DOVP/NBIX, a few comments. Just for kicks.
I think NBIX is more likely to enjoy the benefit of an equivalent 35% gross royalty, as I assume 70% net margins. This assumption has to be right, by the way, to make any sense of a relative comparison. Comparing 35% to a 3.5% royalty, you think the 2 programs would trade 10x, which is approximately where they trade by market cap today. How about that.
However, as I pointed out some time ago and is now clearly set out in dovp's 10K, the net dovp royalty goes from 3.5% to 6% after 10 years because the Wyeth portion terminates. That will likely occur at peak sales. At today's dollars discounted at 5%, the bump in royalty in the 11th year is the equivalent of an increase in today's NPV of 34.9% without any loading for the ramp in sales (thus it is probably understated). This implies an upward adjustment of the dovp royalty rate to 4.722%. At this adjusted rate, the 2 companies should trade at a ratio of 7.413x.
But since we presume sales, let's presume milestones. NBIX has now about $10/sh in cash and will get about another $10/sh cash indiplone milestones. DOVP gets only a fraction of the milestones (less even than the royalty rate). So I adjust NBIX valuation for the cash.
Overall, I believe the relative valuation advantage at the moment is to nbix, since with the indiplone related cash backed out it is trading at slightly higher than 5x dovp, whereas it should be 7.4x.
Of course tell me which one is perfectly priced, and I'll tell you which one to buy.<g> |
