Replies to post #157807 on Biotech Values

[iandy]

Elan:
>Shares seem to be assuming Royalty Pharma returns with a higher offer

Elan’s shares have risen 8% since disclosure that Royalty Pharma had approached the board with an offer at $11 per share. The shares are now trading at a 4% premium to this offer price and just a 5% discount to the net present value (NPV) of $12.1/share, estimated by analysts at Deutsche Bank, who say that, at current levels, it seems that investors are assuming that Royalty Pharma will return with a higher offer.

The current NPV of $12.1 assumes Tysabri sales grow to $2.65 billion by around 2016 and applies a 50% probability to its approval in secondary progressive MS (SPMS; with $500 million in sales). In a best case scenario (ie, success in SPMS; greater penetration in the current indication) the analysts’ NPV suggests upside to $13.5/share. Beyond this, investors would have to assume management can complete value accretive M&A. This valuation range suggests Royalty Pharma is likely to have scope to increase its offer closer to their $12.1/share valuation. However, they believe Royalty Pharma’s likely required rates of return will mean revised bids materially above $12/share are unlikely.

According to analysts at Berenberg Bank, the news reduces Royalty Pharma’s ability to play the “risk reduction” angle with shareholders at the $11/share level. This news reduces RP’s options and, if serious in its intentions, increases the need for a higher formal offer that more fairly reflects Tysabri upside, in our view. Their price target of $13 is based on a SOTP valuation.<
http://www.thepharmaletter.com/file/120437/elan-to-unlock-benefits-for-shareholders-from-tysabri-deal.html?utm_source=2009_11_06-Pharma+Clean&utm_campaign=adc034173a-RSS_EMAIL_CAMPAIGN&utm_medium=email

This article pretty much sums up my assessment. I agree with the analysts at Berenberg Bank that another offer of a bit over $12 a share is likely. The stock should trade up on the news of a higher offer and that is when I will sell the last of my shares.

I think this industry in some regards is in the stone age as far as how it looks at its business ... This opens up an entire group of new investors.

KM's latest statement is fairly typical for him. A number of years ago he bragged ,in an interview, that CEOs from other biotechs were coming to him for advice. The guy's never come up short in the ego dept.