re: IMNX:
I was asked to look at IMNX on another thread, and I'm responding here, to get other feedback. I've never looked at IMNX before today, so my conclusions are tentative, and my facts may be wrong.
1. valuation: today, it is at a P/S of 7, and a PE of 11.5/0.28 = 41, using trailing earnings. A PE based on forward earnings is probably useless, since that E is a big unknown. CSFB thinks they'll make 0.25 in 2001, and 0.20 in 2002. The longterm growth rate is given as 50%, but, obviously, they aren't going to do that in the next two years. Since EPS is likely to be flattish for the next 1-to-2 years, I think the PE and PS are (still) too high.
2. In addition to flat earnings, those earnings are of poor quality. In 2001, about half of the earnings are likely to be from interest on their 1.6B in cash. And that cash was not generated from cash flow from their business, but, rather, from issuing shares. At least they chose a good time to dilute their shares (good for the company, not the new shareholders).
3. That pile of cash is a big positive for the company (as long as you ignore where they got it from). It means that, going into an environment where credit from debt or equity offerings is likely to be impossible to raise, they are in good shape, compared to other biotechs.
4. Like a lot of pharms and biotechs, they are a one-product company. This makes forecasts of future earnings and sales numbers extremely uncertain. A bad trial result, a bad regulatory decision, and any drug company can have a day like IMNX had today. This means that diversification is crucial in this sector. I would never let any pharm/biotech/medical equip get to more than 5% of my portfolio.
5. Given that demand for their one product is growing, it reflects badly on management's competence, that they are unable to meet demand. Management should have no higher priority than meeting demand for Enbrel, and should be moving heaven and earth to do this. There are no acceptable excuses.
6. In my experience, patient acceptance of injectable drugs is very poor. Unfortunately, biotech drugs, by their nature, usually can't be taken by mouth. I don't think the biotech industry is really going to take off, until someone finds a way to give the drugs in pill form. Even for severe illnesses like RA, patients hate giving themselves all those injections.
7. All the big pharms are getting into genomics/biotech, by buying and forming partnerships. The alliances between the big drug company, and the little biotech, are usually very complex. When I've looked at them, it usually seems like a very unequal partnership. The biotech ends up taking most of the risk, and the BigDrugCo. milks the biotech for their research and pipeline, and ends up taking most of the profits. In this case, AHP still owns 41% of IMNX, which gives them effective control. The rest of the shareholders of IMNX have to hope that AHP doesn't do anything against their interests. However, it's a given, that what happens to AHP stock is a lot more important to AHP management, than whatever happens to IMNX stock. I've seen examples (in other companies) where the minority owners get screwed. In this case, everyone but AHP is a minority owner. I have a feeling that, in the long run, it's the Mercks and AHPs that are going to be the big winners in biotech.
8. TA: The stock was in a horizontal range from 1991, through 12/96. Then, the stock went from 6 to 83 (3/00 peak). Since then, they have seen some severe valuation compression, as have all other triple-digit-PE stocks. That downtrend, IMO, is not over. The only support I see on the chart, is a return to the very-longterm trendline that they vaulted out of in 12/96.
9. I would expect IMNX to rebound soon, then resume the downtrend. I doubt 11.5 is the bottom. At some point, they will stop going down. Then, they will form a horizontal range, and stay there for a year or two. Then, maybe sometime in 2002 or 2003 or 2004, another uptrend could begin. I wouldn't buy LEAPs, as the bottoming formation could go on for years. The way to make money in this stock is: 1) play the short-term bounces, or 2) wait till a bottom forms, a price at which it bounces over a period of many months, and then buy with limit orders at that price. Then, be prepared to wait a few years. |
