Increased Target price $4.60
Versant Partners sent out a 12 page report about Adherex and the GSK deal. They beleive that the aquisition of eniluracil has increased the share price substantially.
I was interested to see that the analyst used a 50% discount rate when calculating the Present value of cash flows. As we get through the various stages of development this discount rate will drop and the value will rise substantially.
Below is part of the report from Versant
All values in C$ unless otherwise noted.
Symbol: AHX, ADH
Exchanges: TSX, AMEX
Current Price: $1.80
Previous 1-Year Target
(adjusted for share consol):
$3.75
New 1-Year Target $4.60
Target Return: 156%
SPECULATIVE BUY
Industry:
Healthcare and Biotechnology
Adherex reported fiscal Q2 results, generating a net loss of US$4.6 million in line with our expectations upon considering ongoing Phase Ib/II studies testing its vascular
targeting agent Exherin.
Sufficient cash to fund Exherin & eniluracil development until Phase II Exherin
testing is complete. Quarter-end cash balance was US$12.6 million, and when we add
proceeds raised from its recent US$8.5 million equity financing and incorporate our
expected Jul/05 burn of about US$1.5 million, we assume the company has about US$20
million to fund Exherin and eniluracil development (see below) until calendar Q3/05,
US$3 million of which is expected to provide sufficient capital to conduct all testing
required to take eniluracil to Phase III trials, possibly by H1/07.
Market responding with indifference to Glaxo deal – so far. Recall that Adherex
signed a licensing agreement with GlaxoSmithKline (Glaxo), providing Glaxo an option
to develop Exherin (pending positive Phase II data, of course), while Adherex acquired
rights to develop 5-ethynyluracil (or eniluracil), an antimetabolite chemotherapy agent
shown in multiple preclinical-Phase II studies to improve efficacy of a still-common
anticancer drug 5-fluorouracil (5-FU), but unfortunately not in two pivotal Phase IIIs
conducted by Glaxo a few years ago.
Adherex believes that in partnership with collaborators, its research team identified some
key refinements that could improve eniluracil performance in a re-designed Phase III
(likely colorectal, breast, or pancreatic cancer) and has a few undisclosed parameters it
needs to test before launching into another Phase III trial, probably in H1/07 as stated.
Adherex’s Chief Scientific Officer Brian Huber is a Glaxo alumnus, working since 1986
with Wellcome Research Labs (since acquired by Glaxo) who we believe facilitated
negotiations.
Company Description:
Adherex is a biopharmaceutical company
focused on the development of cancer
therapeutics through its cadherin targeting,
vascular targeting technology.
Douglas W. Loe, Ph.D, MBA