Report with new target is HERE
Punk, Ziegel site
pzk.com
you must view the PDF file for the updated version with the price target of $20. (scroll to
bottom and click "most recent update".
We are reiterating our BUY rating on Genelabs shares. Data presented this weekend strengthen our conviction in GL-701 for the treatment of Lupus. While investors were informed of the positive outcome from the second Phase III trial of GL-701 last November, we now have a more complete profile of the activity of the drug and its benefits in Lupus patients. We continue to believe that this drug will be approved for marketing in early 2001, and should achieve United States sales in excess of $100 million.
We are raising our price target on Genelabs shares from $10 to $20 based on the valuation of other biotechnology companies. Our original calculation of Genelabs? share value was based on the premise that a drug is worth 5x its revenues. Based on the valuations of other biotechnology
and pharmaceutical companies, which can range as high as 40x-50x revenues (excluding genomics companies) we believe this 5x multiple does not reflect the value that Genelabs can achieve in the marketplace. Our new price target of $20 per share implies a value at 10x revenues on GL-701 and still does not include the potential value of its DNA and
RNA regulating molecules, or certain non-core assets which further enhance the value of Genelabs shares.
We recommend investment in Genelabs based on three areas of value. 1) GL-701 for the treatment of Lupus: We believe that GL-701 alone justifies a market capitalization for Genelabs of over $880 million (or $20.38 per share). We believe this product will now generate a stream of positive newsflow, potentially including a marketing partnership, FDA activity, and product launch by early 2001. 2) Core Technology in DNA- and RNA-Regulating Molecules: Genelabs has achieved "proof of concept" and has its first two collaborations for this new technology that generates small molecules that specifically block DNA or RNA. Potential applications include new drug development and gene target
validation, as well as agricultural applications. 3) Non-Core Assets: Non-core assets include a profitable diagnostics business, holdings in a Taiwanese affiliate, and license payments for patents held by Genelabs. Using conservative measures of valuation, we estimate these assets to be worth $15-$20 million. |
