BIOTECHNOLOGY COMPANY WITH SPSS DATABASE

Analyzing data for Biotechnology Company with SPSS database



Analyzing data for Biotechnology Company with SPSS database

HYPOTHESIS

VERNALIS Plc is a company where probability of loss is very low as the fluctuations in share price are not of a larger magnitude.

VERNALIS

Vernalis plc is a British based biotech company founded in 2003 by the merger of Vernalis Group with British Biotech in a deal valued at £90 million. The merger allowed British Biotech to ditch its historic but tarnished name. The company has marketed two drug products; Frovatriptan to treat migraine, and Apokyn, an apomorphine-based drug for advanced Parkinson's disease. The company has a development pipeline focused on CNS disease and oncology, and collaborates with pharmaceutical companies including Novartis, Servier, ChemGenex and Serono. (K. J. Arrow, 2008, 233-66)

Vernalis is a bio-pharmaceutical company focused on products marketed to specialist neurologists. It has two marketed products, Frova and Apokyn, and a development pipeline focused on neurology and central nervous system disorders. It's products at different clinical development stages include V10153 for ischemic stroke, V2006 for Parkinson's disease and V24343 for the treatment of obesity. Vernalis merged with Ionix and obtained candidates that include V-1003 for acute post-operative pain; V-1004 for the treatment of chronic pain; V-1005 for the treatment of opiate addiction and some intellectual property of its proprietary ion channel technology.

Vernalis' revenues increased from $28.8 million in 2004 to $30.9 million in 2006. The increase was attributed to the product sales of Frova and Apokyn; royalties, license and collaboration revenues.

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Source

Vernalis

Verona

Based on Assets Value:

000s

000s

Net Assets per Balance Sheet as at 31/12/08

640

Adjustments Required:

Increase in Land & Buildings Valuation (690-200)

490

Fixtures & Fittings not required (all)

-22

Plant & Machinery not required (48-40)

-8

Lease Obligations not taken over

15

Total Adjustments

475

Adjusted Asset Valuation

1115

Divided By: Number of shares in issue (100000/.05)

200

Asset Based valuation Per Share

5.58

Based on Discounted Cash FlowCurrent Operating Cash Flow = Rs. 680 MillionOperating Cash Flow CAGR = 83 %Number of Shares = 17.2 MillionAssumptions:Operating Cash Flow Growth Rate for next 10 years = 30% 35% 40%Discount Rate = 5% (Conservative Bank Yield)Operating Cash Flow CAGR is Constant for Next 10 years.I have calculated the last 3 year CAGR for Net operating cash flow and it stands at 83%. Hence, I assumed a higher growth rate of 30% 35% and 40% for operating cash flow for next 10 years.

Stock Value Based on Discounted Net Operating Cash Flow

If Operating Cash Flow Growth Rate is 30% then Stock Value = Rs.1534

If Operating Cash Flow Growth Rate is 35% then Stock Value = Rs.2018

If Operating Cash Flow Growth Rate is 40% then Stock Value = Rs.2650

If you compare the stock value between these two methods, there is huge difference and in fact the value based on Discounted Net Operating Cash Flow is almost double the value of EPS Based estimate. Why is that? Of course, if I assume same 20% growth for operating cash flow, then the value is ...