BOSTON (TheStreet) -- We've reached the stage of the biotech bull market where a sell-side analyst can value a company on sales of a cancer drug that doesn't exist.

I'm referring to Christopher Marai, biotech analyst at Oppenheimer & Co. He initiated coverage on Agenus (AGEN) - Get Agenus Inc. Report earlier this month with an outperform rating and a $14 price target, which values the cancer-drug developer at more than $1.2 billion.

Is there a specific Agenus cancer drug, or drugs, which Marai uses to come up with his valuation?

No! Marai just assumes Agenus will successfully develop and secure approval for a placeholder cancer drug at some point in the future. Once on the market, that drug will be a commercial hit.


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We arrive at our $14/share valuation by applying a 6x multiple (a typical oncology multiple) to our projected 2022 worldwide sales of $1.3 billion for a single novel checkpoint inhibitor being developed by AGEN for the treatment of oncology, discounted 40% annually. We do not assign value to a specific checkpoint or indication at this time, given that the evidence as to which checkpoint may work best for which indication is not clear, despite reasonable evidence that checkpoint inhibitors should have efficacy across a broad range of tumors and augment current treatments in combination. [Emphasis mine.]

Let's unpack this remarkable feat of biotech-valuation hand waving. Marai is telling investors to buy Agenus based on a forecast looking seven years into the future calling for $1.3 billion in sales for a cancer drug he can't name, approved for a specific cancer indication he can't identify.

Details? Clinical data? Don't be silly, just buy the stock, says Marai, because Agenus possesses an "in-house toolkit of immuno-oncology checkpoint antibodies, anti-tumor vaccines and vaccine adjuvants." And there are partners, too. Incyte (INCY) - Get Incyte Corporation (INCY) Report and Merck (MRK) - Get Merck & Co., Inc. (MRK) Report offer "potential access to IDO inhibitors, anti-PD1 and other therapeutics molecules that may augment its full spectrum immuno-oncology program."

It's biotech buzzword bingo. That plus a pipeline of unnamed drugs still not cleared to begin human clinical trials is justification enough for an outperform rating and a $14 price target.

I certainly understand investors are embracing the biotech sector in a sloppy, wet kiss, with cancer immunotherapy companies on the receiving end of the most love. Agenus shares have more than doubled in value this year. But it would be nice if biotech sell-side analysts like Marai didn't resort to fantasies and wishful thinking to justify buy ratings and billion-dollar market valuations.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.