Avadel Pharmaceuticals plc develops and commercializes pharmaceutical products based on its proprietary drug delivery technology for primary care and sterile injectable markets in the United States, France, and Ireland. The companys owns and develops drug delivery platforms, such as Micropump, a microparticulate system that allows the development of modified and/or controlled release of solid and oral dosage formulations of drugs; LiquiTime, which allows development of modified/controlled release liquid suspension formulations; Trigger Lock that provide a controlled release of opioid analge sics while deterring abuse; and Medusa, a hydrogel depot technology used for the development of subcutaneously administered drug formulations. Its hospital based products include Bloxiverz, a drug used intravenously in the operating room for the reversal of the effects of non-depolarizing neuromuscular blocking agents after surgery; Vazculep, a phenylephrine hydrochloride injection used to treat hypotension resulting primarily from vasodilation in the setting of anesthesia; and Akovaz, a ephedrine sulfate injection. The companys pediatrics products include Karbinal ER, an H1 receptor antagonist used to treat seasonal and perennial allergic rhinitis; AcipHex Sprinkle for the treatment of gastroesophageal reflux disease; Flexichamber, a collapsible holding chamber that administers aerosolized medication from pressurized metered dose inhalers; and Cefaclor for the treatment of otitis media, lower respiratory infections, pharyngitis and tonsillitis, urinary tract infections, and skin and skin structure infections. Its product candidates comprise Sodium Oxybate for narcolepsy; Hydromorphone/Trigger Lock for pain; Exenatide/Medusa for diabetes; and LiquiTime for cough/cold. The company was formerly known as Flamel Technologies SA and changed its name to Avadel Pharmaceuticals plc in January 2017. The company was founded in 1990 and is headquartered in Dublin, Ireland.
FINANCIAL RATIOS of Avadel Pharmaceuticals plc (AVDL)
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AVDL stock valuation input parameters
Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AVDL stock intrinsic value calculation we used $173 million for the last fiscal year's total revenue generated by Avadel Pharmaceuticals plc. The default revenue input number comes from 0001 income statement of Avadel Pharmaceuticals plc. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.
Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
We use three input parameters to forecast the revenue growth rate in our AVDL stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.
Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
The initial discount rate of 4.3%, whose default value for AVDL is calculated based on our internal credit rating of Avadel Pharmaceuticals plc, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Avadel Pharmaceuticals plc.
By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.
Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AVDL stock the variable cost ratio is equal to 38.7%.
Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $49 million in the base year in the intrinsic value calculation for AVDL stock. These expenses increase with the level of inflation in subsequent years.
Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Avadel Pharmaceuticals plc.
Corporate tax rate of 27% is the nominal tax rate for Avadel Pharmaceuticals plc. In reality, companies find ways to pay much less taxes than that or not to pay them at all.
Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AVDL stock is equal to 0%.
Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AVDL are equal to 23.8%.
Life of production assets of 16.2 years is the average useful life of capital assets used in Avadel Pharmaceuticals plc operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.
Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AVDL is equal to -32.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.
Book value of equity - $85.58 million for Avadel Pharmaceuticals plc - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.
Shares outstanding of 37.012 million for Avadel Pharmaceuticals plc is needed to calculate the intrinsic value of one share.
Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Avadel Pharmaceuticals plc at the current share price and the inputted number of shares is $0.1 billion.