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Biotech / Medical : VD's Model Portfolio & Discussion Thread
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To: LLCF who wrote (7669)3/6/2000 12:24:00 AM
From: Vector1  Read Replies (1) of 9719
 
David,
I agree the sector is overheated and valuations are high but I would not highlight CELG and INCY as out of line on a relative basis. Of course when the sector corrects both will decine but both companies have made enormous progress over the past 12 months. INCY written off for dead has signed on numerous new major subscribers. The subscriber list includes 19 pharmaceudical companies and has expanded into the biotechs including BGEN, MLNM, and the latest being VRTX. INCY is also going to make its databases available to academic institutions on a per click basis. This is not a small market. On a relative basis INCY trades at a huge discount on a multiple of revenue basis from companies such as Curagen,Celera, Gene Logic, AFFX, HGSI and MLNM. In addition INCY has developed an extraordinary intellectual property position with almost 500 full length gene patents already issued and another 50,000 to come. Indeed INCY's customers have taken out 30,000 royalty bearing licences. If genomics produces a majority of the new major drugs over the next 20 years INCY will be collecting a huge royalty and its bioinformatics will be a centerpiece of genetic research. Yes much of this is in the current valuation, however, the company still has huge upside potential.

Celgene's Thalomid is fast becomming an important oncology drug. IMO it will grow to over 300m in sales. More importantly Thalidomide derivatives in the clinic have the potential for much greater activity without many of the side effects. These molecules could be the first real anti-angiogenisis drugs and could be blockbusters. CELG's ICE of Ritalin also has blockbuster potential. The company is flush with cash and if it corrects will be high on the takeover list for big pharma creating downside protection.

In sum INCY and CELG while NOT cheap, are among the cream of the biotech crop and deserving of premium valuations.
V1
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