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Biotech / Medical : VD's Model Portfolio & Discussion Thread

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To: Frances Liu who wrote (1943)	8/11/1997 2:44:00 AM
From: Vector1	of 9719

Frances, thanks for the summary of a number of the supply companies and their products. Although the overall market is good in that biotech research spending is on the rise and IMHO will continue to rise for the forseable future it is dificult to pick a good investment. Qiagen is a quality company and has a dominant position in its separation market. However it is trading at a multiple of 140 times earnings Ambion is very small and to my knowledge is a private company. They have benefited from attacking an underdeveloped niche but are way to small to be a public company. At the other end of the spectrum New England Nuclear recently was sold to a private equity group for about 4.5xs cash flow. Seemingly very cheap but NEM makes radioscopic biochemicals which are giving way to non radioactive methods of marking and labeling molecules. Ampersham thier main competitor has moved quickly and effectively into non radioactive tagging (primarily florescents) and NEM must reposition its product line to compete. 4.5 xs is justified because the cash flow is declining. BioRad is very cheap IMHO for among other reasons it has two classes of stock and is dominated and run as if it is a private company by its founder. The big houses like Promega, Fisher and Pharmacia have a major advantage as they can package products together and offer discounts to large buyers such as University Centers and large pharma. In some instances they can also package together instuments with disposeables ie give away the razor so they can sell the blades again and again. These companies will dominate the products that are arguably comodities and will achieve decent margins but ove time the economic laws that apply to comodities will put pressure on margins. These companies will also constantly be under pressure from the niche players who are more nimble and are constantly coming up with improved and ingenious products. These niche companies like Qiagen, Ambion, Stratagene and Invitrogen achieve high margins because thier products are better than the big houses and scientists are simply too smart to be pushed by marketing or a purchace manager into a second rate product. I don't know where Techne fits in, but would be very interested to hear form anyone who has used their products. V1

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