Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS) recently announced that it anticipates initiating multi-national, Phase 3 trial of voreloxin in the second half of 2010. What could be the target price of Sunesis Pharmaceuticals (SNSS) if Voreloxin is approved? Let’s evaluate SNSS for this purpose.
Biotech Stock Evaluation involves analyzing the different points. A fair evaluation is to be made before investing in any biotech stocks.
1. Competitor (Existing and other drugs in the Pipeline) : Voreloxin is used for treating Acute Myeloid Leukemia. CYCC is is the main competitor for SNSS. Sapacitabine (CYC682) is also in the Phase II trial stage. What will be the market share of Voreloxin? This will depend of the performance of CYC682 and Voreloxin. However if the drug is approved, we can count on at least 30% market share. (If the drug is so bad, then FDA will not approve the drug.)
2. Market for the drug. : AML is a rapidly progressing cancer of the blood characterized by the uncontrolled proliferation of immature blast cells in the bone marrow. The National Cancer Institute estimated that nearly 13,000 new cases of AML were diagnosed and approximately 9,000 deaths from AML occurred in the U.S. in 2009. Additionally, it is estimated that prevalence of AML is approximately 25,000 in the U.S. AML is generally a disease of older adults, and the median age of a patient diagnosed with AML is about 67 years. Estimated AML market is $900mm a year. 30% of 900mm = 270mm
3. No of Shares outstanding.: 110mm shares outstanding as of today. By the time the drug is approved, number of shares is most likely to go up to another 25% (to be safe). So for our calculations we will consider 110 * 1.25 = 137.5 mm
4. Gross margin: 40 % to be fair
270 * .4 = 108
5. Operating expenses: 50mm per year for new trial and research expense.
6. Profit after operating expense 108 – 50 = 58 million
7. Assume a P/E ration of 20 gives = $1.16billion
8. Price per Share will be 1160/ 137.5 = 8.43
9.Now what is the chance of approval, taking a 50% chance of FDA approval will bring the value down to $4.215.
10. Approval will be at least 2 year away. For each year discount at least 20%.
4.215 – .843 = 3.372
3.372 – .6744 = 2.69
So we have calculated targeted value as $8.43. However we can say that now it is $2.5 stock.
Note: We take no responsibility for the loss or gain made by individual investor. Investors should do their own research before investing the money in the stock.
{ 2 comments… read them below or add one }
Thank you for that analysis and i think you are very close to the point , i did close calulations and i came up with
Snss : target value at $9:78
and the current value should be at $3:28
CYCC’s drug underperformed expectations, therefore people are jumping into SNSS, and I believe SNSS is the better bet.