Biotech Valuation Message Board

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Biotech / Medical : Biotech Valuation

CRSP 56.45

-2.7%

Jan 8 3:59 PM EST

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To: Biomaven who wrote (13427)	10/8/2004 4:59:43 PM
From: A.J. Mullen	of 52153

I think it's reasonable to question the risk/reward of biotech, but not so reasonable to extend conclusions to biotech. We try to value value companies on the basis of the value of each drug, sales - expenses. We tend to assume that once on the market every drug is going to bring profits, albeit profits that often decline towards zero as competition erodes demand and margins. Big pharma has lots of drugs that no longer make money, perhaps are no longer made, but for which substantial liabilities exist. These drugs have a negative value, which hasn't been counted. Also a big class-action could sink the biggest pharma. I'd rather own more biotechs each with fewer drugs: if one drug generates a major class-action, then that stock may become worthless. Better that than owning the same number of drugs bundled in a single Big Pharma. In that case one drug with a problem could swallow all the rest. Thus the rational conclusion of the Vioxx story should be d depreciation of big pharma, discouragement of munching, and appreciation of biotech as an alternative to pharma. But if all were rational, it would be very hard to make money. Ashley

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