Art, >> 1) Most if not all of SEPR product pipeline will get FDA approval.. <<
It's worth underscoring, in this moment of downside overreaction, that that's why SEPR is so undervalued at these levels. SEPR has a fistful of potential blockbuster drugs, and (1) the likelihood of FDA approval is, for each individual drug, fairly high - in effect, they've all been FDA-approved before, just in conjunction with the other isomer or other metabolites, and (2) for the group, the likelihood of approval of at least most of them is quite high.
Yet at these levels the market values the stock as though its drug-development risks were much higher than they are. Those risks are pretty low, at least as compared to the drug-development risks of most other drug candidates discussed on SI biotech threads. (Maybe FDA-approval risks of GLIA's ADCON-T/N, -P, -A, -I, and -C are as low, in light of the approval of ADCON-L, but not much else seems as low risk.)
As the market overestimates SEPR's risks and therefore perceives SEPR's future earnings as more contingent than they probably are, it therefore applies a higher discount rate to projected future earnings than, IMO, is justified.
What risk level you assume, and what discount rate you therefore apply, makes a huge difference. Say, like Morgan Stanley's Lind, you project 2003 earnings of $11/share, use a P/E of 30, and thus project a $330 stock in 2003. If you discount back 4 years at 40%, you get a present value of $85.90, about where we were until the last couple of hours yesterday. But if you discount at 25%, reflecting the lower risk, the PV is $135.17. At 20%, the PV is 159.14. (Morgan Stanley in its 4/21 report, for example, uses "35-40%," and I believe the other brokerage analysts use something like 35%, IMO too cautious. I also think the $11/share in 2003 is too low, and that the P/E at that time will probably be higher than 30, since SEPR may well be showing year-over-year earnings gains of 40%, or 50% or 70%, in the period 2002 to 2006 or so, as a large number of its ICEs reach market, some of them unpartnered.) Peter Suzman: any serious disagreement with this?
(On SEPR's risks , see also my earlier post:
"I like the high potential reward, but I like even more that SEPR's ICE strategy carries much less risk than most drug-development work. (1) Because SEPR is improving drugs that are already scientifically well-understood and FDA-approved, the risks of bad results in clinical trials and of FDA rejection are much smaller than for wholly new drugs. (2) The cost of FDA clinical trials (extremely expensive for new drugs) is much smaller, because much of the clinical data required by the FDA was amassed (a) when the parent drug was reviewed and approved by FDA, and (b) during its post-approval use in large numbers of patients; accordingly, less money is risked on each potential new drug. (3) Clinical trials take much less time, also because of the previously-compiled clinical data; the successful improved drugs thus reach market much more quickly than wholly new drugs. In addition, risk is reduced because SEPR has a broadly diversified collection of ICE's, so that the failure of a couple or many of them will not hurt SEPR much, and it has a dozen or more chances at blockbusters." Message 7493986 )
Disclaimer, disclaimer. I may be wrong on most or all of this, and no one should risk a real dollar on SEPR without doing his/her own due diligence
--RCM |
