Frank, let me start out by saying that I am lousy when it comes to predicting this stocks price. I will not make a short term prediction because I am likely to just end up looking like a fool. However, I am willing to paint a picture of what the price might look like in the long term. I will spell out the assumptions I am using to base my calculations. If my assumptions are wrong, then the figure I derive will be wrong.
In his letter to stockholders at the beginning of the annual report, Colin Campbell states that "Using very conservative calculations, Paracelsian's share of this revenue [from the Kubota Ah Immunoassay deal] should be $20 million per year within 5 years." I am going to assume that this prediction is accurate and that PRLN will see $20 million a year within five years from Japan. But Japan is not the only country in the world and we can expect to see more money coming in from elsewhere. Let's assume, for arguments sake, that 1/3 of the money coming into the company from the assay is from Japan. I am not saying that 1/3 of the world's dioxin problem rests in the relatively tiny country of Japan. I suspect the world market is substantially greater than two or three times the Japanese market. But I will use this figure to be conservative.
That means the company will receive $60 million/year in five years for the assay.
How much will it cost to run the company in five years? Right now they are burning about $1.2 million/year. I haven't the foggiest idea what their expenses will be in five years, but let us assume it costs $10 million/year to run the company. Then they will be making $50 million profit. To be conservative and to simplify things, I am going to assume that they make nothing from BioFIT or the sale of Chinese herbs. There were about 20.8 million shares outstanding at the end of the last quarter. Assuming all the warrants are converted and counting the stock that BioSignia just purchased, there will be 24 - 25 million shares outstanding. Let us assume there will be 30 million shares outstanding in 5 years. If they are making $50 million profit and have 30 million shares then they will be making $1.67/share.
Right now the P/E ratio for the Biotech industry is 40. It has ranged from 17.55 to 56.68 over the last 5 years. Let's take the average of these two figures and assume it will be 37.1 five years from now. If all these assumptions come true then we can expect to see PRLN trading at $61.96/share in five years.
Now, there may be a glaring weakness with this analysis. Note that Colin Campbell stated that PRLN's share of the revenues would be $20 million within 5 years. I do not know if this is after the Cost of Goods Sold (COGS) has been subtracted out. If it has not already been accounted for then the $62 figure will be too high. PRLN now has the ability to manufacuter 100 assay kits a month in Ithaca. In a few months they will ramp that up to 500/month. It will be less expensive for PRLN to make the kits than to have Kubota make them. PRLN, with the help of their Chinese partners, is now trying to establish a high volume, low cost manufacturing facility in China. How much it will cost to manufacture the kits will depend on the volume of kits being made and where they are made.
All this is to say that I really don't know how much PRLN will make in 5 years. It could be significantly less than my $62/share estimate when factoring the COGS of the assay. But I have made a number of assumptions which would tend to underestimate that figure as well. I assumed they wouldn't make a penny on BioFIT. I assumed we would not make a penny off of Andrographilis or any of the hundreds of other Chinese herbs that we will sell on our site. I assumed that Japan was 1/3 the world market for the dioxin assay. This may be the most serious underassumption of all. I also assumed that there would be no new uses for this assay. I expect new uses will open up as this assay is used to detect dioxin in food samples. Dr. Campbell also mentioned that the assay might be useful to detect many other toxins besides dioxins so the market could be considerably larger than what I used in my estimate.
Finally, I assumed PRLN would realize nothing from its drug discovery program. The drug discovery program has been put on the back burner, so I would not expect much from this in the near term, but it is possible we might see a nice bonus from this in the long term.
If you forced me to make a guess as to where PRLN will be 5 years from now, I would guess $60/share. I am guessing that the underestimates will cancel out the overestimates. You can feel free to dispute my guesses. Your guess is as good as mine. I think its just as important to lay out my assumptions as it is to give you a concrete figure.
I want to throw in a couple of other caveats. PRLN is still a risky stock, though I think it is much less risky than it was two weeks ago. It could still fail. There still could be unexpected surprises for us. Events beyond the company's control could still adversely effect the company. My calculations assume that Colin Campbell will meet his goal of making PRLN profitable by the end of the year. BioSignia has just placed a $500,000 bet on PRLN's long term viability. They've got a better knowledge of PRLN's inner workings than any of us could ever have.
I am even more reluctant to make a short-term prediction of their stockprice than I am to make a long term prediction. This depends as much on the markets perception of PRLN as it does on PRLN's intrinsic value. Three important events occurred within the past week and a half and it barely moved the stock price. 1) Kubota gave their final approval of PRLN's dioxin assay. 2) The stock price of the warrants were lowered, making an inflow of $1 million cash more likely over the next month and a half and 3) there was a major insider purchase of stock. If the market were rational then the stock price should have gone up more than it has. Furthermore, PRLN is not considered much more valuable than its competitor Pharmaprint. Read my analysis of PRLN vs PPRT and I think you'll agree that the market is not giving a rational valuation of at least one of these stocks.
ragingbull.com
I think the market does not yet realize PRLN's value. I do not know when it will wake up. There are a few events likely to happen before September that could be the wakeup call we need. A big order from Kubota could wake up Mr. Market. So could BioFIT launch, which should happen in early August. There should be stories mentioning the BioFIT program in the August issues of Discover and Gourmet magazine. Any one of these events could boost the stock price. Others on the Raging Bull thread have speculated that the price would go to $1 - $2 per share by September. I will not make a prediction, but I do not find these predictions to be unreasonable. |
