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) 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.
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.