"Our US$77 price target is based on the average of our P/E
valuation and DCF analysis. Applying a 10x multiple to our
2017 earnings forecast of $7.48 (previously $7.95) generates
a value of $74.84. Our DCF value (9.5% WACC and a 0.5%
terminal growth rate) equates to $79.65. The average of our
P/E and DCF values is $77.24, hence our $77 price target.
There are no further acquisitions included in our base case.
We assume that Photofrin is approved for bile duct cancer in
2018.
Upside scenario
Our $106 upside scenario utilizes a 12x multiple on 2017E
earnings of $8.85. equating to a value of $106.20. Our
DCF value equates to $105.57. The average of our P/E
and DCF values is $105.89, rounded to our $106 upside
value. This scenario utilizes a 2% terminal growth rate and
higher multiple plus incrementally higher earnings to reflect
continued execution of the M&A strategy. We also assume
that Photofrin is approved for bile duct cancer in 2018.
Downside scenario
Our $18 downside scenario utilizes an 6x multiple on 2017E
earnings of $3.04, generating a value of $18.24. This scenario
assumes no new approvals for Photofrin and lower than
anticipated demand for the portfolio. We also assume the
pace of M&A slows significantly with increased competition
for assets."