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Biotech / Medical : SangStat Med. (SANG) - 10 of 10 analysts say Strong Buy -- Ignore unavailable to you. Want to Upgrade?

To: F. Jay Abella, III who wrote (63)	1/23/1998 11:44:00 AM
From: James Silverman	Read Replies (1) \| Respond to of 184

Jay A couple of things. The "recent product delays" are a bit misworded by Rachel. The products have been on file at the FDA, so the delays are not from the company, its in her overly aggressive estimates in regards to timing of approval. I give generics two years to get approved once the ANDA is filed, seems most analysts had estimated 1 year. Short term looks like the stock is fine. Incidentally I added at the close yesterday so at least for now I feel good about that move. Lastly, I don't think its appropriate to model them as an R&D company. In other words based on the model you have, SANG will be grossly undervalued given the lessened risk and potential for high profitability within 1 or 2 years. SANG has a ton of earnings leverage and irrespective of the precise timings of approvals, sales and profitability is right around the corner. On that count, I'd guess her new earnings model calls for profitability to be reached in the 2H of this year, not a year away. So say a loss of $1.00 1H 1998, gain of $0.64 for 2H (complete guesses as I have not seen her precise revisions). If you want to take a stab at valuing them, use $80M in first full year sales which would lead to $56M in gross profits, but only $64M in market cap according to your valuation rules. So in my opinion this yields overly conservative numbers for a company with less risk. Jim

To: F. Jay Abella, III who wrote (63)	1/23/1998 7:06:00 PM
From: Darth Vader	Respond to of 184

Unfortunately I do not have time to build an in-depth model. However, to simplify the task I would like to concentrate on SANG35, i.e. the "generic" formulation of cyclosporin and by far SANG's biggest product. Novartis numbers for cyclosporin should hit $1,5bio this year. Assuming final approval for SANG35 by the FDA in Q1 and modeling a conservative 20% market penetration by SANG in the year 2,000 we would have a $300m revenue opportunity. Applying a 5xrevs multiple we would look at a value of $1,5bio for the drug to be properly discounted. Now, this simplistic calculation does not take into account SANG's other transplant product, which we are giving away for free to account for the potential FDA approval risk and legal issues by Novartis. Bottom line, the stock is tremendously undervalued at current level, especially if you take into consideration that SANG is ready in term of production and sales force for the launch of both Thymo and Cyclo. Today's price action confirms my view - this should be one of the few opportinities left to invest in SANG at a market cap<$500mio.