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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: jayhawk969 who wrote (8215)	4/30/2003 4:13:29 PM
From: keokalani'nui	Read Replies (1) \| Respond to of 52153

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>

To: jayhawk969 who wrote (8215)	4/30/2003 4:24:32 PM
From: Biomaven	Read Replies (1) \| Respond to of 52153

JD: I think you double counted something. You already converted to a per share basis, so the correct comparison is with their stock price ratio, no longer their MC ratio. I won't have a chance today to take a look at the actual numbers (including Wilder's informative post). Peter

To: jayhawk969 who wrote (8215)	4/30/2003 4:46:23 PM
From: IRWIN JAMES FRANKEL	Read Replies (1) \| Respond to of 52153

Thanks JD - Great work, One way to extend your work would be to look at the earnings yield per $100M of sales to each company. DOVP $0.24 / $5.87 = 4.09% EY NBIX $0.73 / 45.24 = 1.61% EY That suggests quite a bit of advantage to owning DOVP over NBIX. However, Wilder** has adjustments suggesting we are understating the NBIX advantage. Here are two: NBIX EY 1.61% The 35/70 issue ... * 35/22.5 Higher NPV due to WYE dropout 34.9% Adj NBIX EY 3.38% That puts the EY's much closer together. ij ** Thanks Wilder - great inputs.