Hi Marshall,
as always at this time of the year it's starting to get interesting again in the biotech area. Lot of biotech investment conferences where the companies take their chances to get the story out. Or not! As we have seen with CNTO last Friday. Biotech investors seem to be very nervous right now. They react to every bit of bad news as if it was the end of the world for the particular stock. On the other side, movements on good news tend to be short-lived. I guess sentiment is not in favor of the small-cap, high risk stocks right now. Biotechs in particular are no favourites anymore. Should we be surprised about that? Definitely, not.
Biotechs tend to disappoint. That's the message now all investors have burned into their brains. In the past, the information flow was always playing a trick on the investors, as good news of the biotech industry as a whole by far outnumbered the bad news. On average you got about 6-10 positive news releases for every one or two bad news. The problem: in the end almost always the bad one counts. Take an average development product. Sensational news for conclusive preclinical results with a totally new drug, good news for the different clinical phases, good news for licensing agreements, etc., etc. ...... Then you get one or sometimes two bad news items (fails in Phase II or Phase III, or something similar) and that's it, the product is gone. In addition you had the sell side analysts who added their bits and pieces to the misleading picture. As a whole, a lot of investors got fooled into an industry they didn't know anything about, but which seemed to deliver continous "good news".
Somewhere in the last three years, I think the tide has turned. Now, investors give biotechs a higher risk premium and lower probability ratings for successful product development. IMO, we are now in a more realistic valuation position, which makes it a lot easier to find true value. Especially with the manic-depressive sentiment right now you get nice buying opportunities, if you are in for the long run.
It is interesting to see, that the European biotech industry is approximately two years behind in this process. Comparable European biotechs are valued at almost double the price of a North American biotech company. It's hard to find any reasonable value there. A different supply/demand situation may be an important factor in this, but that is already changing.
To be more specific, yes I may take up some crumbs along the way. From the ones I do not already own, I like GENZ the most. Hope I can get in at $25 or less within the next few weeks. I always have some of the small-cap biotechs on my radar screen. Generally, I like the biotechs that everybody loves to hate. I am currently looking into NABI, a low-tech biotech company (blood plasma products, immunotherapies, etc.) that crashed in the last 12 months, due to a stampede of bad news. Ridiculously undervalued, but terrible management is the cause why I am still cautious on this one and have not decided yet. I will not add to my ATIS position, unless the stock goes significantly below $12. I think that's unlikely. IMO, risk/return is in balance at ATIS. Interested to see how many shorts have covered in the last two weeks. I have the feeling, that the short position remained pretty high. In the options market they seem to play a strategy on a big up or down movement after the FDA panel meeting. How innovative?!? :-)
Last week I read a long article about S&N in a medtech industry journal. Unfortunately, the article was already two months old, but anyway it painted a moderately positive picture on the company. They wrote a lot about how the company successfully managed to refocus its strategy on tissue repair in the last few years and how it turned into a more innovative medtech company. One major aspect of the article was the collaboration with ATIS. Expectations on Dermagraft are very high (market potential of 250-300 million pound). I almost got the impression that, if Dermagraft is not the huge success that they expect, then the future of S&N may become shaky. The article also mentioned the cartilage product and stated that they expect to launch the product in late 2000 or early 2001. British medtech analysts were also mentioned and they are all bullish on the future of S&N. I guess this means SELL!?! :-)
On Dec. 5, S&N announced that they will acquire the wound care division of the Swedish company, Perstorp AB. The acqisition includes several products for emergency and chronic care of wounds. It also includes 59 employees. About half of them are salespeople. I guess they can help with Dermagraft in the future.
Now to something completely different: Can anyone tell me why ATIS has no website? It is the only mid-cap biotech company that I know which does not have its own website. Considering that ATIS has a good IR department and a "promotion-friendly" management I really wonder what's behind this.
Sorry for being a bit too long.
Have a good day,
Harry |
