DARA BioSciences, Inc. (DARA)

[macjockey]

From Jason at Zacks:

Valuation & Conclusion

We are pleased with the DARA Bio second quarter financial results. Revenues exceeded Street consensus for the first time - signs that expectations going forward are too low and that the business is actually performing well after over a year of revamping and restructuring. For 2014, we estimate revenues will be around $1.8 million. This is still a rather low number, but with growth of 432% in the second quarter alone we think the trajectory is clearly heading in the right direction and DARA can go from "expensive" on a Price-to-Sales ratio to "cheap" rather quickly. For example, for 2015 we project revenues of $4.75 million. With an industry average 5x P/S ratio and $15.9 million in cash, DARA Bio stock is looking fairly-valued at today's price based solely on the commercial operations.

Upside to investors comes from driving sales higher over the coming quarters - something we think will occur - and monetizing KRN5500 through a development partnership. Based on probability-adjusted NPV analysis, we believe KRN5500 could fetch an upfront payment in CCIPN and MM of approximately $10 to $20 million. Adding the middle ground of $15 million for KRN5500 brings our calculated fair-value for DARA to $40 million, or around $2 per share based on the current basic share count. Catalysts over the next few months include the third quarter financial results in early October 2014 and an update after the face-to-face meeting with the U.S. FDA on KRN5500. Ultimately, with enough cash on hand to fund operations into 2016 and a growing top-line, we see DARA Bio as low-risk right now. A partnership for KRN5500 has the potential to double the shares in 2015.