VistaGen Therapeutics (VSTA) and Multiple Valuations

Traditionally, the fundamental value of a company was based upon the potential of its products in the marketplace and the future earnings those products could support. In short, the value of a company centered around what people thought the company would do. Ultimately, of course, all value is psychological, based upon a perception of what the data means and what the future may hold. These days, with technology and protected intellectual property representing one-of-a-kind keys to sometimes massive markets, the value of a company can be viewed not so much in what the company itself can do, but in what other companies might do if they could get their hands on those assets.

In other words, keys can hold value regardless of who ultimately uses them. As a result, companies holding proprietary technologies represent two possible paths to profit for investors. If the company itself grows and produces, the investor can stand to win. But if another company takes over that role, buying the company outright to acquire its technologies, the investor can obviously still stand to win.

A good example is the struggling drug producer Human Genome Sciences (NASDAQ: HGS). The company was founded with the goal of developing and producing treatments for various diseases, based on the work of J. Craig Venter, founder of a non-profit organization that developed tools for sequencing human DNA. When its drugs did not sell as expected, and the company posted widening losses, its value in the marketplace was still significant due to its technologies. In spite of the challenges the company has faced, HGS was recently presented with a $2.59 billion buyout from drug giant GlaxoSmithKline, an offer which, in fact, it just rejected. In spite of the rejection, HGS shares jumped 100%.

For companies like VistaGen Therapeutics, developer of advanced stem cell technologies to create superior methods of drug toxicity testing for pharmaceutical companies, such buyout potential means that their progress is leveraged, essentially multiplied regardless of which way the company decides to go. Through the use of VistaGen’s Human Clinical Trials in a Test Tube approach, stem-cell derived functional human heart cells can be used in highly accurate laboratory testing of drug candidates, before the investment in further development or clinical trials. Such early-stage testing can save drug producers major money and time. It’s a growing value being carefully watched by other companies.

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