Tetraphase Pharmaceuticals Inc.

(TTPH) Overview
and Performance
Austin Bordeaux
Ben Baker
Tayler Fischlin
Ryan Jensen
Part 1
Our firm is Tetraphase Pharmaceuticals (TTPH), is a clinical-stage life
science company with a synthetic chemistry technology platform that has
the power to address the global health crisis caused by antibiotic resistance.
Tetraphase has developed a robust antibiotics platform based on the
tetracycline core, which offers the potential to dramatically improve the
treatment of both broad and selective spectrum bacterial infections.
Tetraphase is rapidly advancing its clinical pipeline of potent antibiotics. In
terms of spectrum, potency, efficacy, safety and dosing
convenience/flexibility, Tetraphases pipeline offers significant differentiation
from currently marketed products for the treatment of serious infections as
well as from those in development by other companies. The companys lead
product is eravacycline. Its being developed as a broad-spectrum IV and oral
antibiotic in Phase 3 of the companies IGNITE program. It will be used for the
indications of complicated intra-abdominal infections and complicated
urinary tract infections. The pharmaceutical industry that TTPH belongs to
really began in the mid 1890s providing early cures for many common
diseases. This industry has evolved and flourished ever since, and over the
years has become one of this biggest fields in the world. Tetraphase entered
this industry as a small start-up in 2006, and has grown rapidly since there
$75 million NASDAQ IPO in 2013, when they released 10.7 million shares for
the price of $7.20 a share. The global pharmaceutical market is currently
sitting around $1.1 trillion in sales, which means that Tetrapharm, having
sales last year of $9.1 million, has a market share of approximately .0008%
of the world pharmaceutical market and .002% of the US market, which
totaled sales of $377 billion.

Part 2

The beta from our firm is 0.5. This beta indicated that this individual
firm is less volatile than the overall market. If the stock market rises by one
hundred percent, Tetraphase Pharmaceuticals will only rise by fifty. The CAPM
works because it shows that the beta estimate is plausible.

Part 3

Overall, the firm has done fairly well. We can see that throughout the year
that it has had positive growth and is continuing to climb.

Part 4
Current Month
Strong Buy

Buy

Hold

Underperform

Sell

Overall, analysts feel that this firm is one to definitely hold on to for the
future. While the analysts have changed opinions between strong buy,
buy and hold, the overall consensus is that TTPH is a stock that should
be held for the long run.

Part 5
Share Statistics
Average Vol (3 month)3:

1,724,860

Average Vol (10 day)3:

2,567,520

Shares Outstanding :

36.42M

Float:

36.23M

% Held by Insiders1:

27.96%
1

% Held by Institutions :

51.40%
3

Shares Short (as of Sep 15, 2015) :

4.55M

Short Ratio (as of Sep 15, 2015)3:

1.62

Short % of Float (as of Sep 15,

2015)3:
Shares Short (prior month)3:

16.95%
3.01M

When looking at the share statistics, there are a few certain aspects
that really stand out and can give investors a good idea about the firm as a
whole. One part is the category that shows the % held by insiders. For this
particular firm, roughly 28% is held by insiders. This is important because it
shows that the people involved with this firm believe that it will have positive
returns in the future. Perspective investors should look at this and see that if
the other people associated with this firm believe it will be a strong buy, it
will most likely be a good firm for investment.
In addition, another important category is the % held by institutions.
This percentage shows how many securities are owned by institutions as

opposed to individual investors. Normally, perspective investors would want

to see this percentage above 60%, to show that many institutions are
invested in this firm. Even though it is slightly below, over half of the shares
are owned by institutions, it illustrates that many other firms are confident in
TTPHs overall performance.

Part 6
Direct Competitor Comparison
TTPH

CBST

Industry

Market Cap:

271.70M

N/A

894.49M

Employees:

55

N/A

309.00

1.62

N/A

0.29

11.73M

N/A

401.67M

N/A

N/A

0.52

-81.04M

N/A

21.06M

Qtrly Rev Growth (yoy):

Revenue (ttm):
Gross Margin (ttm):
EBITDA (ttm):
Operating Margin (ttm):
Net Income (ttm):
EPS (ttm):
P/E (ttm):

-6.92

N/A

0.07

-81.79M

N/A

N/A

-2.65

N/A

0.18

N/A

N/A

32.99

PEG (5 yr expected):

-0.01

N/A

0.83

P/S (ttm):

23.33

N/A

4.03

The profit margin for this firm is -6.9727. When looking at this margin,
it would appear that this firm has made some revenue but their net income is
negative. In addition, the earnings per share are also negative, at -2.65.
Again, this firm has had negative income in the recent past. Recently, the
companys performance has been poor, but analysts believe that it will turn
around and be successful in the near future.

Part II: WACC and EVA (Due Oct. 23)

1. Determine your firms WACC and EVA (percentages)
WACC=6.01%
EVA= -92.85%
2. Here are the steps you need to take to get the cost of equity
1. Determine the beta (correcting if necessary what you did in Part
I)
Beta=1.4741
2. Determine the riskfree rate: the one-year government bond yield
Riskfree rate=2.08%
3. Pick an equity risk premium (6% or 7%)
Cost of equity=10.89%

3. Cost of debt and find the yield on a bond that is closest to a maturity of
10 years (current average maturity issued) or use the Altman Z score
Cost of debt=13.52%

4. Get market value of equity (market cap) and book value of debt; get
tax rate and ROIC from income statement.
Market Value of equity= $312.1 million
Book Value of debt=7.524 million
Tax Rate=0%
ROIC= -86.84%

Part III
A. Determine multiples for your targets competitors.

32.3

5.31

1.82

4.08

14.43

5.36

BII
B
6.1
5
6.1
4
6.0
8

-2.08
$108,56
6
$85.09M

11.1

11.
68

TTHP
Price/Sales (ttm):
Price/Book(mrq):
Enterprise
Value/Revenue (ttm):
Enterprise
Value/EBITDA (ttm):
Book Value of Equity
EBITDA

Deb
t
$0.0
0
$0.0
0
$0.0
0
$0.0
0

Cash
$222,460,00
0.00
$222,460,00
0.00
$222,460,00
0.00
$222,460,00
0.00

AMG
N

Aver
age

5.72

Revenue
$12,290,00
0.00
$85,090,00
0.00
$12,290,00
0.00

11.39

$85,090,00
0.00

5.73
5.11

Estimate
Price
$70,421,700
.00
$554,772.26
$70,298,800
.00
$969,175,10
0.00

Estimated Enterprise
Value

Actual Estimate
Enterprise Value

-$152,038,300.00

$177,310,000.00

-$221,905,227.74

$177,310,000.00

-$152,161,200.00

$177,310,000.00

-$1,191,635,100.00

$177,310,000.00

B. Summarize the finding from your previous 2 parts

Did part I about performance indicate that your target has
performed well or poorly?
From looking at the performance shown in Part I, we can indicate
that our target (TTPH) has performed poorly in the past. We see this
poor performance displayed in the cumulative alpha chart from the
recent dip in performance in our companies alphas. We would also
indicate that their current performance is still not well, although it is

Target
Overpric
ed
Overpric
ed
Overpric
ed
Overpric
ed

substantially better than it was in the past. The profit margin of the
company is far below the industry par. If it continues to grow the way
that it currently is based on Part I, its performance will be well in the
future as the companys beta is not horrible and its alpha is growing
almost exponentially. The earnings per share is low, but the company is
still in research phases, and is only now beginning to release products
that can obtain profit.

Did part II about the WACC and EVA make your target more or
less attractive?

After looking at the WACC (6.01%) and the EVA (-92.85%), we can
see that high values are beneficial to investors. When the WACC is
lower, it gives investors more confidence to invest in the firm, and can
lead to more capital raised. In relation to EVA, it gives investors a
better idea about how stockholders performance will increase or
decrease, regardless of total revenue. If a firm has large revenue gains,
but loses money for shareholders, the EVA will clearly indicate how
much money will be available to shareholders. EVA gives us a good
indication on how well shareholders can expect to do while invested
with the firm.

Part IV
Executive Summary:
The pharmaceutical industry that TTPH belongs to really began in the
mid 1890s providing early cures for many common diseases. This industry
has evolved and flourished ever since, and over the years has become one of
this biggest fields in the world. Tetraphase entered this industry as a small
start-up in 2006, and has grown rapidly since there $75 million NASDAQ IPO
in 2013, when they released 10.7 million shares for the price of $7.20 a
share. The global pharmaceutical market is currently sitting around $1.1
trillion in sales, which means that TTPH, having sales last year of $9.1
million, has a market share of approximately .0008% of the world
pharmaceutical market and .002% of the US market, which totaled sales of
$377 billion. The beta from our firm is 0.5. This beta indicated that this
individual firm is less volatile than the overall market. The CAPM works
because it shows that the beta estimate is plausible. When calculating the
Alphas for our company we can see it has had positive growth and had
gradually climb throughout the years but has recently had a pretty severe
dip in recent months. Overall, analysts feel that this firm is one to definitely
hold on to for the future. When looking at the share statistics, there are a few
certain aspects that really stand out and can give investors a good idea
about the firm as a whole. The profit margin for this firm is -6.9727. When
looking at this margin, it would appear that this firm has made some revenue
but their net income is negative. This firm has had negative income in the
recent past. Recently, the companys performance has been poor, but
analysts believe that it will turn around and be successful in the near future.
Currently TTPH has a WACC of 6.01%, EVA of -92.85%, and ROIC of
-86.84%. With the WACC and the EVA as they are currently we can see that
our company is not creating the necessary returns in order for the

shareholders to get the most wealth out of the company. Also with a negative
ROIC our company is creating negative economic profit which reflects poorly
on our company giving investors a negative attitude to investing in the
shares. Economic profit can be increase for TTPH by managers investing
additional capital that produces returns above WACC, by reducing capital in a
business, by improving returns by growing revenues or reducing expenses or
by reducing the cost of capital. The nice part of our current economic profit is
that it has limitations for a single period of time. Just because our current
economic profit is negative that does not mean that it will give an insight to
future performance. This could be because TTPH could be in a turnaround
situation, in which case economic profit will currently suffer but the expected
future period payoff will not show up as a benefit.
The firm is overvalued in the market, with a current estimated
enterprise value of -150 million and an actual value of 170 million. We also
see TTPH currently performing poorly which is shown in the cumulative alpha
graph where our alphas have dipped in recent months. The current profit
margin is far below industry par which could be because what was said
earlier with the turnaround situation the company is currently in and could
be different in months to come. We currently see that our high values are
beneficial to investors, with a low WACC it gives investors the confidence to
invest in the firm and can lead to more capital raised.
Overall with our firm in a bit of a rut it will be best to wait to generate
any kind of acquisition ideas. Waiting for a lower price will give investors a
better rate of return and protect them from potentially large losses.

Determine a price for the acquisition (if your decision is to acquire):

If we were to acquire shares in this company, we would want to wait
until the price drops. Currently, the company is overpriced and investors
should wait until it is under $10 a share. In addition, the earnings per share is
currently -2.55, which would mean that an investor is actually losing money
in their investment. To insure that no investment is lost, waiting until a lower
price would be preferred. In addition, we can see from our beta in part 1 of .5
is less than one, which shows the investor that this specific company
fluctuates less than the average market movement in both positive and
negative movements. Also in Part 1 we see a positive cumulative alpha with
a large dip in recent months which shows pretty poor performance in the
current market. With a current WACC of 6.01% and an EVA of -92.85% we can
see that our company is not currently creating returns to create for wealth
for its shareholders. Currently our firm is overvalued with an estimated
Enterprise Value of -150M and an actual value 170M. In order for an
acquisition to occur we would have to pay a premium of 30% over the actual

enterprise value which would come out to be 230.503M, with this in mind it
is not a good idea to acquire the company because the estimate is well
below the actual which makes it pointless for an acquisition to take place
right now. Overall, waiting for a lower price will give investors a better rate of
return and protect them from potentially large losses in the future.