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Biotech / Medical : Sepracor-Looks very promising
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To: jeffbas who wrote (3070)5/27/1999 6:30:00 PM
From: Biomaven  Read Replies (1) of 10280
 
Jeffrey:

Someone who has worked for many years in biotech suggested I buy some VRTX and put it away. VRTX has about 1/4 the market cap of SEPR, but only about 15% of the market cap if cash is removed from both companies' market cap. Can anyone comment on the relative merits of the two -- is one clearly cheaper than the other?

I own a little VRTX (bought near the current price) and a lot of SEPR. VRTX has one recently approved drug (marketed by Glaxo) that is probably not enough by itself to take it to profitability. They have an interesting, but mostly early, pipeline and a respected research capability. Lots of cash.

Although I believe VRTX is cheap at these levels, long term I feel it has a much worse risk/reward ratio than SEPR. Basically SEPR has over 15 drugs that with a fairly high degree of certainty are safe and effective. A few may well fail, and some may end up as nothing more than slightly souped up generics, but undoubtedly a number will make solidly successful drugs and the chances are reasonable that we will get a blockbuster among them.

By contrast, even a good biotech like VRTX has a much riskier pipeline. A run of bad luck and their late/middle term pipeline could vanish. That's why I view VRTX as a good holding only as part of a basket of biotechs. It's more stable than the 3rd tier stocks because it has an approved drug and plenty of cash, but I still wouldn't feel comfortable having it be a substantial part of my portfolio.

Peter
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