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Biotech / Medical : XOMA. Bull or Bear?
XOMA 25.22-5.0%Dec 12 9:30 AM EST
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To: roger m who wrote (8179)1/7/1999 8:57:00 PM
From: Robert S.  Read Replies (4) of 17367
 
What some on this board fail to take into account is that if Xoma receives FDA approval and it starts showing earnings, then it will no longer be valued based upon potential; rather, it will primarily be valued based upon EPS. A while back the valuation model (I believe from J.Abella's old web site) below was presented on "that other board" and it provides a foundation for determining market valuation for unproven biotechs:

Here is a valuation model that helps you se if Biotech's are over or undervalued. Its works best with companies with no revenues from other
products, and no approved products. Everyone knows it a very hard task to value a Biotech but this evaluation model has helped in the past
Step One Xoma corp has the following products in its clinical and nonclinical pipeline Neuprex - for Hemorrhagic trauma - Phase III
Neuprex - for Meningococcemia - Phase III Nueprex - Partial Hepactectomy - Phase II Neuprex - Severe Intra abdominal infections
Neuprex - Lung infections in Cystic Fibrosis Hu1124 - Psoriasis Five preclinical products in pipeline Neuprex for Hemorrhagic trauma -
250,000 patients x 1000(estimate) = 250mm times 30% penetration(estimate) = 75mm contribution market cap x 0.5 for phase III =
37.5mm Nueprex for Meningococcemia - 3000 patients X 1000(estimate) = 3mm times 30% penetration(estimate) = .9 x 0.5 for phase III
= .45mm Neuprex for Cystic Fibrosis - 30,000 patients x 1000(estimate) = 30mm times 30% penetration(estimate) = 9mm times 0.3 for
phase I =2.7mm Neuprex for Intra abdominal Infections - 200,000 patients x 1000(estimate) = 200mm times 30% penetration(estimate) =
60mm times 0.4 for phase II =24mm Neuprex for partial hepactomy (Liver transpants, cirohhis, Hepatitis) 1.0mm patients x 1000(estimate)
= 1.0 billion times 30% penetration(estimate) = 300mm times 0.4 for phase II =120mm Hu1124 for psoris = 150,000 patients times
500(estimate) = 75mm times 30% penetration(estimate) = 22.5mm times 0.4 for phase II =9mm 5 preclinical compounds = 25mm Xoma
also has 25 patents on its technology = 12.5mm Total = 231.2 market cap from technology and patents Plus CURRENT ASSETS MINUS
LONG TERM LIABILITIES (56mm-25mm) = 31mm Total = 262.2mm Management Factor Accumulated deficit = 354mm Revenues last
five years = 31mm Market cap management factor (31/354)=0.9 Multiply 262.2 times 0.9 = 24mm Total market valuation (management
factor plus valution) = 286.2 Divided by shares outstanding (39,679) = 7.21 Fair Value price = 7.21 Current share price = 4.75 The shares
of Xoma Corp are undervalued by $2.46

EDIT: Current share price = $4.00
Shares outstanding now 45M
Fair value = $6.37
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