Værdiansættelse og strategisk analyse af Topotarget A/S ved anvendelse af realoptioner

Peter Ernst Frederik Hegermann-Lindencrone

Student thesis: Master thesis


“Belinostat – Potential Backbone of Cancer Therapy”. Why is this multi-million dollar mention of a cancer drug, a few months away from approval by the US Food and Drug Administration (FDA), only worth approximately $55 million in market cap? This question arises when a similar, competing cancer drug, Folotyn®, with much higher toxicity than the cancer drug belinostat, had a net sale of $50 million the first 4 months after market launch. The quotation about belinostat has been cited by the American commercial-stage Biotechnology Company Spectrum Pharmaceuticals about belinostat, which is owned by the Danish biopharmaceutical company Topotarget A/S. This drug is at the time of writing, at the final stage of FDA approval as a drug for treatment in the cancer type peripheral T-cell lymphoma (PTCL). If belinostat is approved by the FDA, Topotarget is ensured several milestone payments, potentially amounting to $320 million plus double-digit royalty payments in various other cancer types, such as Non-small cell lung cancer. These favorable financial conditions were defined in the license agreement made between Spectrum Pharmaceuticals and Topotarget A/S in 2010. When estimating the value of a biotech case, such as belinostat, it is important to recognize the obstacles of the project of developing and launching a medical drug, should it fail to meet the clinical criteria defined by the company management or the FDA. Should the company abandon the project and save the substantial costs of a phase III clinical trial? Or should it proceed and take the drug to the next clinical phase? This thesis uses the Real Options Approach, by applying volatility estimate and probability calculation combined with Monte Carlo simulations, to estimate the value of the project and take into account the probabilities of the project failing in one of the clinical trials. Thereby the constant growth factors and endless terminal values used in traditional Net Present Value models like DCF and EVA, can be rejected as suitable methods in the case of a biotechnology company like Topotarget A/S. Real Option Valuation is the absolute most appropriate approach in this case. This thesis found that the company Topotarget A/S is undervalued with today’s stock price at DKK 2,41 per share. According to the modeling used in this thesis, the value may be as high as DKK 9,57 per share, due to significant medical potential. With the use of Real Options Analysis, including advanced volatility calculation and plausible probability estimation, the result obtained in this thesis corresponds approximately to the value of the stock, DKK 8,43 per share, estimated by the international investment research company, Edison Investment Research Limited.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2013
Number of pages142