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Our Valuation Suggests Innate Pharma is Undervalued


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-Innate?s Programs Could Achieve ~$5B in Peak Sales-

-Two Clinical Programs to Start Phase 2 Soon-


Report is Available for Download at: www.lifesciadvisors.com/clients/innate

Innate Pharma (Euronext: IPH) is a leading company in the innate immunology space with a dominant intellectual property position and validating partnerships with BMS and Novo Nordisk. We believe investors may have a tough time valuing Innate?s early-stage clinical programs, which have large market potentials. In this note, we outline the market potential for Innate?s programs separately and discuss how they contribute to the overall company valuation.

Innate Pharma?s Pipeline Candidates Have Blockbuster Market Potentials Suggesting Significant Upside for the Company. The first step in our process was to detail the development time frame and addressable markets for Innate?s development programs. Next, we estimated potential peak sales for each of the programs in each indication. For lead candidate IPH21, we estimate that the drug could potentially achieve >$3B (AML=$489MM, prostate cancer=$1,393MM, lung cancer=$1547MM) in net sales in multiple oncology indications by 2027. Additionally, we believe that total net sales for all of the Company?s programs could reach ~$5B (IPH22>$1B, IPH33=~$1.7B, IPH41=$450MM), assuming they successfully complete clinical development and reach the market. Our model assumes that Innate Pharma receives royalties on sales and could ultimately receive $130MM in annual revenue from these products. Lastly, our model suggests that Innate Pharma will reach profitability by 2019.

Summing the Parts Results in a Favorable Innate Pharma Valuation. In order to value the various programs, we applied a probability of success to each program?s forecasted sales and then completed a DCF calculation to get each program?s value separately. This resulted in the following valuations: IPH21 (NPV=$119MM, EPS=$2.99/?2.31), IPH22 (NPV=$11MM, EPS=$0.28/?0.22), IPH33 (NPV=$11MM, EPS=$0.27/?0.21), and IPH41 (NPV=$12MM, EPS=$0.30/?0.24). We then factored in expenses and discounted all future revenues for Innate Pharma back 15% and arrived at a NPV of $146MM, or $3.35 per share. Adding the $1.22 per share in cash that Innate Pharma reported after first half 2012, results in a total company valuation of $4.57 or ?3.54 per share. Thus, our model suggests that the share price should be 76% higher than it currently is.

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