Dr Paul Nunzio DeSantis on PSDV potential in SA article dated 8-12-14. He is long PSDV.
SUMMARY
PSDV is significantly undervalued, our Iluvien Sales model shows PSDV should be trading at $10//share.
Tethadur for eye diseases represents a $3-$5B opportunity, assuming similar partnership and royalties as Iluvien would project at least $450-$750M in annual royalties.
We anticipate PSDV announcing a partnership for development of Tethadur after completion of Phase I, at which point in time we would ascribe a 15% probability of success.
PSDV's Fiscal 4Q14 should provide some updates on Tethadur's development and with Iluvien's PDUFA coming on September 26th now is the appropriate time to enter for long term growth.
Tethadur's scarcity value could spur acquisition interest for $34/share ($1B) by Phase 2.
"While we do not base our bullish thesis on an acquisition solely premised on Tethadur's potential, it represents a free call option of such a magnitude and rarity that compels one to consider a long-term position in PSDV. Our sales model demonstrates that Iluvien alone firmly establishes that PSDV is significantly undervalued currently trading at 2.78 2015E and 1.20x 2017E WW Sales (Iluvien Royalty Income). We anticipate an aggressive bid for PSDV coming when Tethadur enters Phase 2 in 2016 or 2017, at which point PSDV should have $106M in sales (20% discounted), and would be entitled to a minimum bid of 10x sales given the scarcity value Tethadur would deliver. This implies an acquisition price in excess of $1B or $34 per share (781% upside).
After conducting our analysis we determined that PSDV should be trading at least 4x our 2016E sales estimate of $74M, fully discounted at 20% and probability adjusted. This represents a $296M market capitalization or 231% upside and gives us our $10 price target contingent upon Iluvien's FDA approval. In our view PSDV's current market cap reflects no future, no innovation, and no success, this simply is not the case. PSDV is severely undervalued given the imminent approval of Iluvien that will generate revenue in the short term; Medivir addresses the intermediate term, while Tethadur exemplifies long-term sustainability and growth on an impressive scale. Once a partner is announced and Tethadur enters Phase I clinical development, investors can expect significant valuation expansion as Tethadur proceeds through clinical development. We argue that since Tethadur carries no new molecular entity risk it carries a higher probability of gaining approval due to a deeper depth of safety, and the risk almost entirely resides with the platform itself being able to deliver sustained doses of active drug. Thus, PSDV's development strategy more closely resembles a "reformulation" than a "new drug development".
In closing, PSDV represents an attractive risk/reward at current levels ahead of increasing newsflow. PSDV should be trading at least 4x our 2016E sales estimate of $74M, fully discounted at 20% and probability adjusted at 90%. This translates into a $296M market capitalization or 231% upside to give us our $10 price target post Iluvien's FDA approval. Finally, PSDV has all the hallmarks of becoming a quick and easy acquisition for a larger company facing expiring patents and with over $50B of biological products coming off patent through 2020, this greatly increases both the number of potential bidders and the likelihood of such an outcome actually transpiring. As we alluded to previously, we fully anticipate such an outcome occurring once Tethadur completes Phase 1 for $1B."
