Using the sales forecasts for Tysabri presented in Exhibit A, and using the discounted cash flow model presented in Exhibit B, what do you think Elan is worth?
Using the sales forecasts for Tysabri presented in Exhibit A, and using the discounted cash flow model presented in Exhibit B, what do you think Elan is worth?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
1. Using the sales
Transcribed Image Text:(2%) Perpetuity Growth Rate
Discounted value 2013-2020
Discounted value 2021-2024
Perpetuity value beyond 2024
Total Tysabri Value
Cash
Total Elan Value
-2%
Total
$1,977
$619
$1.051
$3,647
$1,787
$5,434
Per Share
$3.82
$1.19
$2.03
$7.04
$3.45
$10.49
% of Total
54.2%
17.0%
28.8%
100.0%
(4%) Perpetuity Growth Rate
Discounted value 2013-2020
Discounted value 2021-2024
Perpetuity value beyond 2024
Total Tysabri Value
Cash
Total Elan Value
-4%
Total
$1.977
$619
$883
$3,479
$1,787
$5,266
Notes: Valuation based on that presented in "Royalty Pharma's Response to Elan's Tysabri Valuation," May 29, 2013, p. 12. Royalties paid for the first 12 months, approximately 2013 in length, are at 12%. Perpetuity value (terminal value) assumes net revenues "grow" at
- 2%
Per Share
$3.82
$1.19
$1.70
$6.72
$3.45
$10.17
% of Total
56.8%
17.8%
25.4%
100.0%
per annum indefinitely and are discounted at 10%. Assumes same 518 million shares outstanding as Elan stated on May 29, 2013. Elan's tax loss carry-forwards reduce the effective tax rate to 1% through 2017; beginning in 2018 the royalty stream is subject to Irish taxation at 12.5%. Royalty Pharma believes that the WACC should rise
from 7.50% to 10.0% beginning in 2020 when Tysabri goes off-patent.
Transcribed Image Text:Exhibit A Forecasts of Tysabri's Worldwide Sales
Billions of US$
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
1.63
1.90
1.75
2.22
2.67
1.80
2.32
2.27
2.11-8
2.08
1.81
3.00
2.50
2.42
1.77
3.15
2.62
2.53
1.73
3.31
2.75
2.59
1.66
3.48
2.89
2.64
1.64
2012 2013 2014 2015 2016
Source: "Royalty Pharma's Response to Elan's Tysabri Valuation," Royalty Pharma, May 31, 2013, p. 4.
2017 2018 2019
3.65
3.03
2.74
1.61
2020
3.83
3.18
2.74
1.61
4.02
3.34
1.60
Elan's Street
Upside
2021 2022
4.23
3.51
4.44
2.65 2.61 2.61
3.69
Elan's Street
Consensus
Street Consensus
2023
1.60 1.60
Street Low
2024
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