Replies to post #484114 on Anavex Life Sciences Corp (AVXL)

[ExtremelyBullishZig]

But then in reality when the market looks at a company without any revenue and a small potential for getting revenue, it is very overvalued...

[Hoskuld]

Those numbers don't look very relevant to Anavex because if the MAA is approved (presumably everything in your model depends on this event) then $1 and $2 and $5 are crazy low. And for pre-revenue biopharma, discount rates are usually far higher. But where everything is essentially dependent on a single event, this kind of modeling is not very useful.

More useful, IMO, is the value of 3-71 P2b readout and the MAA decision. The former is a big deal but we are not focused on it because of the much larger decision looming over it. Taken together, AVXL goes asymptotic which is why models and discount rates don't matter much (IMO, again.)

[Bourbon_on_my_cornflakes]

Wrong answer. Should be $88.17.

your mistakes:
1. a discount rate of 5% is way to low. an appropriate rate would be 20% for a venture capital type investment.
2. your calculation has no residual value - the company does not disappear after year 5. To calculate the residual, divide year 5 earnings by the discount rate minus the long-term growth rate of say 5%, then present value it using the year 5 discount factor.

At 20%
Year 1: $1 / (1 + 0.2)^1 = $0.83
Year 2: $2 / (1 + 0.2)^2 = $1.39
Year 3: $5 / (1 + 0.2)^3 = $2.89
Year 4: $12.50 / (1 + 0.2)^4 = $6.03
Year 5: $25 / (1 + 0.2)^5 = $10.05
Residual: $25/(.2-.05) = $166.67, $166.67 / (1 + (0.2)^5 = $66.98

Sum = $88.17