(re: cash and biotech stocks/future potential)
Richard,
Excellent argument.
However, leverage is also a double edged sword.. just a little later on the thread, somebody mentioned TRGA being bought out for a bit over a dollar a share (52-week high around 14 bucks).. I'm confident somebody could easily point out many companies that had the potential for marketable technology, but went belly up due to cash considerations.. unfortunately, because most of them are out of business, I can't do an easy screen for any ticker symbols..
Obviously the higher returns can be made on companies that don't have any cash left that truly have viable technologies to get to market.. but the problem here is one of information dissemination - just by looking at SEC filings and websites, is it possible to pick these companies out of the air?
However, I believe your claim that cash-rich biotech companies have some market value based on the fact that they are not going belly up soon is true - just that I believe that such companies have greater room to negotiate with, and more time to do their research.
Obviously any company with garbage science/management will get pounded in the ground over due time.. but can we agree that the best of both worlds: cash-rich biotech with science/products that will get FDA approval are the safest opportunity for the biggest return? (e.g. if CEGE's GVAX cancer vacciene ever gets approved, their 800 million market cap is certainly going to double at least..)
If a company with 2 million left in the bank and a market cap of 30 mil discovers the cure for AIDS, if their market cap goes to 3 billion, you get a 100x return.. but if that company had 200 million left in the bank, and a 230 million cap, you get a 13x return.. I guess the matter is philosophical on how much of that 'cash cushion' you really need in order to feel that the company can get a marketable product..
I guess this is a matter of optimization - you want the company to issue just as many shares needed to spend the last penny towards product approval, and then reap in the cash flow from then on.. so does that make the stock market an estimation device for the margin of error?
BTW, side question: How do you find very-old SEC filings? The earliest I could find for IDPH was their 10-K filing for 1996 on freedgar.com... I couldn't look to see exactly what their cash status was on 01/95.. thanks. |
