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Biotech / Medical : NTII: Neurobiological Technologies
NTII 0.00010000.0%Jan 2 9:30 AM EST
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To: celeryroot.com who wrote (5)2/10/1997 2:04:00 AM
From: hillary kapan   of 36
 
Celeryroot,

Last time I checked it looked like NTII had close to $9 million in cash. Does anyone have a more precise estimate? At this level, basically you are getting the company for $6 million above cash value--essentially no technology premium. I like to look at a company like NTII in terms of its odds of attaining some market cap versus the chance that it will exhaust all cash and go belly up.

So, lets say conservatively that Memantine might stand a chance of generating $30mil in revenues per year in a few years. This figure is a good bit lower than many others more knowledgeable than myself have suggested. Ok, so that could translate into earnings around $10 million. Pure guesswork here, but well under the 50% net margins that we could consider for a biotech. After taxes, say $5 million earnings.

Now assume a PE that reflects comparative disinterest (for biotechs we might expect a PE of 40+). So say a PE of 15. That's absurd, but lets use it. So that gives a market cap of 5 x 15 = $75 million.
So the market could be said to be assigning odds of 5 to 1 that NTII has a small success vs. bankruptcy.

Right now the cap is less than $15 mil.

So if I put my money down right now, I am placing a bet at essentially 5 to 1 odds that NTII will reach a $75 million cap vs. bombing completely and causing me to lose my entire investment.

Or take 4 to eight times sales, which is not atypical for a biotech and we get 30 x 4 = $120 mil cap

That's 8 to 1 odds

or 30 x 8 = $240 mil cap

That's 16 to 1 odds

And if they make more?

What do others think?

Hillary

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