Roth figures Somaxon parts worth more than the whole

Roth Capital Partners says that while the timing of Somaxon Pharmaceuticals’ (NASDAQ:SOMX) decision to seek strategic alternatives is not opportune; it could create value above the currently depressed stock price.

Analyst Scott Henry figures Somaxon’s approved insomnia pill, Silenor, has a run rate of $15 million to $20 million in annual revenues. “We guess that the company would receive a discounted revenue multiple of perhaps 1-2 times sales plus yearend cash of about 15 cents a share in a forced sale. This would equate to total value of about 50 cents to 75 cents a share,” he writes.

The stock was quoted at 55 cents, down 5 cents, on Monday morning.

The swing factors on the valuation are the duration of patents and the potential for OTC rights for Silenor, Mr. Scott said.

Among other things, Proctor &Gamble has rights to negotiate an OTC deal for Silenor through Mar. 31, 2012 and is continuing its evaluation. “Any final commitment from P&G would up our valuation parameters for the company’s shares,” he said.

However, the company faces “intellectual property challenges” from multiple generic players, with 30-month stays expiring in the first half of 2013. “Negotiating a sale prior to clarification in patent duration could result in a lower valuation for the Silenor asset,” he added.

Nevertheless, Mr. Scott figures Somaxon’s assets are likely worth more than the continued operational burn. “Thus, we believe that the parts likely end up with a value greater than the sum – although we recognize that the IP overhang may create a difficult sale environment.”