Andreas,
Thanks for the formula. If I am not mistaken, it is this precise calculation that Michael Murphy uses in his valuation of biotech companies. (I know that he is not highly respected by many on this thread; I have not been a follower of his recomendations, and thus have no opinion of him, one way or the other.)
Here is one refinement that comes immediately to mind: Remeber to adjust for the 6.5 million outstanding warrants and the upcoming secondary offering. Thus, the number of shares outstanding, by my calculations, is approximately 39 million, not 29 million. However, we can safely deduct the cash on the ballance sheet ($50 million) and the present value of the $45 million that will be recieved upon exercize of the warrants, in June, 2000 (another $35 million.)
39m x 14 = 546m;
546m - 85m = 461m;
461m / 167m = 2.76 M-score.
Thus, your conclusion remains opperative: LGND is a steal at current levels.
For what it is worth, I have some problems with the M-score approach: (1) it ignores the (very necessary, in my view) qualitative assessment of a prospective company's pipeline and scientific underpinnings, and (2) it, likewise, ignores the size and attractiveness of a prospective biotech company's targeted markets. (However, fortunately, both these dimensions are net pluses for Ligand, in my estimation.)
Even so, I agree that the M-score analysis makes for a good starting point for the valuation process.
Good luck,
RB
P.S. I sympathize with you re: your predicament. I am recklessly overweight Ligand, myself. Let's hope we both get away with it! ;-) |
