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Biotech / Medical : NPSP NPS Pharmaceutical
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To: biowa who wrote (40)12/19/1999 3:34:00 PM
From: WTDEC   of 363
 
biowa,

Late last week Matt Geller at CIBC and Bob Toth at Prudential Vector both issued rather favorable reports on NPSP. These reports followed the approval of the merger with Allelix by both boards.

Geller and Toth see it as we do: NPSP is seriously undervalued. Geller's brief report noted that the post-merger technology value of around $70 million is below comparable bios with compounds at a similar stage of development. He reiterated a 'Buy' with a 12 month price target of $11- - a double from here.

Bob Toth offered a more extensive valuation analysis for his 'Strong Buy' recommendation. He feels the Allelix acquisition creates a new NPS with a highly favorable profile compared to the average development-stage biotech company. He presented the following metrics:

............................NPSP ....Average Development Stage Bio
Market Cap .........$110M ...$235M
Mkt Cap/Cash ...... 3.5X ... 5.5X
# Major Partners .. 5.0 ..... 1.7
# Clinical Prgrms . 7.0 ..... 2.5

This argument is very strong, IMO, that NPSP is presently an undervalued, under-recognized micro-tier biotech. Rick would probably argue, and I agree, that even the average microcao bio is undervalued. That makes NPSP a super-bargain. <G>

Bob Toth's valuation work is especially interesting for us NPSP longs. His discounted cash-flow analysis results in a 12-month price target of $12, but he calls that conservative and goes on to point out numerous sources of upside potential. The most telling point is that by late next year the new NPSP could have three programs in Phase III pivotal testing. Toth says development stage bios at such a point typically command a valuation in the $300-$700 million range, or $15-35 per share for NPSP.

I have a high regard for both Geller and Toth, and it is good to see WS affirmation of our views. Nevertheless, it is always wise to be a bit skeptical and not let them unduly diminish our own vigilance.

Best regards and SEASONS GREETINGS to all,

Walter
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