The end game for almost all biotechs is to be acquired by a pharma company. Activity in the last 6 months has substantiated this and buyout bids have continued to rise.
DNDN currently trades at 4.0 X trailing net revenue run rate. If purchased at the average multiple paid for BIOTECHs of 10X, this would be a $22.50 bid, on trailing revenues. Most likely the buyer would have to bid on current revenue, raising the private value to about $25 on the lowest metric. This is a very large gap between where we are and where a potential bid would be placed.
In the last 5 years a number of big deals have confirmed Pharma's willingness to pay 10X revenues for biotech companies. (per Goldman Sachs Data)
||Bristol Myers Squibb
Recent bids have only served to confirm or increase the value that Pharma places on biotech companies, even those without product approvals, with "failed launches" or companies that are nowhere near their target business model for meeting cogs or operating margins.
1.GSK bid $2.6 billion for HGSI
2. BMY bid $3.5 billion for AMLN
3. GILD paid $11 billion for VRUS
4. Roche bid $6.3 bilion for ILMN
Hostile bids have been occuring, so we could be surprised by events.
HGSI is an interesting case. It had a disappointing launch (like DNDN). GSK has already partnered with HGSI on the Lupus drug, Benlysta, and owns half of the products revenue and earning worldwide. Althought the product is currently only doing about $31.6 million in quarterly sales, GSK believes the potential market of $500 million in 4 years or so, is still achieveable. They apparently bid 10X this potential market and then factored in the 1/2 owned by HGSI, to arrive at the $2.6 billion bid. I do not know the value of their other assets. They may be material.
But on the face of it this is equivalent to a buyer looking at DNDN and saying we still believe in the market potential for Provenge to be a $1.5 billion product. We will pay 10X that potential that is 4 years away, or $15 billion today. ($100 per share).
With Johnson having been on both sides of the Pharma- Biotech deal making he probably has a good idea of the underlying price that DNDN could fetch. I believe that he could consummate a deal today at 10X current sales, with one phone call. ($22 to $25 per share)
However if he can get sales to $50 per month, $150 per qtr, $600 per year, he could sell the company for $6.0 billion, or $40 per share.
This seems ridiculous at the current time, however the valuation of buyouts is very predictable and at a fairly consistent range.
Johnson wants sales to be higher because the value of the company rises directly with the sales increase. Johnson owns a lot of shares. Buyouts occur at 10X sales. We are at 4X sales. The price in Johnson mind is probably based on reaching at least $600 million (like IMCLONE) and then selling. The buyers, unlike GILD, would find is impossible to pay $40 for a $9 stock. The buyers bid price and the sellers ask price are too far apart.
If DNDN continues to stumble Johnson will likely rethink his target. As many here wring their hands about the company being unable to grow its probably useful to consider HGSI at $7.00 with a product that had a slow launch. It double overnight to $14, and management rejected the offer. Biotechs trading at 4X sales with large potential growth opportunities are targets for Pharma companies, friendly or otherwise. At least we now know why the company tightened up its poison pill effective May 7.