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Biotech / Medical : Biotech Valuation

CRSP 56.87

-2.3%

Dec 5 9:30 AM EST

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To: Biomaven who wrote (7508)	12/15/2002 6:49:12 PM
From: Icebrg	Read Replies (1) of 52153

>>although obviously the IMCL and ELN debacles didn't help biotechs distance themselves from the others.>> I don't think it is correct to put IMCL and ELN side by side. (Elan is a much more interesting case). Apart from the fact that both have lost most of their market capitalisation. But there the sameness ends (IMHO). The problems at Imclone were the overhyping of a poorly designed and executed clinical trial (a little bit like the Maxim story). In addition to this there was the Sam Waksal Insider Trading saga. Although many tend to believe that the problems at Elan has to do with their use of aggressive accounting techniques, I am not willing to accept that as an explanation. The reason the stock has fallen so hard is that the doubts regarding their accounting practices (which may very well turn out to have been perfectly legal) exposed the fact that the company was extremely over-leveraged. In almost all aspects of its business activities. To make things worse - the previous management hadn't informed its shareholders and the market about the full extent and type of leverage the company had taken on. The whole construct was like a house of cards. Once the support was weakened the cards started to fall and the share price with them. While the financing model made perfect sense if it would been possible for the company to refinance its debt at last year's share price levels, at two and something that alternative doesn't look very attractive any more. So, the company has had to resort to self-mutilation in order to raise the cash needed to meet their maturing debt. The major hurdle is the LYONs worth a billion dollars due in exactly one years time (as of yesterday). Doubts these days are not so much centered around their accounting or whether they will be able to meet the LYONs (they will) as around the question about what will be left once the restructuring program has been carried through.

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