Expectations and concerns around 'Opakalim,' in-licensed at KRW 1T

Assuming a 2029 U.S. launch… 2042 market share estimated at 3.3% and net sales of $2.1B

External valuation, a 71.9% clinical success probability and a 14.4% discount rate… asset valued at $1B

Separate royalties must be paid to original developer in addition to Biohaven… clause restricting development of competing Kv7 drugs also included

SK Biopharmaceuticals

Expectations and concerns have surfaced around Opakalim, an epilepsy drug candidate that SK Biopharmaceuticals has in-licensed for about KRW 1 trillion. While it is projected to surpass $2 billion in net sales by 2042 following a 2029 U.S. launch, SK Biopharmaceuticals must pay sales royalties post-commercialization to both its contracting counterpart, Biohaven, and the original developer, Knopp Biosciences.

According to the biotech industry on the 8th, SK Biopharmaceuticals valued the assets it evaluated during the in-licensing of the epilepsy drug candidate 'Opakalim (BHV-7000),' potassium channel (Kv7) activator compounds, and the Kv7 discovery platform at $909.6 million (KRW 1.2581 trillion). This is about 14% higher than the maximum deal value SK Biopharmaceuticals signed.

The valuation was conducted by calculating free cash flow after deducting cost of goods, research and development (R&D) expenses, selling, general and administrative (SG&A) expenses, and working capital from projected revenues generated by Opakalim, and then discounting it to present value by reflecting clinical success probabilities and the time value of money. It incorporated the risks of drug development failure on top of the standard discounted cash flow (DCF) model.

Previously, on the 26th of last month, SK Biopharmaceuticals signed an agreement with Biohaven Bioscience Ireland to secure exclusive worldwide development and commercialization rights for Opakalim, Kv7 activator compounds, and the Kv7 drug discovery platform. The total contract value is up to $795 million (KRW 1.0995 trillion), including a non-refundable upfront payment of $400 million (KRW 553.2 billion KRW). Royalties based on product sales are separate.

Summary of the epilepsy drug candidate 'Opakalim (BHV-7000)': mechanism of action-Kv7.2 and Kv7.3 potassium channels regulating neuronal excitability in the brain, indication-adult patients with focal seizures, clinical stage-undergoing global 'RISE2' and 'RISE3' Phase 2/3 clinical trials, Original developer-Knopp Biosciences.

Opakalim is an oral anti-seizure candidate that selectively activates Kv7.2 and Kv7.3 potassium channels regulating neuronal excitability in the brain. Its mechanism of action stabilizes hyperexcited neurons to suppress seizures. Unlike certain conventional anti-seizure medications, it has relatively little influence on gamma-aminobutyric acid (GABA) receptors, and its potential to reduce central nervous system (CNS) side effects is cited as a competitive advantage.

Knopp Biosciences in the United States originally developed Opakalim. Biohaven acquired the Kv7 platform and Opakalim by signing an agreement to acquire Knopp's subsidiary, Channel Biosciences, in February 2022 and completing the transaction in April of the same year. Knopp received $35 million in cash and $65 million worth of Biohaven shares, totaling $100 million in initial consideration. The deal also included milestone payments tied to development and regulatory approval, along with sales royalties.

Currently, Opakalim is undergoing global 'RISE2' and 'RISE3' Phase 2/3 clinical trials in adult patients with focal seizures. RISE3 completed patient enrollment last June and is slated to announce top-line results in the second half of this year. In an open-label extension (OLE) study evaluating long-term efficacy and safety after the preceding Phase 2 trial, 54% of patients treated with the 75 mg dose showed a 50% or greater reduction in seizure frequency over six consecutive months.

Shinhan Accounting Corporation, an external valuation firm, estimated future revenue and cash flows to calculate the asset value, assuming Opakalim successfully navigates clinical trials and regulatory approvals to launch in the United States in 2029. It assumed the compound annual growth rate of 2.6% in total U.S. focal seizure prescriptions from 2016 to 2025 would continue. Opakalim's market share was projected to rise from 0.1% in 2029, its first year of launch, to 0.4% in 2030, 1.9% in 2035, and 2.9% in 2040. The prescription price was estimated to increase by 4.6% annually from a baseline of $1,550.30, reflecting a 20.0% premium over the 2025 average price of four comparable products. Factoring in rebates and various discounts, actual net revenue was modeled at 52.0% of the prescription price.

Based on these assumptions, Opakalim was projected to generate $21.14 million in net sales in its initial U.S. launch year in 2029 and peak at $2.07913 billion in U.S. net sales in 2042, the 14th year post-launch. Subsequently, reflecting loss of exclusivity (LOE) in 2043, market share was projected to decline to 1.6% and net sales to decrease to $1.06173 billion. Applying a cumulative probability of 71.9% for clinical development and marketing approval success through commercialization, alongside a discount rate of 14.4%, yielded the final asset valuation.

Notably, projections that Opakalim will achieve operating profit margins exceeding 70% from the mid-post-launch period onward also drew attention. Shinhan Accounting Corporation anticipated that Opakalim's operating margin would reach 71.5% in 2040, 71.6% in 2041, and 72.3% in 2042. This is more than 30 percentage points higher than SK Biopharmaceuticals' operating profit margin of 39.3% recorded in the first half of this year.

This high profitability reflects a low-cost structure. Shinhan Accounting Corporation applied 10.9% of sales to cost of goods sold and 17.3% to SG&A expenses, based on averages of comparable U.S. biotechs. The rationale is that because SK Biopharmaceuticals has already established a dedicated local sales organization of about 150 personnel and a distribution infrastructure through cenobamate, it can co-commercialize Opakalim without significantly increasing overhead costs.

Analysis suggests that SK Biopharmaceuticals' move to secure rights to Opakalim —investing an upfront payment that approached nearly three times its annual operating profit from last year (KRW 203.9 billion)—was a strategic decision based on commercialization feasibility, revenue growth potential, and high profitability. This indicates that SK Biopharmaceuticals valued Opakalim as a high-margin blockbuster asset capable of exceeding $2 billion in annual sales while delivering operating profit margins in the 70% range.

The two companies also entered into a mutual non-compete clause. SK Biopharmaceuticals and Biohaven agreed to restrictions prohibiting either party from independently developing, manufacturing, or commercializing competing Kv7 activator compounds, or supporting third-party research related thereto, in global markets for several years following the first commercial sale of the product.

Currently, Xenon Pharmaceuticals is leading the Kv7 class with 'azetukalner'. Xenon announced Phase 3 clinical results for azetukalner last March and is scheduled to submit a marketing application to the U.S. Food and Drug Administration (FDA) in the third quarter of this year. If azetukalner is approved as planned, it will become the first Kv7-class therapy in the field of epilepsy. With azetukalner leading commercialization, this provision is interpreted as a safeguard to preserve the market value of the latecomer Opakalim and to support follow-on Kv7 pipeline candidates.

SK Biopharmaceuticals must pay a separate mid-single-digit royalty to Knopp Pharmaceuticals. (source: Biohaven's Current Report (Form 8-K))

However, contractual royalty obligations will increase as Opakalim succeeds in commercialization and scales revenue, which could burden future profitability.

According to Biohaven's Current Report (Form 8-K) and the original license agreement filed with the U.S. Securities and Exchange Commission (SEC) on the 26th of last month, when SK Biopharmaceuticals sells Opakalim and certain anti-seizure products in the United States, it must pay Biohaven running royalties ranging from the mid-teens to low twenties across net sales tiers. For sales outside the United States, it pays a mid-single-digit royalty rate.

In addition, the share owed to the original developer, Knopp, is separate. As SK Biopharmaceuticals assumed Biohaven's existing contractual obligations, it must pay a separate mid-single-digit royalty to Knopp on worldwide net sales of Kv7 products. This royalty is independent of the royalties paid to Biohaven and cannot be offset.

In summary, when Opakalim generates revenue in the United States, SK Biopharmaceuticals must pay royalties in the mid-teens to low twenties to Biohaven, while simultaneously paying a separate mid-single-digit royalty to the original developer, Knopp. Together, the royalties SK Biopharmaceuticals must pay to both companies each time the drug is sold after commercialization could reach the mid-to-high 20% range. In this case, concerns are raised that even if Opakalim surpasses $2 billion in annual U.S. sales under the valuation scenario, the double royalty burden could reduce the actual profit margin to less than anticipated.