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

To: Biomaven who wrote (3691)	5/7/2001 10:24:47 PM
From: Biomaven	Read Replies (1) \| Respond to of 52153

On another subject, I bought a starter position of some ARQL after visiting the company and being impressed with their CEO and CSO. I hadn't followed the stock for ages, and I like what I now see. First, on an operating basis the company is currently cash-flow positive. (The effect of SAB 101 means that the cash they get upfront is only recognized slowly, so they still report a loss for earnings purposes). Second, they are really moving away from their original combi-chem "compounds for cash" business model. What they want to become is essentially a Phase I factory - an ambitious and difficult goal but one that would be very rewarding if they succeed. To this end, their purchase of an in-silico ADMET (absorption-distribution-metabolism-excretion-toxicology) company (Camitro) should prove very synergistic. (Assuming the in-silico prediction stuff works at all, which I don't have the expertise to comment on). Their idea is to "build-in" good ADMET to the compounds they synthesize. Given that ADMET issues are the biggest single source of small molecule failures, that is clearly a very desirable goal. Incidentally, this is yet another example of a tools company trying to move downstream. There is an interesting valuation issue here. Logically, a pharma should pay you really big bucks if you can kill one of their candidates early rather than late. The cost of going with the wrong compound is enormous - not just in direct costs but also in opportunity costs, because potentially the backup compound loses some years of development time. However, there is no way a pharma would pay a successful ADMET prediction company anything like what they should. (I can just see the bean counter now: "You seriously want us to pay this outfit $30 million just for telling us that our drug is no good?) This means that the only way to successfully capture the value-added is by making good drug candidates yourself and retaining some royalties in them - precisely what ARQL is doing. It's going to take quite a while to see if the new ARQL strategy is successful, but meantime their valuation is reasonable and so I'm content to wait. Peter