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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: Biomaven who wrote (676)	2/21/2000 11:43:00 AM
From: david james	Respond to of 52153

Thanks, you make a good point with regards to the ease with which many biotechs can raise cash now, but I must admit that what you say goes against my intuition although maybe we can sector cash in different ways. 1. Cash needed to continue research and development One needs to look at the rate at which the company is burning through the cash they have and the revenues they are generating. If the cash on hand is only enough to keep the company going for a year or two, then I agree that this should be worth its straight value, no more no less. 2. Excess cash I would think that the cash they have in excess of their burn rate would be given a higher value since this implies the company can significantly expand. I might give this as high as 2 to 1. Considering that most biotechs are trading at very high price to book levels, this cash has the potential to produce very high returns. For companies like CEGE, just the interest on the cash can produce significant returns (around $16 mill annual interest on that $230 mill) 3. Equity investments I think I might value equity investments in other biotechs at about equal to their value or a bit below. Normally, this would be valued at a significant discount since converting the equity to cash is not that efficient and there is considerable risk, but with the way biotechs are moving, this has the potential for a higher return than cash. Comments? David