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Biotech / Medical : VD's Model Portfolio & Discussion Thread -- Ignore unavailable to you. Want to Upgrade?

To: Pseudo Biologist who wrote (6881)	7/17/1999 7:36:00 PM
From: Vector1	Read Replies (5) \| Respond to of 9719

PB. Sucess breeds success. The more biotechs that do well the more capital raised and the higher the valuations. It is a virtuous cycle when things are going well. Until recently virtually all biotechs were story companies. That is they did not have current earnings, but a good story that they would be able to generate earnings in the future. As a number of these companies failed or took longer to get approval than was (maybe unreasonably) expected valuations particularly for smaller companies with products many years away plumeted. Today the market is taking notice of a number of biotech success stories which are based on earnings. BGEN, GNE, GENZ, IMNX, MEDI and IDPH just to name a few are blowing away street expectations quarter after quarter and have richly rewarded investors. Of course the old stalwart AMGN is exploding as well. In addition biotechs are again becoming takeover targets for big pharma. WLA's takeover of AGPH was viewed as an aberation at the time but P&U's acquisition of SUGN for a big research premium is hard to explain away. The mainstream market is starting to take notice of the sector. Most of the money will continue to flow into the mid and larger biotechs. Unlike the pure biotech funds and some of the smaller healthcare funds the more mainstream high growth funds have to go after the bigger names because of their size. These funds (which control huge amounts of capital) have to invest more than $10m in a name to make it worth while and the stocks with market caps well over $500m have much more liquidity. The arbitrage is for some of the smaller companies through product approvals and other positive events to break through the size barrier. When they do there will be an extra charge in the rise as the more mainstream funds start to take positions. This arbitrage should also fuel business combinations among biotechs particularly the small tools companies. Examples of companies that will explode once they crack $500m in valuation include CLTR, GLIA and ABSC. It would be worth exploring what other biotechs fit into this category. The biotech IPO market is also openning. Over the past month there have been a number of biotech IPO's and recently and they are performing well. On the calendar GNE's offering is massively oversubscribed and Chemdex which is comming out soon will be a blowout. Biopure, a blood substitute company with a superb product in Phase III prices in about a week. The genomics companies are IMO the least understood of the biotechs. MLMN and INCY are the class of the field. Genset is very interesting and HGSI is overhyped. AFFX has had a huge run and may be overdone but I wouldn't get in front of that freight train. Those who are not sophisticated think they are the INTEL of biotech. they may be but there are a number of other technologies that will present quite a challenge not to mention a patent minefield. As the pace of discoveries in this sector increases some of these companies will explode. High throughput screening companies will benefit as pharma and biotech have to contend with dozens of new targets and little known microfluidics companies like Caliper will go public at big valuations. I would stay away from the combinatorial companies as they add much less value to pharma as CombiChem is one of most pharmas core competantcies. I have never been more excited about the sector and this is just the beninning. V1

To: Pseudo Biologist who wrote (6881)	7/17/1999 7:50:00 PM
From: Mike McFarland	Respond to of 9719

I would not be too concerned --the folks who bid up stocks on hype are not piling into the model portfolio. Bears watching though--Biotech is moving up the oversold list. The summer rally may run into August, then back to stock picking. Of course...the bull market could just reverse at anytime--a few years from now we may see business headlines like What ever happened to DOW 10,000?!" Is Microsoft worth half a trillion dollars, of course not. I hope the fed figures out a way to let the air out slowly.