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Biotech / Medical : IDPH--Positive preliminary results for pivotal trial of ID
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To: I. Luttichuys who wrote (1023)6/19/1997 6:09:00 PM
From: Brad C. Dunlap   of 1762
 
Hi Bennett, I am very pleased to see that Merrill finally initiated coverage but was mildly deflated when I read the report as to the conservative assumptions by Eric Hecht. If I recall correctly when eric was as Morgan he had a one year target of 40 by discounting his 1999 or2000 yr earnings estimate[forget] and that was about a year ago. If he was using his old model while at morgan his price target would have increased to 52-56 depending on whether his discount rate was 30 or 40% that he was applying in the model. In the Merrill report he used a p/e of 27 to his 1999 eps of 1.20 to arrive at the one year target of 32. If the eps growth is anywhere close to the estimates of the other analysts and the biotech mkt stays friendly ,Idec will be trading much higher then 27 times 1999 estimate. I believe the more appropriate valuation model for a biotech is a discounted future eps model with a reasonable assumption of relative market caps of similar biotechs in the market. I do realize that merrill is very conservative as a firm compared to the rest of the street especially in the speculative industries, and being that Idec has a very important fda panel meeting in July could be one reason for the conservative assumptions. It will be interesting to follow Eric's comments in the future and see how he upgrades his model as the events take place. Bottom line is he is now telling merrill brokers and clients to accumulate Idec so he must feel ok about the arthritis situation.
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