ames, I guess I tried to oversimplify the importance of share prices. What I really meant to say is that if a blockbuster is produced there will be enough money for us and those who receive the additional shares due to dilution. Naturally it would be preferable for share prices to remain as high as possible. Absent that we have to look at the possibilities given the present market conditions. So I did the following:
Assuming that the burn rate remains constant at the present $30Mil/yr and that a blockbuster product could be marketed in 4 years from the end of 2001 generating a net profit of $50 mil/yr:
Burn for 4 years (X$30mil) =$120 mil Less cash on hand as of end of 2001 of $42 mil gives us cash need of $78 mil. Let us say we have to issue shares to GENZ at $.78/share to finance this amount. That would require 100 mil shares. This would bring the then total shares outstanding to 115 mil. If we assume that a block buster product with the $50/yr net profit is possible, that would give us $.44 earning per share. A PE of 25 would give you $11/share value. A PE of 30 would give you $13.20.
My calculations may be wrong and my assumptions may be too optimistic. If anyone would care to comment I would appreciate it.
Your calculations are not far different from mine, except that I would add 2 or 3 years to the time for bringing a drug to market. The only solution to the dilution problem at these prices is to constantly buy more, which I have been doing, but not without a good amount of nervousness.
agree with you. I have been buying shares daily. imagine selling 1000 share of GE for $28,000 and buying 30,000 shares of GZMO which is what I am doing. I believe the institutions who are selling either for window dressing, poliices that compel them to sell stocks that are below 2 or 3 dollar value, as well as shortsighted portfolio managers are giving us an opportunity of a life time to realize long term profits.
To the typical joe blow out there who may not have lots of money, imagine instead of taking your family for dinner this Friday and spending $120 you could buy 120 shares of this company and reap decent rewards in the future if you are patient.
ames & glad: I think that you guys are more than a little pessimistic. Only $.78 a share to finance next four to seven years of product development? No money from collaborations? 115 million shares? IMO you're painting a worst case scenario. Stick it out. Your risk adjusted return will be more than satisfactory. By the way, I'm sure that there are many institutional investors who would love to buy GZMO right now at these prices, but they can't do so for the usual reasons (price under $2 a share, can't accumulate a large enough position, etc.). Small retail investors are having a field day. IMO this is a time of great opportunity.