cross-post, without permission and exposing myself to unknown liability......
To: Trufflette (1741 )
From: PeterSuzman
Tuesday, Feb 16 1999 6:30PM ET
Reply # of 1747
Interesting valuation analysis. I disagree with the way he's used the discount rate,
though. Using his methodology, I would use his 50% rate until the drug was approved
(3 years) and his 18% rate thereafter, while they build to their maximum sales over 4
years.
This gives a $244m PV for the drug ($825m on approval, which seems low), and
makes the current stock price about right, given his assumptions.
A big issue of course is whether his assumptions are realistic. I think 3 years to two
approved drugs is way too optimistic, but that the eventual sales would be quite a bit
higher (and more quickly reached) if they perform in humans at all comparably to the
way they allegedly perform in mice.
If you look at a value assuming the drugs were approved today, even my $825m seems
low to me, perhaps by a factor of three or four. Doesn't mean that I think the stock is
currently underpriced - I think there's much better value to be had elsewhere in the same
area (like CELG and SUGN). Basically I'm skeptical that ENMD can bring these drugs
in their present form to market.
(Disclosure: I have a very small in-the-money Feb put position, established last week
after the rebound at around 25).
Peter |
