Biotech Valuation Message Board

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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 (7513)	12/16/2002 11:00:21 AM
From: Sam Citron	Read Replies (1) of 52153

1a: most of this fundamental risk [of Biotech] is not related to the general market or economy If you do not think the economy is recovering or that the general market is going to go up, are you really sure that biotech is a safe haven? I doubt it has been such a refuge in the past, but I am open to suggestion if you can prove it to me. 1b: a large portion of the risk can be diversified away by holding a basket of biotechs Well, yes. The volatility risk of individual stocks can normally be controlled with a basket of stocks. But if the components of your basket are related or correlated with one another, then you do not achieve this benefit. 2a: Profitable biotechs have a license to print money Then why would a rational investor ever look elsewhere? Obviously those rare biotechs that are profitable sell at substantial multiples. Speaking of which, why don't you own AMGN? 2b: current stock prices already imply a huge discount rate That's only an opinion until you empirically derive the implied discount rate. How would you begin to do so? 3: This was in my view a one-time event, and the prices now reflect the new FDA standards. I view the FDA as now likely to ease up some over the next few years rather than tighten further. It's nice to hear you express such a sanguine view. What is the basis for this opinion? What factors caused the FDA to raise the "safety bar" and why should we expect them to soon reverse course?

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