meaningful benefits worth considering though: they reduce financing risk in challenging equity capital markets, as the buyer often funds the entity with an option payment through the M&A trigger event, and they reduce exit risk, as they have a pre-specified path to realizing liquidity. Further, the idea that the assets are “tainted” if the buyer walks hasn’t been borne out in our experience, where all of the entities with active assets after the original option deal expired were subsequently acquired by other players, as noted above.

In addition, an outright sale often puts our prized programs in the hands of large and plodding bureaucracies before they’ve been brought to patients or later points in development. This can obviously frustrate development progress. For many capable teams, keeping the asset in their stewardship even while being “captive”, so they can move it quickly down the R&D path themselves, is an appealing alternative to an outright sale – especially if there’s greater appreciation of value with that option point.

Option-based M&A deals aren’t right for every company or every situation, and in recent years have been used only sparingly across the sector. They obviously only work in practice for private companies, often as alternative to larger dilutive financings on the road to an IPO. But for asset-centric stories with clear development paths and known capital requirements, they can still be a useful tool in the BD toolbox – and can generate attractive venture-like returns for shareholders.

Like others in the biotech ecosystem, Atlas hasn’t done many of these deals in recent funds. And it’s unlikely these deals will come back in vogue with what appears to be 2024’s more constructive fundraising environment (one that’s willing to fund early stage stories), but if things get tighter or Pharma re-engages earlier in the asset continuum, these could return to being important BD tools. It will be interesting to see what role they may play in the broader external R&D landscape over the next few years.

Most importantly, circling back to point of the blog, kudos to the team at IFM and our partners at Novartis!

The post IFM’s Hat Trick and Reflections On Option-To-Buy M&A appeared first on LifeSciVC.

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Major typhoid fever surveillance study in sub-Saharan Africa indicates need for the introduction of typhoid conjugate vaccines in endemic countries

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high…

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March 12, 2024

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There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.

Credit: IVI

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.

 

The findings from this 4-year study, the Severe Typhoid in Africa (SETA) program, offers new typhoid fever burden estimates from six countries: Burkina Faso, Democratic Republic of the Congo (DRC), Ethiopia, Ghana, Madagascar, and Nigeria, with four countries recording more than 100 cases for every 100,000 person-years of observation, which is considered a high burden. The highest incidence of typhoid was found in DRC with 315 cases per 100,000 people while children between 2-14 years of age were shown to be at highest risk across all 25 study sites.

 

There are an estimated 12.5 to 16.3 million cases of typhoid every year with 140,000 deaths. However, with generic symptoms such as fever, fatigue, and abdominal pain, and the need for blood culture sampling to make a definitive diagnosis, it is difficult for governments to capture the true burden of typhoid in their countries.

 

“Our goal through SETA was to address these gaps in typhoid disease burden data,” said lead author Dr. Florian Marks, Deputy Director General of the International Vaccine Institute (IVI). “Our estimates indicate that introduction of TCV in endemic settings would go to lengths in protecting communities, especially school-aged children, against this potentially deadly—but preventable—disease.”

 

In addition to disease incidence, this study also showed that the emergence of antimicrobial resistance (AMR) in Salmonella Typhi, the bacteria that causes typhoid fever, has led to more reliance beyond the traditional first line of antibiotic treatment. If left untreated, severe cases of the disease can lead to intestinal perforation and even death. This suggests that prevention through vaccination may play a critical role in not only protecting against typhoid fever but reducing the spread of drug-resistant strains of the bacteria.

 

There are two TCVs prequalified by the World Health Organization (WHO) and available through Gavi, the Vaccine Alliance. In February 2024, IVI and SK bioscience announced that a third TCV, SKYTyphoid™, also achieved WHO PQ, paving the way for public procurement and increasing the global supply.

 

Alongside the SETA disease burden study, IVI has been working with colleagues in three African countries to show the real-world impact of TCV vaccination. These studies include a cluster-randomized trial in Agogo, Ghana and two effectiveness studies following mass vaccination in Kisantu, DRC and Imerintsiatosika, Madagascar.

 

Dr. Birkneh Tilahun Tadesse, Associate Director General at IVI and Head of the Real-World Evidence Department, explains, “Through these vaccine effectiveness studies, we aim to show the full public health value of TCV in settings that are directly impacted by a high burden of typhoid fever.” He adds, “Our final objective of course is to eliminate typhoid or to at least reduce the burden to low incidence levels, and that’s what we are attempting in Fiji with an island-wide vaccination campaign.”

 

As more countries in typhoid endemic countries, namely in sub-Saharan Africa and South Asia, consider TCV in national immunization programs, these data will help inform evidence-based policy decisions around typhoid prevention and control.

 

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About the International Vaccine Institute (IVI)
The International Vaccine Institute (IVI) is a non-profit international organization established in 1997 at the initiative of the United Nations Development Programme with a mission to discover, develop, and deliver safe, effective, and affordable vaccines for global health.

IVI’s current portfolio includes vaccines at all stages of pre-clinical and clinical development for infectious diseases that disproportionately affect low- and middle-income countries, such as cholera, typhoid, chikungunya, shigella, salmonella, schistosomiasis, hepatitis E, HPV, COVID-19, and more. IVI developed the world’s first low-cost oral cholera vaccine, pre-qualified by the World Health Organization (WHO) and developed a new-generation typhoid conjugate vaccine that is recently pre-qualified by WHO.

IVI is headquartered in Seoul, Republic of Korea with a Europe Regional Office in Sweden, a Country Office in Austria, and Collaborating Centers in Ghana, Ethiopia, and Madagascar. 39 countries and the WHO are members of IVI, and the governments of the Republic of Korea, Sweden, India, Finland, and Thailand provide state funding. For more information, please visit https://www.ivi.int.

 

CONTACT

Aerie Em, Global Communications & Advocacy Manager
+82 2 881 1386 | aerie.em@ivi.int

Journal

The Lancet Global Health

Method of Research

Observational study

Subject of Research

People

Article Title

Incidence of typhoid fever in Burkina Faso, Democratic Republic of the Congo, Ethiopia, Ghana, Madagascar, and Nigeria (the Severe Typhoid in Africa programme): a population-based study

Article Publication Date

12-Mar-2024

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