Doc and Peter, thanks for the discussion of Ravi Suria's interview, and the McDonald and Feuerstein articles. In an attempt to acknowledge these points of view and reconcile some differences, here are a few considerations:
Suria's main points about the telcos were 1) that their "end-game" was to sell out. That is true for only a minority of biotechs. And 2) that any business ceases when it can't make debt payments. Since many telcos planned to be owned by someone else when the debt came due, they are failing in the absence of buyers.
When McDonald reports average results for funds or indices, he is including the poorly financed biotechs with the cash heavy. To cite a painful example, Gliatech has received a "going concern" note from its auditor, and has already had an interrupted end-game with Guilford. While GLIA may be following the path of Northpoint, most of the components of the funds and indices are not. E.g. MLNM, SEPR, VRTX, HGSI and many more have the money in cash to meet debt obligations for the foreseeable future. These companies are not candles in the wind, blowing their IPO proceeds on a couple Super Bowl ads in the hope of getting lucky. Even the hapless GLIA has marketable and developing products that could create cash flow for a buyer. It is not likely that GLIA will be taken out for 26% of equipment value, as Northpoint has been.
A second distinction between the two industries lies in the nature of how they compete. Two biotechs may be working on the same receptor, or indication, or with the same protein. Even so, their knowledge can be additive, rather than duplicative. They can merge and increase their aggregate value, rather than follow the 90's model of firing redundant employees and mothballing redundant equipment. If they choose to discontinue a program, they can often sell it to another company. All-in-all, a biotech shutdown produces more value than the pink-slip-and-auction model of consolidation.
Suria's point is certainly valid: if there is no plan for self-sufficiency, the outcomes are reduced to bankruptcy or sugar-daddy. There are many biotechs that have adequately addressed their survival. At some point, investors will take a fresh look, and the funded biotechs will decouple from the NASD belly-ups. |
