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Biotech / Medical : Sepracor-Looks very promising -- Ignore unavailable to you. Want to Upgrade?

To: Bob Swift who wrote (3407)	7/3/1999 6:01:00 PM
From: Thomas M.	Respond to of 10280

...Although the issue is rated "CCC+" by Standard & Poor's,us longs probably rate it AAA+ ... <ggg> I was just thinking the same thing as I read the beginning of your post. Tom

To: Bob Swift who wrote (3407)	7/3/1999 6:03:00 PM
From: IRWIN JAMES FRANKEL	Respond to of 10280

Hi Bob, An interesting question that we could write a great deal on. I will give you a few simple thoughts on it. Others will likely approach things differently. First, my understanding is that the converts on SEPR are only avaliable to qualified investors. I don't remember the exact details of what that means but as I recall you need to be a millionaire with several hundred thousand of annual income. That leaves most buyers out. But for all of us who are qualified or theoretically for other issues not requiring a qualified buyer, I'll continue. In making an evaluation of a convertable it is useful to compare the premium that is paid for the stock to the yield differential that rewards the bond holder. Here if the conversion premium is 53% and the yield exceeds the dividend (0) by 7.3% - it would take over 7 years to make up the conversion premium in interest. That is too long. IMHO. In fact if you want income it is relatively easy to demonstrate the over valuation of the bond - at least to me. (One issue that I will not address carefully is the increased safety of the bond. That makes little sense to me when applied to SEPR. If they fail the bonds tank also.) Consider the alternative use of buying the stock and selling options. Buy at 87 and sell Jan 2001 @155 for 13. Your will get your 7% yeild from the option and will only cap your gain at 87 to 155. That seems a fairly comparable position to the convertable bond - at least to me, for 19 months. Hope that is some help and of interest. ij

To: Bob Swift who wrote (3407)	7/4/1999 1:37:00 AM
From: Vector1	Read Replies (1) \| Respond to of 10280

Bob, The convert vs the common; it depends how much risk your are prepared to take. In general as an asset class I do not like public converts. The convert theoretically offers you the additional safety of a security that is senior to equity in the capital structure. In many cases this added downside protection is illusory because the bonds have little covenant protection and for most biotechs if the stock fails the converts will go as well. For example the converts for a company like Aviron are a suckers play. Sepracor is a little different and I think there is some level of saftey in the converts. If you hold them long enough there is a very high likelihood you will get your principal and your coupon. Sepracor has such a diverse portfolio of potential drugs and some existing royalties that notwithstanding the S&P rating it is hard to imagine the converts not getting their coupon even if the stock gets crushed. On the other hand you pay a steep price for this added level of protection and the converts can be forced to convert to common by the company to redeem the bonds for cash after the call protection period ends. I have not looked at the SEPR bonds so I do not know when the call protection period ends. From my prospective you buy Sepracor because you believe that you have a reasonable shot at a 5 to 10 bagger over a five year period. If you want relative safety plus a built in yield invest in a high yield bond fund. V1