HOW TO EARN A FORTUNE WITHOUT EVER MAKING A DOLLAR

There are hundreds of speculative biotech companies in the Spider S&P Biotech Index ($XBI). A shocking number of these companies do not earn an annual profit, and many don’t even generate a dollar in revenue. And yet, multi-billion dollar payouts are common. How do these scientists, entrepreneurs and executives manage to squeeze so much money out of unprofitable companies? Why does anyone go along with this?  Sudheer Narasimha, our newest equity analyst, analyzes one such deal looking for answers…..

The niche field of immunology can seem complicated and difficult to understand. At the most simple level, Immunology is a critical field of study that explores the intricate workings of the immune system, which serves as the body’s defense against harmful pathogens, such as bacteria, viruses, and parasites. Understanding immunology is vital because it sheds light on the mechanisms that protect us from infections and diseases, as well as the dysregulation of the immune system that can lead to autoimmune disorders and allergies. The development and technology of new immunology treatments are always beneficial because our immune systems  are always combating viruses of all sorts. One such company who was at the forefront of these breakthroughs is Dice Therapeutics.  Dice Therapeutics focused on revolutionizing the space of immunology treatment by changing how the treatment was made. In a space where most treatments are administered through injections(intramuscular) or directly into the veins (IV), Dice focuses on creating treatments that can be taken orally. This would be much easier to administer, and even self-administer compared to the already existing treatment options. As we will discuss later, this is what gives Dice value and sets it apart. 

Employing an innovative approach, Dice Therapeutics embraces the power of AI-driven drug discovery to accelerate the identification of promising drug candidates. Through sophisticated algorithms and machine learning models, vast libraries of chemical compounds are analyzed and evaluated, predicting their potential to interact with specific biological targets. This computational prowess enables Dice Therapeutics to efficiently navigate the boundless chemical space and identify drug candidates that possess a high likelihood of success, saving valuable time and resources in the drug development process. One company that looked to capitalize on this innovation and add to its autoimmune arsenal is Eli Lilly. ($LLY) 

Eli Lilly and Company is a renowned global pharmaceutical company that has been at the forefront of medical innovation for over a century. Founded in 1876, Eli Lilly has built a strong reputation for its unwavering commitment to discovering, developing, and delivering high-quality medicines that address some of the world’s most pressing health challenges. With a diverse portfolio spanning numerous therapeutic areas, including neuroscience, oncology, diabetes, immunology, and more, Eli Lilly strives to improve the lives of millions of people worldwide. As a company, Eli Lilly has grown quite a bit and they wish to grow even further with this daring bet on Dice Therapeutics. 

Lilly Rolls the Dice…..

Eli Lilly has acquired Dice Therapeutics for about 2.4 billion dollars. The actual terms of agreement is Eli Lilly will buy Dice Therapeutics at 48 dollars per share and this deal is set to close during the third quarter of 2023. However, the interesting part of Dice Therapeutics is that the company has not even made profit yet. In fact, the company has been reportedly making losses. So why did Eli Lilly acquire this “unprofitable” company for such a large sum of money? Because Eli Lilly is willing to bet on the innovation and science behind Dice Therapeutics. The projected total addressable market for autoimmune diseases in 2025 is about 153 billion dollars. As I said before, Dice has plans to revolutionize this field. If Dice can even capture 10% of this market, they can earn around 15 billion dollars in annual revenue. As they push towards 20%, they will start to earn nearly 30 billion dollars. Although the company itself is not profitable currently, the technology and people behind Dice are extremely valuable in the field of immunology. This means that the science and research behind what Dice does is highly likely to be profitable in the future.

This kind of transaction isn’t all too uncommon. Merck has agreed to purchase Prometheus Biosciences for about 11 billion dollars. Prometheus is another company in the immunology field that is currently not making any profits. Yet, another big company is willing to bet big money on the science and research behind Prometheus. Going back to the Eli Lilly deal, the important question that arises is: what does this mean for investors? 

This deal could be very profitable for the shareholders of Dice Therapeutics. For example, if a person were to own 1% of Dice, they would be making 24 million dollars. A person who owns 1% of the company would be going from investing in a company that makes no profit, to reaping a $24 million payout. If we get a little more specific, we can find that the CEO J. Kevin Judice owns about 2.4%. This would mean that he would walk out with around 57 million dollars. Not a bad payday! 

As a group, the executive board owns about 5% of total shares. This would be 120 million dollars going into their pockets.  Around 6 months ago DICE stock was valued at 32.28 dollars per share. Now, it’s around 46 dollars per share. Around 6 months ago, selling 100 shares of Dice would have only yielded 3,200 dollars. Now, that same sale would go for around 4,600 dollars. This is not only potentially profitable for Dice shareholders, but potentially profitable for investors of Eli Lilly as well. The 2.4 billion is about 4 months worth of free flowing cash for Eli Lilly. On the other hand, Eli Lilly could make huge profits off of this new technology they just acquired. They just need patience and deep pockets; never a problem for a titan of the Big Pharma world.

For Eli Lilly, this looks like a low risk and potentially high reward deal. The same could be said for investors looking to invest in Eli Lilly right now.