It can be tricky putting a price tag on a biotech company, especially one that offers no profits but promises of big success one day in the future. For those companies that are years away from a payoff, analysts depend on analyzing discounted free cash flow. The process involves forecasting how much free cash flow can be generated by the drugs in a company’s portfolio and pipeline and then discounting the value of that future cash to determine present value, and thus the investment opportunity.
Case in point: H.C. Wainwright analyst Ram Selvaraju initiates coverage on shares of IntelliPharmaCeutics Intl Inc (USA) (NASDAQ:IPCI), with a Buy rating and price target of $2.50, which represents a potential upside of 163% from where the stock is currently trading. (To watch Selvaraju’s track record, click here)
Selvaraju wrote, “We believe Intellipharmaceutics to be underrated based on its focus—development and commercialization of high-value generic medications, improved formulations of existing drugs, and abuse-deterrent painkillers—and the breadth and depth of its pipeline, which is comprised entirely of agents based on existing approved active pharmaceutical ingredients (APIs). The company possesses a portfolio of generic drug filings that would not be out of place at an entity ten times its size, while also developing two candidates that we consider particularly promising: (1) a proprietary abuse-deterrent formulation of oxycodone, Rexista; and (2) Regabatin XR, a competitor to the extended-release form of pregabalin […] We believe that Rexista and Regabatin XR could be significant future value drivers for the company, with peak total annual sales of ~$100M.”
“We derive our $2.50 price target from a risk-adjusted net present value (rNPV) approach […] We utilize a discount rate of 12% for all future cash flows, which we consider appropriate given the developed nature of the markets within which the company’s products would compete. The 40% probability of success for both Rexista and Regabatin XR is conservative, in our view, since both are based on existing marketed drugs and utilize the 505(b)(2) pathway.”
Overall. out of the 3 analysts polled by TipRanks (in the past 12 months), 2 rate IPCI stock a Buy, while 1 rates the stock a Hold. With a return potential of 121%, the stock’s consensus target price stands at $2.17.