Biotech Values

[DewDiligence]

Re: ENTA valuation (addendum)

Two scenarios: flat revenues; half of your best-case growth guess.

Flat revenues can be ruled out (barring the highly unlikely outcome that G/P fails to obtain timely approval in the US or EU). Even the most bearish forecast for G/P has ENTA earning much more in royalty income than ENTA currently earns in royalties on V-Pak—not only because G/P is a much better product, but also because ENTA’s royalty rate on G/P is based on 50% (rather than 30%) of ABBV’s gross sales of the regimen.

You also asked about the valuation at “half” of my best-case scenario. Since my best-case scenario has ENTA earning $200M of after-tax income in 2020 and several years thereafter, half of that is $100M. Divide the $100M by 21.2 fully-diluted shares (#msg-129620784) to get a target EPS figure. (It’s reasonable to assume that ENTA will have approximately the name number of shares outstanding in 2020 and beyond as they have now; other than at its IPO, ENTA has not shares to raise capital while it has been a public company.) Then apply a multiplier of your choice and/or use a discount rate of your choice to derive a net present value for this income stream.

Don’t forget to ascribe value for ENTA’s wholly-owned NASH compound, EDP-305, which is a possible best-in-class FXR agonist (#msg-128915696, #msg-125454754). In my opinion, EDP-305 alone is worth at least $300M.