We note that more than 75,000 patients in the United States and Europe develop ALF annually, leading to mortality rates in the 30%-90% range. Besides liver transplant, no options exist for ALF patients to improve survival and existing treatments focus only on the management of disease complications. The ELAD system, which operates as an outside-the-body liver, is designed to allow the ALF patient’s own liver to recover to a healthy, functioning state or to stabilize the patient until transplant, thereby potentially improving survival. There is little competition in this setting.

The first Phase III study, VTI-208, is in alcohol-induced liver decompensation (AILD), and the second Phase III study, VTI-210, focuses on acute alcoholic hepatitis (AAH), a subset of AILD. The company also plans to initiate the Phase II/III study VTI-212 in two additional forms of ALF, fulminant hepatic failure (FHF) and surgery-induced liver failure (SILF), by year end 2014 for further label extension.

We estimate worldwide sales for the ELAD system will reach $1.3 billion in the United States and Europe in 2032. Assuming a 70% probability of success, our probability-adjusted NPV model suggests a fair value for ELAD at $26 at year end 2014, with $16 attributed to the United States and $10 to Europe. Adding $2 of net cash at year end 2014, we derive our price target at $28. Potential upside to our valuation includes pricing, geographic expansion, and further label extensions.

1)Top-line data from the Phase III VTI-208 study in AILD patients expected in first half 2015; 2) top-line data from the Phase III VTI-210 study in AAH in early 2016; 3) top-line data from the Phase II component of the VTI-212 study in FHF and SILF in late 2015 or early 2016; and 4) potential FDA approval of the ELAD system in second half 2016.

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