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

To: Icebrg who wrote (8795)	7/3/2003 7:43:19 PM
From: Icebrg	Read Replies (1) \| Respond to of 52153

Relative valuations. I became so enthusiastic about the NBIX vs SEPR contest, that I went back to pick up some more companies fighting in the same weight class. Over the day the relation between the original combatants has changed btw. NBIX had a strong day, which cannot be said for SEPR. Anyhow, some of these companies are actually selling products. Some of them might even be on the verge of profitability. Like CEPH and CELG. All balance sheet data are from end of March. A few of these companies have raised debt since then, but that will not affect the valuation much, as the same amount is added to both the debit and the credit side. CEPH IMCL CELG ICOS SEPR Market cap. 2.428 2.432 2.514 2.398 1.534 Cash etc. 547 229 257 304 481 L-T debt 860 240 - - 983 ----- ----- ----- ----- ----- "Valuation" 2.741 2.443 2.257 2.094 2.036 AMLN NBIX OSIP VRTX HGSI Market cap. 2.043 1.726 1.269 1.113 1.616 Cash etc. 264 308 354 680 1.452 L-T debt 66 5 160 337 503 ----- ----- ----- ----- ----- "Valuation" 1.845 1.423 1.075 770 667 I might have gone wrong with a couple of 100 millions on HGSI. They have it as long-term investment. Perhaps it is not marketable securities, but some investments in equity. The question is now. How good a job does the market do in relative terms? As the market is supposed to always be right it shouldn't really matter which share one buys. But I guess that most of you have fairly strong preferences and opinions with regard to the above selection. What about Imclone for example? ICOS and SEPR have always the same valuation. ICOS have "lost" most of their late-stage candidates. They have only 50 % of Cialis left. SEPR has product sales, royalties and a good late-stage pipeline. It is just the matter of the debt. The more I see this, the more convinced I am getting, that seen from a relative perspective Sepracor is severely undervalued in comparison with its peers. Catastrophes may well happen as a fair number of us have experienced already. But that applies to most of these companies. Erik

To: Icebrg who wrote (8795)	7/4/2003 12:06:19 PM
From: Biomaven	Read Replies (1) \| Respond to of 52153

But one can perhaps suggest that 50 % for NBIX might represent a higher dollar value than 100 % for SEPR. That's certainly what the market is saying. Here's how I would compare them: 1. Development risk: Indiplon still has some development risk in terms of the development of a time-release version. SEPR claims this is harder than it sounds for a sleep drug, because you need really tight PK over the whole population. If even 10% of people have a delayed release then you will have a next-day hangover problem as they will still have drugs in their system in the morning. 2. Quality of the drug: Assuming they can get the time-release working well, Indiplon probably has a slight advantage. Something like 20% of Estorra patients get a metallic taste in their mouth that lasts until they brush their teeth in the morning. People don't seem to think it's too objectionable, but it will certainly be portrayed as a negative by PFE. In terms of the actual sleep characteristics, it's too early to tell - we haven't seen enough data to compare yet. There are hints that Estorra is better at getting you to sleep quickly - but of course cross-trial comparisons are notoriously tricky. Right now the Estorra results are looking very good indeed. But the Indiplon development program gets more respect - it was perhaps more thorough and NBIX had higher-profile sleep experts involved than did SEPR. 3. Labelling and time to market: I would guess that Estorra is about 12-18 months ahead of Indiplon, perhaps even longer for the time-release version. Labelling timing is less clear. I'm guessing that SEPR won't get more than class labelling up front (short-term use) but with the ability to refer to their long-term study. Long-term labelling might need to wait for a second long-term study. If so, this might reduce the gap in time between long-term labelling for the respective drugs. 4. Marketing: Here of course PFE has a huge advantage. A much bigger and more experienced sales force than SEPR can muster, albeit one that is not going to be nearly as tightly focused as SEPR's. In terms of DTC advertising, PFE again must have a substantial advantage, although each will benefit to some extent from the other's advertising. Now of course SEPR can still sign a co-promote deal (just as they did with Abbott and Xopenex) - I'm assuming they would wait for approval before doing so. But there have been no hints at all from SEPR that they might consider doing this. If they did, I would guess that they could get a 60:40 deal (given NBIX is getting a 50:50 deal for a drug that is still in development). But that means they would still need to nearly double their sales to make a deal worthwhile, and I'm not convinced that a partner could do this for them. Of course as you point out whether or not to do a deal is also impacted by any up-front payment they received - it might be enough for them to re-accelerate some of their other pipeline (like oxybutynin). Bottom line is that my feeling is that the NPV of each drug to NBIX and SEPR is pretty similar. If we assume this, then SEPR is cheaper than NBIX. Xopenex is a substantial drug, and the MDI form has little development risk. They also have a nice royalty stream from Allegra (ex-US) and Clarinex. You basically get to buy SEPR at discount because the market still doesn't trust them and there is still some liquidity risk. Personally I own both, but about 3 times more SEPR than NBIX. (Although I also own DOVP which effectively narrows the gap a little). I believe both Indiplon and Estorra will exceed expectations, particularly once they get long-term labelling. Peter