Replies to post #217150 on Biotech Values

[DewDiligence]

Re: Modeling ENTA’s valuation

I think that is more accurate to say that my prediction [for ENTA’s royalty rate] was for the 9/30/18 fiscal year, since that is what the expense guidance covered… You are correct that is was not for the prior quarter alone.

Your post in question (#msg-138025099) appeared to be a projection for calendar (rather than fiscal) 2018, but it doesn't really matter because your approach of offsetting ENTA’s projected operating expenses against its projected Mavyret royalties is seeking to answer the wrong question, IMO.

A more sensible way to model ENTA is to think of it as the sum of two distinct entities: 1) The passive recipient of a royalty stream from ABBV; and 2) A development-stage biotech with a pipeline in NASH, RSV, and HBV.

Entity #1 can be valued without regard to ENTA’s operating expenses, which are wholly in support of entity #2.

In practice, the two entities described above are interdependent when it comes to calculating the tax rate; however, the valuation model can easily be tweaked to account for this wrinkle, and NPV can still be modeled as the sum of #1 and #2.