The author, Chris Bulkey, seems pretty clueless as to the realities of the situation and seems to be jumping on the doom and gloom bandwagon. First of all, having jumped on INCY in April of 98 was a bit late in the game to get involved in this stock as it was near its all time high and he was basically jumping on the momentum investors coattails and buying high. Now he's panicked by the PKN:TIGR deal (a bit late as that was a spring time panic), which I've dealt with previously in detail and still consider a vapor threat to INCY. The analysts seem to completely ignore the entire intellectual property advantage that INCY has and how even if raw genome info is dumped into the public domain, you won't be able to use the majority of genes commercially without ultimately licensing them from INCY. Also, INCY will have the genome mapped (ie. sequenced) by the end of next year, way in advance of PKN:TIGR using the MegaBace sequencers which are a couple of years ahead of what PKN is currently trying to develop.
Also, INCY didn't IMHO create the INCY Genetics tracking stock to "boost its stock price" and if anything the muddy nature of the structuring hurt their stock price. They did it because it makes total sense to spin this off as a separate business unit with a separate focus with separate funding as it is still more of a research project with less certainty and more risk than the INCY General business which is a cash cow. It is more like starting another INCY ala 5 years ago (I'd bet most investors which they bought in at the IPO in Nov. 93 with a $3.75 basis). INCY doesn't see the commercial viability of the PKN:TIGR shotgun genome sequencing as they don't see what you will get out of the "junk DNA" and prefer to focus the INCY General division on the expressed sequences while focusing the INCY Genetics divison on the whole genome approach and also go for SNPs which are thought to have future value using the superior SNP acquiring technology they got from buying Hexagen. But, INCY Genetics also gets the future DiaDexus plum, which will ultimately be a major score in diagnostics.
As far as earnings estimates go, I agree, the 1999 spread given $0.50 - $1.05 EPS is a bit absurd and just goes to show how clueless the analysts really are. INCY does deals on a 3 and 4 year basis. None are up for renewal before well into 1999. They have a guaranteed revenue stream, and will not allow themselves to over grow and kill their EPS. The 50 cent prediction is absurd, they've already earned more than that in 3 quarters this year. The consensus is 91 cents per Zacks which is more realistic. Although it didn't get the press coverage that the recent downgrade by Warburg-Dillon got, BT Alex Brown analyst Kevin Tang just increased his 1999 EPS expectation for INCY General from 90 cents to 96 cents. Kevin Tang is one of the best in this business and really knows INCY well, unlike many of the analysts out there.
While the momentum has gone out of INCY shares, they have gone out of almost everything and the momentum investors are no where to be found at the moment. My read on Chris Bulkey is that he bought at a peak doesn't see it getting back to that peak anytime too soon and thinks that you should take the loss. I totally disagree with that viewpoint. I think INCY is one of the great long term buys on the market, especially at the current giveaway prices. I also think that from a short term standpoint it will recover well versus the markets as a whole. They are not effected by the Asian, Russian and S. American BS. They are helped by interest rate downgrades. They have tons of cash and are profitable and will remain so. They have more pharma partners than any other biotech in existence. They are firming up their intellectual property position with Synteni and going to market big time selling the microarrays.
What they don't do is hype the company, try to influence the short term stock price (they build the business and let the stock price follow) and they don't reveal much financial data to anyone, analysts included. If INCY was into hyping themselves they would release the value of each of their deals, but they find that they are in a better competitive situation keeping this confidential. They've never lost a pharma client and the ones they have keep signing up for more.
Of course you could always follow Chris Bulkey's advice and buy INCY high and sell it low, but that is not a very good way to make money. This guy seems to be caught between trying to decide if he is a trader or a long term investor. The bottom line is that I don't think he understands the genomics business.
Rman |
