LEXINGTON, Mass. ( TheStreet) --I spent a very long day at the Rodman & Renshaw investor conference Wednesday (Amtrak's Acela between Boston and New York City is a nice way to travel, but roundtrip in a single day? Arduous). I'll have updates and news from my Rodman conference trip over the next several days, but let's get started with Antigenics ( AGEN). The company's royalty rate for its experimental vaccine adjuvant QS21 ranges from 1.5% to 6% depending on the vaccine, but is generally in the low single digits, said CFO Shalini Sharp in a response to my question after her presentation. I'm glad she answered the question because the company hasn't been willing in the past to shed much light on the QS21 royalty rate agreements it has with various partners who are developing vaccines containing the Antigenics' adjuvant as a booster. The not-so-good news for Antigenics is that a low single-digit royalty rate doesn't bring in that much money, especially compared to the company's current valuation. For example, let's assume that GlaxoSmithKline's ( GSK) malaria vaccine (which contains QS21) is launched in 2011 and peaks at $1 billion in sales by the end of 2014. I'm going to also assume Antigenics' royalty rate at 1.5% (likely since a malaria vaccine is a low-margin product sold primarily in the undeveloped world.) That works out to $15 million in royalty revenue for Antigenics. But of course, that's five years in the future, so the net present value of that revenue today is just over $7 million. At a multiple of six times, that's worth just under $43 million in current enterprise value, or 48 cents a share, for Antigenics.
I'm not probability adjusting for the malaria vaccine's success (I'm assuming 100% that it works and reaches $1 billion in sales) so even these calculations are a bit on the high side. If I add two more vaccines to this valuation exercise, one generating $1 billion in sales and another $500 million in sales, both by 2015, and give Antigenics a higher, 3.5% royalty, the total enterprise value today for Antigenics is $173 million, or $1.90 a share. Throw in the company's cash and you're basically at par with Antigenics' current valuation. Would you give 100% odds to three QS21-containing vaccines reaching the market and generating $2.5 billion in sales within the next five years? I wouldn't, which is why Antigenics is actually over-valued today. And no, I don't give any valuation credit to Oncophage, the company's kidney cancer vaccine for reasons I've made abundantly clear previously. It doesn't work. In her comments Wednesday, Antigenics' CFO Sharp didn't sound very confident on Oncophage either. The company is offering no timeline for the launch of the vaccine in Russia, the only country where it's approved. "The timeline is uncertain at this point," said Sharp, when asked about reimbursement negotiations between Antigenics and the Russian government. Whatever timelines Antigenics has offered for Russian sales of Oncophage are clearly slipping away fast.
"Based on our checks, we expect Feraheme's launch to be slow and Street
estimates need to come down. In dialysis, there is a lukewarm reception and not expecting a big uptake until 2010. We are bullish about pre-dialysis, but opportunity is small currently and will take time to build the market," writes Werber. The analyst significantly reduced his Feraheme sales forecast across the board. His 2009 Feraheme sales estimate was lowered to $13 million from $19 million; his 2013 estimates falls to $299 million from $357 million. "Impediments to using Feraheme are (1) high price ahead of dialysis bundling in 2011, (2) lack of key differentiation, and (3) reimbursement concerns. Thus, we are lowering estimates in dialysis," writes Werber. Of course, Werber's earnings estimates were reduced, as well. So too was his price target on AMAG, cut to $52 from $65 a share. AMAG shares hit $56 the day after Feraheme received FDA approval, but since then, the stock has slipped as much as 25% to a low of $41 at the end of August on concerns over the drug's launch. Werber echoes these Feraheme launch worries but he's certainly not a leading indicator. In fact, you could argue AMAG's share price may have found a bottom now that a major analyst has weighed in with a downgrade and cut his Feraheme estimates. AMAG shares closed Wednesday at $43.70. -- Reported by Adam Feuerstein in Boston