Saturday, September 21, 2013 9:31:20 AM
Caleb politely asked for this, so I thought I'd have some fun this weekend providing valuations of K...
In part 1 we begin with zero... if K fails in clinical trials, then its likely value is zero... this remains a very real possibility, so we begin this exercise with a risk management valuation...
I am going to ignore opportunity cost here and focus on the likelihood of getting one's basis back... there are endless ways to play the market... an investment in K in this very early clinical stage is an attempt to hit a grandslam... it is not an effort to get a 10% annualized return... so the big, big risk is striking out... it is zero...
Regarding share structure of CTIX I will assume 150 million fully diluted shares... assume an investment with a cost basis of $2 per share (many of us are lower)... in order to feel confident that you will be able to at least get your money back in the future you need to believe that future market cap will be at least 300 million... if we assume a P/E ratio of 20 (which I will do repeatedly during this exercise) then earnings of at least 15 mil are required... that is earnings/profit of 15 mil would be required to maintain a market cap of 300 mil at a P/E of 20...
It now looks likely that CTIX will have the following trials underway in 2014: P1 for K, P2 for B, P2 for P... if any of these produce positive results the market will likely value the indication producing the positive results at a figure that projects to future earnings in excess of 15 mil...
For example, an indication that is expected to bring gross revenues of at least 200,000,000 might project as so...
gross rev 200,000,000
assume profit margin of 40% = 80,000,000 net rev
assume 50 mil operating exp = 30,000,000 earnings/profit
P/E of 20 = market cap of 600 million
Thus as long as one of CTIX's big 3 in clinical trials in 2014 is successful... P, B or K... then the pps will likely be maintained in such a way that you will be able to get your basis back...
The real risk here is that all three indications would fail in the same year... all three would be worth zero and you lose your investment... having three indications in trial in 2014 spreads the risk considerably... such that even if K goes to zero... it is unlikely that CTIX will... unless all three fail... as always... jmo...
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