Biotech Notebook: Progenics, Wyeth

Doing some math on Progenics(PGNX) and its newly approved bowel (constipation) drug Relistor: I think this can be a bigger-selling drug -- and more valuable to Progenics -- than many people expect it to be.

For starters, there's going to be a real demand for Relistor from nurses and other attendants of acutely ill patients. This may sound somewhat indelicate, but Relistor allows nurses to better plan their day because they can schedule when a hospice patient will have a bowel movement. There will be fewer bathroom "surprises," which means beds can be changed, patients bathed and changed, all on a more dependable schedule.

A hedge fund analyst source who's long Progenics ran some of his numbers by me and they make a lot of sense. There are about 890,000 hospice patients in the U.S., with an average stay of around 60 days, according to the Hospice Association of America. That works out to 53.4 million patient days per year.

Assuming half of these patients are eligible for Relistor (a guess), that leaves the addressable market for the drug of just under 27 million patient days per year.

Pricing is a bit of guess, but assume Relistor is sold for $45 a dose. (There's some logic behind that guess, but I won't go into it here.) Relistor can be given every other day, or about 3.5 times per week, which works out to $157.50 per week. Divide that by seven days and you get a per-day price for Relistor of $22.50.

More multiplication: 27 million patient days per year times $22.50 a day comes to a potential peak Relistor sales of about $600 million in the U.S.

Of course, Relistor won't be used in all these patient cases, but what about half? A half market share might be a tad aggressive, but let's go with it. That pegs Relistor peak U.S. sales at $300 million in 2011, about three years from now. Assuming Europe will be half as big (another guess), total peak sales for the drug could reach $450 million.

Wyeth (WYE) is in charge of selling Relistor worldwide and paying a mid-teen royalty to Progenics. Assuming the average royalty is 15% with a sales multiple of 8 gets you a net present value of $356 million, or about $13 per share for Relistor.

When you add in Progenics' current cash and a conservative estimate of future cash milestone payments from Wyeth, you can get a fair value for Progenics in the neighborhood of $20 a share.

Progenics closed Tuesday at $13.41.