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Biotech / Medical : Biotech Valuation

CRSP 57.84

+0.5%

11:28 AM EST

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To: Biomaven who wrote (9779)	12/17/2003 1:18:33 PM
From: Sam Citron	Read Replies (3) of 52153

Peter, The surprising thing to me about the cited paper is that it does not appear to distinguish between abnormally high volume days on which the price rises and such days on which the price falls. I would be quite surprised if there were not a marked tendency by individual investors to buy on the former and sell on the latter. A personal observation: I have tended to avoid biotech stocks mainly because of what I perceive to be higher research costs (or, as the academics prefer to call it "search costs"), due perhaps to my lack of a bio or med background, and also due to highly unpredictable regulatory risk. Occasionally, however, in spite of my better judgment, I am occasionally tempted by a particular biotech. Recent case in point: Medimmune. It was in the news recently for having a near monopoly on available supply of flu vaccine due to a less than stellar initial sell-through of their innovative Flumist vaccine. It seemed a sure thing. The stock had been downgraded by nearly every firm on Wall Street over the past year. It was much closer to its annual low than its annual high. It appeared to my inexperienced eye that they had an excellent chance of selling their 4 million dose supply at a net price close to $35 dose (even with the $25 rebate) and with the shortage, the rational (no pun intended) thing to do would have been to abandon the rebate. But no such luck. Medimmune elected to instead sell 3 million doses to the federal government at $20/dose and the stock understandably tanked. I can understand the company's desire to get the product out to as many doctors as possible but I think the discount was a bit extreme. I think they were in an excellent bargaining position to get a much higher price for their vaccines. Basically I believe the company was out-negotiated. They appear to be long on scientific talent but short on business talent. In the future, I shall screen all biotech prospects for MBAs from top-tier business schools among top managerial ranks and generally be even more averse to this sector than previously. Sam

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