OOG,
I was too busy the other week to look at your model.Thanks for posting it.Here is my opinion:
Many of the assumptions look reasonable, but I have a problem with the final valuation.You assume that patent protection lasts for 10 years, so EPS grows for 10 years.What is left out is that if patent protection ends in 10 years, EPS will fall off a cliff at that time.This means that you cannot predict pps based on the trailing 12 month EPS, it should be based on forward looking EPS.Would you pay 16 times trailing EPS if there are no earning going forward.As a general rule of thumb, P/E should be in the neighborhood of the expected earning growth rate, so using a P/E of 16 implies that you think earning will continue to grow at a 16% rate in the future.
Also, your valuation is a forward valuation which should be discounted, using a risky discount rate, for 10 years, to get the present value.
You can use the work that you did estimating EPS to value those earnings. A reasonable valuation method is to discount the earnings at a risky discount rate, say 10 or 15 percent per annum.To do this, you can enter the following into the Calcs worksheet:
In Cell S1 enter 1.15
In Cell S12 enter: =P12/$S$1
in Cell S11 enter: =(S12+P11)/$S$1
Copy Cell S11 to Cells S3 through S10
Cell S3 will then contain the discounted earnings for the next 10 years
Repeat for Model 2 and 3
Your Model 3 assumptions, using a 15% discount rate, then values the 10 years of earnings at $8.59 per share.
Of course there is still some residual value after 10 years, but not 16 times earnings.
I have also made an attempt at valuation, and I tend to be conservative.In answer to you question about the current debt level: At the end of my post, titled "Valuations" from 11/5/2012, I list all of the outstanding debt, warrants, restricted shares, LOC, etc., as of that time.
http://agoracom.com/ir/Mannkind/forums/discussion/topics/552176-valuations/?message_id=1738864#message_1738864
These are just my opinions, and I am only trying to get at a minimum valuation so that I have a margin of safety in the investment.
