Biotech Values

[DonShimoda]

In order to determine the present value of the CELGZ CVR, you need to discount the future cashflows. Using CELG weighted average cost of capital of ~ 7%, Friday's closing price of $1.99 equates to ~ $1.6B in Abraxane sales. I believe CELG internal estimate for Abraxane sales is around $1.8B which would value the CVR ~ $2.65. $2-$2.65 roughly brackets where CELGZ has been trading since the milestone payment. If you think that Abraxane peak sales will be much higher, then the CVR is certainly attractive at current prices; however, it is worth keeping in mind that the further out those sales materialize the less value they'll have today.

p.s. CELG may consider buying-in the CVR at some point