Vertex’s $70bn market capitalisation, before its big correction last week, showed that investor optimism can outstrip even the usually bullish expectations of the sellside. And with the biopharma sector riding high, it is not hard to find other examples of frothy valuations.

Even after its 21% share price collapse last week Vertex still looks keenly valued by the market, according to an Evaluate Vantage analysis; jittery biotech investors might be reassured to know that few other big biotechs peers look so expensive, with the exception of Beigene. But among the mid-sized biotechs it is a different story, with Alnylam and Acceleron looking particularly vulnerable to setbacks.

To look for valuation disconnects between investors and equity analysts, Evaluate Vantage compared the market cap of biotechs to the net present value of their assets, computed by Evaluate Omnium from sellside forecasts. A separate analysis was carried out for big groups – defined here as companies worth over $20bn – and up-and-coming players with a valuation of $5-20bn.

Biopharma companies whose current valuation has been inflated by their involvement in the development of Covid-19 vaccines and/or therapies were excluded, as were generics and speciality players.

The chart below shows how Vertex is a clear outlier in the big biotech cohort, with its market cap more than double the total NPV of its marketed and R&D assets (Clinical setback lays bare Vertex’s weakness, October 15, 2020).

Beigene is not far behind. The Chinese group has seen its market cap more than double since this time last year, when it inked a big deal with Amgen. Although Beigene is also developing a Covid-19 antibody candidate, the company’s core focus remains cancer, with most hopes focused on the BTK inhibitor Brukinsa and anti-PD-1 MAb tislelizumab. 

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