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Biotech / Medical : Biotech Valuation

CRSP 58.85

+5.1%

3:09 PM EST

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To: scaram(o)uche who wrote (8334)	5/12/2003 10:11:15 AM
From: Biomaven	Read Replies (1) of 52153

Let me add to Rick's discussion about how we should view the busted converts in Erik's list. First, I think the "correct" list is somewhere in between Erik's two lists. The tech value should be adjusted for the market value of the converts, not their face value. If you look at SEPR as an example, the company can always buy back the debt at a modest premium to its current price. Second, there has been a misguided notion that the busted convert holders are somehow "in control" of the company. (You saw this a lot with SEPR near its lows). Nothing can be further from the truth. The Common shareholders are in control, and if they decide to go to Las Vegas with the company's cash (or equivalently simply fund large clinical trials <g>), there is nothing that the convert holders can do about it. If they get lucky (whether at Las Vegas or at the FDA) the common get the upside; if they get unlucky they share the downside with the convert holders. So either approach (taking debt at market value, or discounting it because of the Las Vegas effect), suggests that something in between these two lists is correct. Peter

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