Lymphoseek - the little drug that could

Developing drugs take years. If you look at the stats, the average drug takes ten years and costs anywhere from $100 million to $2 Billion to create, tweak, analyze, test, review and get approved by the FDA.

Smaller drugs can cost less... but they take just as long. There are very few shortcuts to getting approval of something that will be injected into a human being.

Most potential drugs die long before they see the light of day. Only a small percentage reach Phase III of the FDA clinical trials. Once they reach Phase III, over 90% are ultimately approved because the problems, deficiencies and safety issues surfaced long ago.

So... if you make it to Phase III your odds go up dramatically... and drug development is a game of odds. Because most drugs die before approval, the payoff from those that get approved is often disproportionate to the investment.
People bitch about the cost of drugs. But to be fair you have to consider the cost of the thousands of drugs that were never approved when you price new drugs that DID get approved. In other words, the cost of all the failed drugs needs to be factored into the overall equation if we want drug companies to continue creating newer and better drugs. Nobody does this for free (or a loss).

Lymphoseek started its development in 2000. Now it's at the end of Phase III clinical tests. Lymphoseek completed Phase III in 2009 and will be submitted to the FDA for approval this summer (2010).

NEOP stockholders finally see the light at the end of the tunnel... and it turned out not to be the dreaded train. It's the beautiful, shining white light of an income stream.

Now... to be fair, the jury is still out when it comes to exactly how much income Lymphoseek will generate. Management and several outside consultants have analyzed the market, using the number of breast, skin and head & neck cancer cases in the U.S and worldwide. It looks like the total potential annual revenues could approach $370,000,000 per year for breast, melanoma and Head & Neck cancer.

That's not a blockbuster. Blockbuster drugs have sales in excess of $1 Billion per year, like Neoprobe's other drug RIGScan CR ($3 billion potential).

But NEOP is a little company. In fact it's downright tiny. That means they don't need a blockbuster drug to make a lot of money. The company uses what they call a 'virtual business model'. This model outsources manufacturing, distribution, sales, etc. and minimizes corporate overhead. This allows all of the profits from drug sales to flow directly to the bottom line. The $10,000,000 annual revenues from Neoprobe's Gamma products already covers corporate overhead, so drug sale profits will flow straight to the bottom line.

The gross profit margins for Lymphoseek are estimated to be a little more than 70%. That means that for every $1,000,000 in drugs sales, less than $300,000 will be spent on hard costs... manufacturing, distribution, sales, etc.

The remaining $700,000+ goes to the bottom line.

There are about 81,000,000 shares of NEOP outstanding right now.

Every $700,000 that hits the bottom line is 1 cent per share in earnings.

$10,000,000 in Lymphoseek sales will put $7,000,000 to the bottom line. That's roughly 8.6 cents per share.

Remember, the analysts estimate that Lymphoseek has a potential market of $370,000,000 per year. If NEOP only reached 10% of that potential (37,000,000 per year) then the shareholders would earn 32 cents per share.

People use different metrics to value stocks. Personally I prefer the P/E, simply because I'm a businessman. I don't value companies on gross sales... I focus on how much profit hits the bottom line.

Using a P/E of 25, which is a typical P/E for drug companies, this 14 cents per share equates to about $7.99 per share for NEOP.

That's at a 25 P/E. Many people use higher P/E's. 30 and sometimes 40. (That would equate to $9.60 and $12.80 per share).

Lymposeek has other cancer markets too, and these are currently being studied in Phase I FDA trials (lung, prostate, colon, etc.). The annual estimates for those additional markets would roughly double Lymphoseek's annual potential revenues. That's rather impressive for such a tiny company.

That's also not giving NEOP any value for it's other drug... RIGScan CR.

What's RIGS? Oh... we'll talk about that later.

Hint - it's much bigger than Lymphoseek. The market potential for RIGS is $3 Billion a year. (Yep. Billion with a 'B'). Better yet, RIGS has already been all the way through Phase III trials at a cost of $100+ million... and it passed every trial.)

More to come. Or you can click below if you want to read more on your own (Go ahead. It's only reading and, unlike porn, this reading can help your portfolio recover from the 2008 stock market disaster...).

Get started here at the Introduction to Neoprobe site.

Then you might want to check out the Advanced Due Diligence site with tons of links and info.

DDbuyer