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Biotech / Medical : GelTex Pharmaceuticals (GELX) -- Ignore unavailable to you. Want to Upgrade?

To: EACarl who wrote (81)	9/21/1998 2:28:00 AM
From: Robert L. Ray	Read Replies (2) \| Respond to of 127

I posted the following Sunday afternoon on Yahoo. I suppose most here already read and/or post to the Yahoo board, (I know you do, and from reading his profile here I'd say H. Bradley Toland also does) but for the benefit (or detriment:) of those who don't, I thought I'd do a cut/paste. No one has called my analysis idiotic as of yet but it's still early:) XXXXXXXXXXXXXXXXXXXXXXXXX >>>The first rule of forecasting, according to an economist I know, is "never give a number and a date at the same time". With that in mind, my guess is that Renagel could be as big as $500 million per year--over time.<<< :) Glad to see you incuded the "over time" caveat in your prediction. Perhaps Gelx could reach sales of that magnitude over time since the dialysis patient population is growing but my guess is it would take quite a few years to reach that figure. I've seen two sales estimates. One was for 200 million and one was for 2-3 hundred million. >>Pricing has not been disclosed (or even decided yet) but the Genzyme has concluded the upper limit is $1500/year.<< Yes this certainly would be the upper limit. This link excite.transium.com speculates that the price will be about $1000 per year. OK, so personally I'll go with the $1000 per year figure since my guess is that it is a more realistic figure. I don't have the figures but I get the feeling the current drugs (inferior to Renagel) are pretty cheap and perhaps generic? So I'd say if that's the case then anything over $1000 would generate some sticker shock. Then lets assume a 75% market penetration for the U.S. population of 200,000 patients. That gets us to 150 million a year. The Eupopean patient population is also 200,000 but it seems that U.S. drugs no matter how good never achieve comparable overseas sales to U.S. sales. So lets say European sales will be 75 million. That comes to $225 million. So that is my prediction for yearly Renagel sales in the near term years. This doesn't include Asian sales. I think Asian approval is running somewhat behind U.S. and European approvals. Now.... Skaletsky stated that Renagel would get Gelx to profitability and Cholestagel would add to it. One thing I don't know is if he's talking about on operating basis or if he's figuring in the Genzyme milestone payments when he says Renagel will get Gelx to profitability. On a strictly operation basis for the 6 month period ending June 98 Gelx had operating expenses of 19.4 million. This of course differs from the actual loss reported because of the way the Genzyme joint venture is accounted for but the 19.4 million figure is IHMO a truer measure of the actual loss. Sooooo... twice 19.4 is 39 million (rounded off) for a yearly figure of current operating expenses. Lets say that Renagel gets GELX to break even on an operating basis. (This of course is all speculation. Skaletsky might not have meant Renagel would get GELX to profitability or breakeven on an operating basis) Anyhow GELX's half of Renagel sales would be 112 million. And according to my read of things this 112 million will generate 39 million in operating profits which will get the company to break even or therabouts. This would imply a profit margin on Renagel of 35%. Actually to me this doesn't seem to be out of line or anything. Some drugs I think have quite a bit higher profit margins. Differing opinions are welcome:) Next I'm going to assume that the profit margins on Cholestagel will be similiar to Renagel. I've stated before that I feel the market is not giving GELX anywhere near the valuation they deserve for potential Cholestagel sales because the market is apparently underestimating Cholestagel sales. I believe that GELX can do $500 million in Cholestagel sales. Ok I'll slip in your "over time" caveat just to cover my butt:) but in this case I don't think it will take all that much time. Next lets assume that GELX gets a similiar parnering deal with Cholestagel as they did with Renagel. In that case GELX would reap profits on $250 million of those sales. Even though I'd say that Cholestagel very well could sell for a higher per patient cost than Renagel I'll stick with the $1000 per patient cost and I'd say the manufacuring costs should be similiar. That means 35% margins on $250 million for a profit of 87.5 million dollars. There's 16.7 million shares outstanding so 87.5 divided by 16.7 comes to $5.24 per share profit!!! Figure a PE of 25 and you come up with a share price of 131 dollars per share. Understand I'm not saying with certaintly that all these figures are correct. I'm seldom certain about anything in the stock market. This is just my read of the situation at the present time. Differing opinions are welcome. The point of the whole thing is my figures could be out of whack by quite a bit (they easily could be) and still Gelx is a screaming buy. I'd say that $5.24 per share figure should be for 2001 so discounting back for the time value... the current share price (assuming all the above is reasonably correct of course:) I come up with a current price level of $67. Sheese.... $67. Should GELX actually be trading at this level at the present time? Of course not!! This is a best case scenerio type of figure. A lot of pieces have to fall into place. I'm not the smartest guy in the world but I've put enough thought into this where I'd like to think I'm at least half right so I'll say that GELX fair value at the moment should be at least $33.5 Whew!!! that in a way looks better because I'm going pretty far out on a limb here for my cloudy crystal ball and $67 would be an awful lot of weight to carry with me that far out on the limb. Wouldn't want to be accused of hypsterism or anything ya know:) As an aside I noticed that the institutional ownership on GELX was 58% which is a little higher than I thought it was. So the public float here is not all that great. When the market does finally catch on, things could move pretty quickly. And I think that once the Cholestagel partner is announced it won't take the market all that long to respond.

To: EACarl who wrote (81)	10/1/1998 12:24:00 PM
From: NY0001	Read Replies (1) \| Respond to of 127

Does anyone actually have the Merrill report? Can anyone post it? I would like to see what it says. A headline doesn't do me much good.

To: EACarl who wrote (81)	10/4/1998 9:39:00 PM
From: Robert L. Ray	Read Replies (1) \| Respond to of 127

I ran accross an old H&Q research excerpt tonight for the first time. (From April 98) It seems their Renagel and Cholestagel estimates are a little on the low side of some peoples thinking, (me included:) although they were bullish on GELX at 27. This link may not hold up so I'll post the article. hamquist.com They have issued GELX reports since this one but none of those reports are available online. In an even earlier H&Q research excerpt they estimate Renagel sales at 50 million a year and Cholestagel at 500 million. INVESTMENT THESIS Potential approval of lead product, RenaGel, as well as Phase III data on CholestaGel should fuel significant interest in GelTex over the course of 1998. GelTex is selling at an attractive valuation relative to its two late-stage product opportunities. An NDA has been submitted for RenaGel, for the treatment of dialysis patients. RenaGel is a unique, phosphate-lowering treatment for dialysis patients. We anticipate potential FDA approval in the second half of 1998. If approved, we believe that RenaGel could generate $100 million in sales after several years on the market. This opportunity could be significantly expanded if RenaGel were used in the predialysis market. GelTex has formed a joint venture with Genzyme for the potential marketing of RenaGel as well as for further development of RenaGel in the predialysis setting. Under terms of their joint venture, GelTex and Genzyme will split profits on a 50/50 basis. Phase III results with the company's second lead compound, CholestaGel, are anticipated in the second half of 1998. CholestaGel is a novel cholesterol-lowering agent. We believe that CholestaGel is well positioned to capture several niche opportunities in the market for cholesterol-lowering agents. We estimate that CholestaGel could address a commercial opportunity in excess of $300 million after three years on the market. COMPANY OVERVIEW GelTex was formed in 1991 to develop proprietary polymers that selectively bind to and remove unwanted substances from the intestinal tract. Because these polymers are not systematically absorbed and do not enter the bloodstream, they have a low side-effect profile. The most advanced candidates in the company's pipeline, RenaGel and CholestaGel, work by a known mechanism and both agents address established markets. We believe that these factors diminish the risks typically associated with the development of novel agents. Both RenaGel and CholestaGel have been designed to provide significant advantages relative to existing products, and we believe both have the potential to be the lead products in their respective classes and to expand the commercial potential of each class. The company's polymer technology platform may have application in a broad spectrum of disorders. Behind RenaGel and CholestaGel, GelTex is developing programs in the treatment of obesity and infectious diseases. A Nicely Leveraged Investment We believe that several factors provide a favorable investment profile for GelTex. First, GelTex is in a unique position with respect to development-stage investment opportunities because the company has two late-stage products in its pipeline. In our opinion, this lowers the relative investment risk. Second, the company has generated a significant amount of data on both RenaGel and CholestaGel. Based on these data, we believe that the odds favor a positive regulatory outcome for both RenaGel and CholestaGel. Third, with the completion of an $81-million secondary offering in March 1998, GelTex has established a strong balance sheet, ensuring adequate funding for the development of lead compounds and enabling the company to be opportunistic with respect to new programs. Finally, we believe that there is significant potential earnings leverage. We have built our earnings projections based on the assumption that GelTex achieves market penetration for both RenaGel and CholestaGel only in the target niches in each respective market. Based on these assumptions, we estimate that GelTex could generate $1.10 in EPS in 2001 and $1.85 in EPS in 2002. Based on these projections, we are carrying a six- to 12-month price target of $35 to $40 per share. We believe that there is upside potential to these numbers. From a valuation standpoint, GelTex is trading at the low end of the range for companies at or near product launch with single product opportunities. With an estimated $120 million in cash on its balance sheet, GelTex is trading at an attractive level, with a technology value approximating $330 million. Anticipated Milestones Over the Coming Quarters Initiation of second Phase III clinical study with CholestaGel mid-1998. Food and Drug Administration review of RenaGel in the second half of 1998. Potential market launch of RenaGel in the fourth quarter of 1998/first quarter of 1999. Potential initiation of clinical studies with RenaGel in the predialysis setting. Phase III clinical trial results with CholestaGel in the second half of 1998. Establishment of a corporate partner for CholestaGel in 1998/1999. Potential submission of NDA for CholestaGel mid-1999. Potential initiation of clinical studies with anti-obesity candidate in 1999.