It seems to me that the recent tensions on the board are a result of our general inability to value small biotech stocks that have no reliable revenue stream on which to base a fundamental valuation. Some, like jerrydylan, use a technical evaluation to predict stock price, which may be more reflective of market psychology in the absence of widely disseminated significant information. Many of the folks on this board seem to be pretty analytical, and some likely have some kind of quantitative risk/reward valuation algorithm to help them price small biotech stocks, where the value is in the potential future revenue stream. To have any chance of being reasonably useful, such a valuation algorithm should also take into account the market psychology associated with recent performance of the stock.
There is always some subjectivity, but attempting to quantify outcomes can keep expectations confined at least a little.
Here is a really simple approach. It attempts to estimate the value at the end of a specific period of time as by combining estimates for the impact of the outcome of specific events.
Value(@end of period) =(weight* sumevent( Likelihood * Estimated Change in Share Price))/ sumevent(weight)
So, for 2007 one such estimate might be:
Event Likelihood Est.Change in SP Weight Expected
General Market 1
Market Up >10% 30% 0.15 0.05
Market Down >10% 70% -0.15 -0.11
General Market -0.06
CX717 3
CX717 Dropped 30% -0.30 -0.09
CX717 AD only 30% 0.30 0.09
CX717 AD &ADHD 30% 2.50 0.75
CX717 0.75
BP Deal 2
BP ND Deal <$5M 60% 0.50 0.30
BP ND Deal $5-10M 30% 1.00 0.30
BP ND Deal >$10M 10% 2.00 0.20
BP Deal 0.80
Financing 3
no more shares 20% 0.00 0.00
<5M more shares 30% -0.25 -0.08
5-10M more shares 30% -0.40 -0.12
>10M more shares 20% -0.50 -0.10
Financing -0.30
Estimated Change in Value @ End 2007 0.32
So, in this case, the estimate of the most probable change in share price over the course of the year is $0.32, for a year end share price of about $1.50. But, note the estimate on the extremes - a change of -$0.95 and +$4.65 for resulting year end share prices of $0.20 - $5.80!
This is pretty crude, and I don’t expect anyone to take it too seriously. I’m just trying to get a more analytical discussion started on how to value this stock based on the likelihood of the outcome of expected events, which is the only way I think these kinds of stocks can be valued.
AI
