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Biotech / Medical : Cyberonics (cybx) epilepsy therapy recommonded -- Ignore unavailable to you. Want to Upgrade?

To: Valentin who wrote (275)	4/19/1998 10:00:00 AM
From: Valentin	Read Replies (1) \| Respond to of 471

Is a share price of $40 (in a year) realistic ? Here's another calculation. Let's take a PE of 15 (quite modest). It may be a lot higher after the breakeven because it depends heavily on investor's expectations for future earnings. Let's also admit that earning consist only of operating income. Operating income = number of shares x share price / PE = 16 857 559 x 40 / 15 I assume that the co shall NOT issue new shares. They have a cash, cash equivalents and securities held to maturity of about 45 M and a quarterly burn rate of about 2,2 M. I suppose that the breakeven will occur in the Q1 of 1998 and so the co needs no money. We get an operating income of 44,95 M. It's per year because earnings in the PE ratio are earnings per year Let's take a cost of sales of 25% of sales and a SA of 25% of sales. Cost of sales are OK. The assumption of 25% for SA is a little bit optimistic. For Q2 it was 114,97% and for Q3 82,35 % but 25% is realistic after the initial marketing period and because there is a lot of overhead when sales are beginning. So assuming 25% in a year is defendable. Operating income = sales-cost of sales-R&D-SA 44,95 = sales-2 000 000 - 0,25xsales-0,25xsales 2 M for R&D should be a good figure. After a simple calculation we get a sales of 93,90 M. Out of this we make an extrapolation for the Q3 1998 sales by dividing 4 in 93,90. This is a bit simple but I don't want to do more math here. I think that this assumption is acceptable. Sales for Q3 1997 were 5,17 m. So to reach 93,90/4=23,475 sales in Q3 1998 the quarterly growth rate must be: 5,17 x I 4 = 23,475 I = quarterly growth factor, I4 means multiplying I four times with itself. We get an I of 1,46 which means a growth rate of 46% PER QUARTER. Is this realistic? It means a monthly sales of 93900000/(12x9000)=849 devices in march next year. Quarterly sales are now about 5170000/9000=574 (DENNIS assumed 600). This means an increase from 144 to 849 which is huge but not impossible. I have assumed a device price of 9000. It may be a bit less or greater, but it is a realistic assumption. Now a PE of 15 is not high. You may take a PE of 20. You get then a quarterly increase of 36% and monthly sales of 661 devices. In the Yahoo-thread somebody said: " During the last quarter Cyberonics produced 630 units and sold all of them. They are projecting that in this quarter to produce 300 per month and in the next quarter, 450 per month". I don't know if this information is correct. If yes it would fit nicely in above calculation because when we assume a growth rate of 150 units per quarter we have in Q3 1998 750 units which is a figure between 661 and 849. In fact (661+849)/2=755 !! I hope that somebody find my calculations interesting. They may be false and erroneous but I think that for the long term it is necessary to try to calculate the evolution. Perhaps somebody has a better idea. Comments are welcome but please don't adopt the results without checking carefully all my assumptions and calculations. ATTENTION: In my message "Can the company break even next quarter?" there was an error at the fifth last line: You must read "but certainly LOWER than 9 M" instead of "but certainly higher than 9 M". See you later

To: Valentin who wrote (275)	4/19/1998 11:39:00 AM
From: Dennis	Read Replies (1) \| Respond to of 471

Valentin, your math is quite impressive. gg Again, I don't do the math as much as I should, I look for the company to be a monopoly with a huge potential market and ASSUME that the people running the business know how to make it work. They should and must know a lot more about it than we do AND they have a lot more to lose than we do so therefore they will do anything and everything to make this company successful, IMHO. Example: Microsoft, McDonalds, Disney, Coke-Cola etc. the list can go on and on how about Titanic . One of a kind and huge potential market. Lifecell is in this category. I HOPE !!!! Later :o)