ORIC Pharmaceuticals (ORIC) came under pressure after Ipsen pulled cancer drug Tazverik over concerns about secondary hematologic malignancies, even though ORIC said its prostate cancer candidate rinzimetostat showed no malignancies in preclinical toxicity testing.

At a share price of US$11.90, ORIC has seen a 19.12% 30 day share price return and 45.65% year to date. The 1 year total shareholder return of 52.76% and 3 year total shareholder return of around 2.6x suggest momentum has been building despite short term volatility driven by competitor headlines.

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With the shares up strongly over the past year and trading at US$11.90, the key question for investors now is whether ORIC is still undervalued or if the market is already pricing in all that future growth.

Preferred Price-to-Book Ratio of 3.1x: Is It Justified?

The current P/B of 3.1x, alongside a last close of $11.90, suggests ORIC Pharmaceuticals trades at a richer level than the broader US biotechs industry but below its closer peer set.

P/B compares the company’s market value to its net assets, which is often used for pre revenue or unprofitable biotechs where earnings based metrics are less useful. For ORIC, this means investors are paying a little over three times the company’s book value for exposure to its cancer resistance pipeline and clinical programs.

On one hand, ORIC screens as expensive versus the US biotechs industry average P/B of 2.6x. This points to the market assigning a premium to its assets compared to the typical biotech name. On the other hand, its 3.1x P/B is described as good value against a 10.1x peer average, and our DCF work suggests the shares are trading at a discount to an estimated future cash flow value of $43.76. As a result, there is a clear gap between the SWS DCF model and the current price.

Result: Preferred multiple of Price-to-Book Ratio of 3.1x (ABOUT RIGHT)

However, the story can change quickly if key trials underperform or if concerns around class wide safety for epigenetic and prostate cancer drugs gain traction.

Another View: DCF Signals a Very Different Story

While the 3.1x P/B hints at a fairly full price versus the broader biotech group, our DCF model presents a contrasting picture, with an estimated future cash flow value of $43.76 per share versus the current $11.90. That gap raises a simple question for you: is the market being too cautious?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out ORIC Pharmaceuticals for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 48 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

The mix of potential upside and clear risks here is hard to ignore, so take a moment to review the data, form your own stance, and check out 1 key reward and 5 important warning signs to round out your view.

Ready To Hunt For Your Next Idea?

If ORIC has sharpened your focus on opportunity and risk, do not stop here. Use data, not headlines, to surface your next potential winner.

• Target potential mispricing by scanning our list of 48 high quality undervalued stocks that pair quality fundamentals with what may be overlooked prices.
• Prioritise staying power with a focus on income by reviewing 14 dividend fortresses that aim for higher yields backed by sturdier profiles.
• Get ahead of the crowd by combing through a screener containing 26 high quality undiscovered gems that most investors may not be watching yet.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.