Biotech Values

[DewDiligence]

Given the recent GILD data, would you change your model for valuing ENTA?

No—please see the bottommost paragraph of #msg-95103023.

What would the present value of the PT be if you used a discount rate of 5%?

The only component of the model that warrants discounting is the ABT-450 royalty stream—the other components in the model (other than cash on hand) are present values that have already been subjected to implicit discounting for time and risk.

For the ABT-450 royalty stream, the 8x multiple the model applies to peak annual royalty income (after taxes) already includes implicit discounting for the “out” years; however, it doesn’t include discounting for the value of time between now and the product launch. Inasmuch as ABBV/ENTA’s product launch is likely only a little more than a year away, the application of a 5% annual discount rate for the value of time would reduce the model’s $1.02B value for the ABT-450 royalty stream by a little more than 5%, shaving about $3 off the $81 nominal price target.

Additionally, an investor might want to apply a separate risk discount to the ABT-450 royalty stream (and the $195M of milestone payments from ABBV) for the possibility of program glitches or outright failure. Given the robustness of ABBV/ENTA's data package to date, such a risk discount ought to be pretty small, IMO.