Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: John Metcalf who wrote (3266)	4/1/2001 1:02:23 PM
From: Biomaven	Read Replies (1) \| Respond to of 52153

Thanks, John, Doc and others for the excellent discussion. One issue here is the two competing schools of stock price determination - the "fundamentals" vs. "the greater fool" approachs. On fundamentals, there really has been only modest change in the biotechs except for the significant fact that they got stronger last year because of the cash influx. I will grant that there have been a number of clinical or regulatory disappointments (MAXM, CLPA, CLTR, CRXA, SEPR, IMNX, GLIA, etc.), together with not much in the way of big new drugs. However there have been very strong sales of drugs such as Enbrel, Rituxan and Herceptin, and an increasing number of biotechs are making the transition to profitability. Further, there is certainly going to be a flood of new biotech drugs this decade, and the days of pharma grabbing the goodies for a 8% royalty are gone. By way of contrast, there has been dramatic change in the telecom and high-tech fundamentals. Growth of 30% and more stretching to the horizon is suddenly no more. The hard fact of delisting and Chapter 11 faces a great many companies as unsustainable models collide with no more cash from investors. But now let us look at the "greater fool" model. Here the argument goes that if a stock has been going up steadily along with its peers, then any piece of remotely good news or even news that could be interpreted as good news ("page views are up 20%!") will send it higher. Certainly in the bubble leading up to the second week of April 2000, this was the driving force. In this context it is instructive to look back at a post I made on this thread a week or so before the very top: Message 13019650 In retrospect of course, I'd like to remove that "only very slightly" from the "tongue-in-cheek" remark. Well those days are of course very much over. Instead we perhaps reached a "greater fool" stage on the downside - "why buy from the fool now when you can buy it cheaper from the greater fool next week" <g>. This can perhaps best be seen if we look at a group whose long term fundamentals have stayed strong (in fact have probably just kept getting better over this whole period) - the Mab companies such as ABGX, MEDX and PDLI. Here is a relevant chart: siliconinvestor.com (These comparative charts are very sensitive to the starting point - try changing the period a bit and you'll see what I mean - but the general point is still valid). Here's the 20 month chart (I've replaced MEDX by AMGN because of the former's excessive volatility): siliconinvestor.com So do these wild swings in price with unchanged fundamentals mean that "valuation" is irrelevant in these primarily story-driven stocks? Well, no. In the short run, it is certainly more important to be able to forecast the crowd's behavior than the underlying company's behavior. But in the long run, the company's behavior will dominate. You only need to look at a long-term graph of say AMGN vs. that of a failed biotech to see this. The more long-term the story of a stock, generally the less grounded the price will be in reality. But if you get the story right and stay off margin in the meantime, you'll eventually do well. Peter (Incidentally, I added a little MEDX and ABGX in the dip last week - I still believe their story!)