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

To: scaram(o)uche who wrote (2006)	11/10/2000 12:11:26 PM
From: Biomaven	Read Replies (3) \| Respond to of 52153

Chuckle. I still don't understand the logic behind the market's reaction to Bush/Gore with respect to the relative valuations of drugs and biotechs. In general the drugs have been strong, perhaps in expectations of a Bush victory. However the biotechs have been weak, perhaps in sympathy with the NASD. From a valuation basis, what should cause a change in the relative valuations of the drugs and the biotechs? One is fundamentals, and I think we would all agree that this has favored the biotechs of late. If nothing else, the considerably increased financial strength of the biotechs has meant that the pharmas not longer get cheap (single digit/low double digit royalties) options on the biotech products. Another fundamental issue is the drug reimbursement landscape. I honestly don't see why this differs between the biotechs and the pharmas. If anything, the biotechs may be more sensitive to this, given that their drugs are generally more expensive. True, the biotechs generally address more niche areas than the pharmas, so their overall impact on the healthcare budget is less. The market's consensus is that the overall landscape here would be more favorable under Bush than Gore, and perhaps this is right, although I could see a greater dollar outlay under Gore. Bottom line for me, though is that the pharmas and biotechs should pretty much move in tandem in this area. The other thing that could change the relative valuations is a change in the effective discount rate that people are using. Pharmas earn good money now, biotechs burn good money now. (In a way, this mirrors the old economy/new economy dichotomy). I've seen arguments that interest rates would be higher under Bush if big tax cuts go through, but given the political landscape in the new congress I'm not sure he would be able to implement big tax cuts anyhow. Finally, we are left with a good old "flight to safety." In times of trouble, buy defensive stocks like drugs and sell "speculative" stocks like biotechs. Maybe that's what is going on now. If so, this should be a temporary phenomenon, as eventually the dust will settle and we'll have a new president. (And I'm currently predicting this will be Bush, as the courts won't overturn Florida unless something else new and dramatic turns up). Finally, on a lighter note, I have always said I'm fiscally conservative and socially liberal. I'm not sure I'll be able to use this line anymore after the recent New Yorker cartoon showing a thin young thing in a launderette saying to her friend, about a guy who describes himself the same way: "That mean he sleeps around and is cheap." <g> Peter