Interesting. Biotechs are not usually valued like this, but since there's cash coming on 11/15/97, 11/15/98, 11/15/99 and 11/15/00, I guess you've got a point.
However, given that the company has now provided a hint with respect to their direction, I'd like to give valuation another shot. I disclaim this discussion as the ramblings of a confused shareholder.
Biotechs (development stage) are usually valued on the basis of cash in hand, a "technology value" assigned to intellectual property, and burn rate. I continue to assume that they will rapidly reach about 50% penetration of the IL-1beta market, and that sales will ramp up to about $2-3 million within two years. I hope that they're not going to go out and hire 40 scientists overnight (although it sounds good from a job security perspective), and that "burn" will be non-existant in the face of <largely> IL-1-derived revenue.
So, I assume $0.03/share profit from sales (annualized, projecting forward) within 12 months, and that such a level will be maintained for at least two years as the company expands. For the next three years, let's call it $2 million/year from Immunex on the aniversary date (11/15) of the initial settlement bucks. You can count this as income, or you could act like a classical biotech analyst and pretend that it's cash in hand. I'll take the classical approach, and just say that the total settlement (CIST's share of the $21 million) is likely, discounted for time, to conservatively approximate the current market cap of $9 million (is that OK by you, Bob? If not, throw in PeproTech.... :-).
That leaves us with a company that is likely, IMO, to show profit and which also has an assigned technology value, at current market cap, of $0.00. That is, if the technology in-hand is valuable, it leaves the biotech investor with a dream come true.
The next task is to value the patents. I assign $5 million to PAI-2. Given that the molecule is in clinicals that are sponsored by one of biotech's biggest players (disclaimer..... I am equating Biotech Australia with Hoechst, potentially a mistake) and that it looks like a decent reagent (and basis for kits), I think that's reasonable.
The IL-1beta patents are more difficult for me, as I believe that there's still potential for a big-time therapeutic use of the molecule (or, as discussed in terms of Vical/Stanford, for an IL-1-derived peptide). But, assuming only reagent use, I estimate the worldwide market for IL-1beta at $7 million/year (disclaimer..... a personal estimate only, do your own homework), growing at 25-30%/year. The patents are good through at least 2005 (it could be much longer for all I know, as interference issues prevented the issuance of certain patents until this year). Assuming that growth can be discounted if we "push" for a penetration time factor and that the patents only protect 50% penetration, that's about $30 million.
That's current market cap plus 35 mil, or a value of about $1.60/share for a company with plenty (wish that they'd clarify) of cash and the potential for near-term profit.
The exciting part....... there are many companies out there that need second projects. From the "Stanford" abstract and other sources, I differ with the opinion of Immunex and feel that there is life left in IL-1 as a therapeutic. Given tumor vaccine efforts at Immune Response Corp. and other observations, I think that the concept initially licensed by Genetic Therapy/Sandoz is alive, even if the specific project is not. I hope that CIST is assessing the potential impact of reacquiring the GTI/Sandoz rights.
I can think of several companies (Genzyme, R&D Systems, Fujisawa, etc.) where the reagents-only business is a good fit, and where the PAI-2- and IL-1beta-related human tests would provide for an interesting extension of effort. I therefore propose that $43 million ($1.60/share) would be a reasonable asking price.
On the other hand, I obviously (read previous notes in this thread) would prefer that they develop a diversified reagents business, using IL-1 as a proprietary anchor. Looks like they're not planning on doing such.
Flail away!
Disclaimer: I own CIST, and I have a vested interest in its appreciation. Do your own homework. I am not qualified to make recommendations.
Rick |
