Phytopharm - A potential 10 bagger update
However, should Cogane succeed in becoming a disease-modifying therapy, a premium price should be achievable (potentially in excess of $10,000) which would significantly raise our peak sale and valuation estimates. In ALS we estimate a total patient population across North America and Europe of 55,000 and assume an orphan drug price of $15,000 per year, and for Cogane to capture 20% of the market.
Given the binary nature of Phytopharm’s investment case, it is worth highlighting the potential upside upon reporting positive, and unambiguous, results from Confident-PD and securing a big pharma partner to take over Phase III development and commercialisation duties. Based on successfully meeting these key milestones, Cogane’s probability of success would increase such that our rNPV could rise to £83m (see Exhibit 5).
Exhibit 5 : rNPV sensitivity analysis
Spreadbetting Magazine overview As can be seen above, and which is based upon Edison Investment research, Phytopharm is not without risk but, should the trials proves successful, the upside is considerable. One should only place a small part of your portfolio in such high risk trades and most certainly not leverage them. What we also find interesting from a trading skew perspective is the fact that the stock has a very tightly held profile with Invesco Perpetual holding over half of the float and another 30% being held by institutions with generally a long term profile. As we touched upon in our last edition, this profile of stock holding is conducive to large ‘squeezes’ IF good news occurs and so even more pronounced moves to the upside. A look again at the chart below shows how the stock rose 5 fold in early 2010 and is indicative of the lack of ready turnover in the stock. Of course, this can work to your disadvantage if you need to sell (hence why you should not leverage yourself in these types of situations).
Another bit of guidance - any seasoned trader will tell you that stocks are prone to bouts of optimistic speculation, generally on the approach to news being released (witness the run up in Borders & Southern just recently), and that there are 3 investment adages applicable - “it is better to travel than arrive”, “buy the rumour sell the fact” and finally “don’t fall in love with a stock” - in a nutshell, if Phytopharm get run up ahead of the results and you can take out your original risk capital - DO IT - yes you will miss out on double the returns, but if it goes wrong, then you have only risked “the market’s money”.
July 2012 | www.financial-spread-betting.com | 25