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Biotech / Medical : VD's Model Portfolio & Discussion Thread
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To: Andrew H who wrote (1421)6/25/1997 3:01:00 PM
From: Pseudo Biologist   of 9719
 
Andrew, I'd defer to Vector on this one, but the way I see this factor used it is kind of arbitrary. That's why Vector may just as well use a 40% instead of a 30% factor. One is trying to quantify risk. Interest rates enter the picture too: you can buy a bond, hold to maturity, and get your money in 1999 with zero risk; if that bond is yielding 5-6% annualized, your risky biotech may look good in comparison, but if the bond yields 8-10%, it may not look so good. So in inputting a discount factor in the second situation you may want to use an even larger number (resulting in a lower present value estimate).

I am sure this is explained somewhere in the web, perhaps in some university economics or BA department. Let me do that search over lunch.

I do think/hope this discussion is relevant to the general issue of doing valuations of biotechs. If I don't get yelled at, I'll keep posting here; else, I'll e-mail you,

PB (PE)
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