Relative Price & Value of pre-Phase III Pipelines for the 23 Largest Drug & Biotech Companies – Updated View

Richard

Using patent data, we estimate the relative ‘true economic’ value of companies’ pre-phase 3 (aka ‘hidden’ pipelines), then compare these estimates to the apparent market capitalization of these same pipelines. Our fundamentally based estimate of a given pipeline’s value often differs substantially from the apparent market cap of that same pipeline. Since inception (November of 2012), our portfolios of stocks whose hidden pipeline mis-valuations imply ≥20% relative share price gains has appreciated at 1.55x the rate of a comparator portfolio containing all 22 companies analyzed (equal-weighted 1.52x; cap-weighted 1.58x)

Capital markets mis-value pre-phase III (i.e. ‘hidden’) pipelines for an obvious reason: they’re hidden, at least to conventional methods of valuation. Careful analysis of patent data gives us an opportunity to see what’s hidden, and to determine whether it’s fairly valued

On average, roughly 33 percent of the largest drug and biotech (by market cap) companies’ share prices are linked to these companies’ ‘hidden pipelines’, i.e. to projects in phase II and earlier stages of development

The percent of share price explained by a company’s hidden pipeline ranges from 14 to 74 percent. The amount of quality- and sales-potential adjusted innovation in these companies spans a similarly broad range, but in many cases the capitalization of a company’s pipeline will be low versus peers even though its pipeline contains more innovation than peers, or vice versa

Because of large mis-valuations in hidden pipelines, shares of VRTX, BMY, SNY and MKGAY all appear at least 20 percent undervalued. Conversely shares of AZN, CELG, BIIB, SHPG, GILD, REGN, NVO, and ALXN all appear at least 20 percent overvalued

For more information on this, and related R&D productivity metrics covering the 22 largest publicly-traded companies (by R&D spending) please visit hiddenpipeline.com

For our full research notes, please visit our published research site

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