CS: Pain Therapeutics. Inc. (PTIE) NEUTRAL [V] S. Hirsch
CP: US$ 4.47 TP: US$ 5 CAP: US$ 188.2m
Clarifying the Valuation
• We've been getting questions as to the cash value for Pain Therapeutics and wanted to make a clarification. The summary of
our update is that while our valuation remains the same at this point, we are correcting our previous methodology for the
accounting of the company's cash.
• Valuation. The company has roughly $190mm in cash, of which it expects to spend $10mm this year ending 2009 with
roughly $180mm. Given 42.1mm shares, we now calculate cash value of $4.28 per share. This compares to our previous
analysis in which we accounted for roughly $3 in cash, $1 for the future development fees, and roughly $1 for potential
Remoxy royalties. The correction here is that the company has fully received the future development fees and the
amortization of that is an accounting recognition only. Specifically, that means the company already has the cash in hand and
if for some reason King delayed or cancelled the development partnership, the company could recognize the remaining
unamortized amount immediately. Thus, our analysis now allocates a full $4 ($4.28 to be exact) for cash and roughly another
$1 for Remoxy royalty potential. Our price target remains $5, but we note the current trading range of around $4.50 reflects
little other than cash value.
• Should the company trade at or below cash? From a small-cap perspective, if a drug-development stage company is going to
continue to spend money then trading below cash can make sense. Ultimately, it depends on the value placed on the future
drug technology, and given that Pain Therapeutics has early Phase I and preclinical programs aside from Remoxy, it's hard to
place much value in the pipeline and therefore the answer depends on one's view of Remoxy. We continue to question the
regulatory hurdles as well as potential legal action from Purdue, so our value remains measured. However, the current stock
price now factors in little in the way of expectations and thus we look to King's 2Q meeting with the FDA to add clarity, and
potentially value, to the stock. |
