Maybe you can help us. How do you value a "biotech"? My preference is to use two measures, survivability (two years of burn rate on hand), and potential market. I like a cap of under one time potential yearly market. That is about 1/4 of the valuation AMGN put on IMMU just last week.
So, let's look at few of these: CNCT, I would buy in the $9 to $10 area, or a market cap of about $300 MM. They already have some minimal sales and their OXUL is already prescribed for scalp dermatosis. They just seem to be on their way to get expansion of the label to all psoriasis which is cortisoids "treatable" (most psoriasis, and frankly, the physician makes that decision). Unlike most cortisoids, which are systemic, and thus have some serious side effects, OXUL is a topical treatment, and unlike most psoriasis new drug applications that are showing only marginal (27% to 35% vs 25% for placebo) effect, OXUL shows a 67% success rate. Looks good to me. What is a air value for just that drug alone? I would say a market cap in the $500 MM to $1B (most analysts when faced with any psoriasis drug bark "A billion plus market potential". <g>)
ISIP. The easiest way to "value" ISIP is to look at what Lilly values them at, a cool $40/share. They have agreed t loan to ISIP $100 MM convertible to stock at $40/share. They have $200 MM plus in the bank (not counting the Lilly loan) and burn $20 MM/q. They are thus survivors. They have additional deals (appart of Lilly) and I would estimate their folio to cover something of the order of $2 to $4 Billions in "market potential". My proposed entry point is $18 to $19, or well under $1 B capitalization. Not too expensive yet.
NSTK, they control a nasal mucous drug delivery technology that seems to have quite a broad spectrum of applications, one of their initial targets is the market for erectile disorders, unlike Viagra (alrewady a multi billion dollar drug), they do not act via the route of vasodilation (which have a number of unpleasant side effects), but they act directly on the hypothalamus with apomorphine (acting on a special class od dopamine receptors which seems to stimulate erection, and my guess is that it may have beneficial effect in inorgasmic women as well). The market potential, few $billions. Current market cap if buying in my proposed range of $12/$13, about $100 MM. The big question is cash on hand, a paltry $7 MM, I would say enough for about 2 Quarter. My expectation is that they will find a sugar daddy in the next two quarters to buy marketing rights and solve their current cash problem. Risky, nevertheless. On the other hand, if they find a sugar daddy, a ten bagger is not out of the question in a "decent" market.
VVUS, that is the "l'enfant terrible" in the group. They claim to have few "interesting preparations" for local stimulation. I am interested in them more for what may happen to them if NSTK takes off then for their own fame. Their history is far from "clean". Nevertheless they have a market cap of about $150 MM and have cash on hand of $24 MM and burn "only" $1/$2 MM (well they burned as much as $5 Mm two q ago, but their current burn rate is sharply down), a nice speculation, particularly if you can buy it in the $3.5 to $4.30 range.
Let me know how you would value this quartet, it would be an interesting comparative study of risks vs "potential" rewards.
Zeev |
