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

To: smh who wrote (3771)	5/12/2001 9:45:32 AM
From: smh	Read Replies (1) \| Respond to of 52153

For Biotech, Windows Are Reopening By Lissa Morgenthaler Special to TheStreet.com Originally posted at 8:38 AM ET 5/11/01 on RealMoney.com I spent time with a bunch of biotech luminaries at the Burrill genomics meeting in San Francisco. The luncheon speakers were two of my favorite analysts in the business, Michael King of Robertson Stephens and Rachel Leheny of Lehman Brothers. (Given the number of biotech analysts who recently crossed to the buy side, Mike and Rachel are now in the running for the "Longest Sell-Side Survivors" award.) Knowing the high regard in which analysts are held on this site, it was very entertaining this week to see the crowd of biotech CEOs and executives listen to their every word. Analysts don't just pick stocks, after all. They are the town criers of an industry, and they not only channel money to companies, they also see where the money's flowing. Asked if the capital window would reopen this year, Rachel quipped, "Thirteen IPOs before December" and Mike simply said, "I have no clue." (They both got a big laugh.) King believes investors are letting genomics companies take 2001 off after a wild 2000. He notes that some $20 billion of venture-capital money tied up in these companies has yet to trade. Leheny grinned when she said, "The most successful First Call note I've done all year was when we reprinted a page from lockup.com. Very humbling." She says there is some evidence the capital window is reopening: Cephalon (CEPH:Nasdaq - news), Genzyme (GENZ:Nasdaq - news) and Trimeris (TRMS:Nasdaq - news) managed to do convertible offerings this past month. Plus some so-called PIPEs -- private investments in public companies -- are making the rounds. (PIPEs are a way institutions can buy a chunk of a stock, frequently 15% under the open-market price, and hold it for maybe six months before blowing it out.) One of the problems this winter was that many PIPEs were coming off lockup. Now the stocks are down so far, bankers are shopping PIPEs to venture capitalists, and the v.c.'s are nibbling because private companies are still overvalued! Leheny also thinks genomic stocks could double over the next few months, much as Yahoo! (YHOO:Nasdaq - news) did this past month. She said, "I called eight vanilla mutual funds in New York, and they all called back within a day. That never happens. Six accepted meetings with the company I was calling about!" She observed that genomics stocks as a group were trading at 25 times revenue last August and are now trading at eight or nine times revenue. (For those who remember the Lehman/McKinsey report on "The Fruits of Genomics" last January, genomics stocks were then trading at 16 times revenue. Of course, that report was one of the reasons the stocks went down ... but don't get me started.) Leheny looked at the 39 genomics-tools companies that have come public in the past two years and said, "That's more IPOs than I'd done in my prior life put together! By January of 2000, people were simply buying these deals 'cause they were deals that would go up. One-third of the 39 were SNP companies. Even the most sophisticated investors didn't really understand what they were buying!" SNPs are single nucleotide polymorphisms, the single base-pair changes in DNA that constitute mutations. The most savvy biotech fund managers knew a lot about these companies --- but Leheny's right: The IPOs came so thick and fast it was impossible to tell who had the best company, let alone the best technology. She was also spot-on when she said, "A buy-side/sell-side mafia has formed. The fund managers with the big mouths can do more than Mike and I ever could." Which cracked me up because I seldom hear anyone talk about that mafia, though Adam Lashinsky sort of got into it this week. The biotech mafia has run biotech for years; heck, the genomics frenzy of 2000 was one of the few times it didn't run things. The mafia is comprised of smart, highly educated fund managers who do large amounts of analysis and use a phalanx of docs to figure out which clinical trials have a prayer of success. In the process, they also suss out which companies should be shorted. Makes 'em a pretty fearsome bunch. (Tell me Merlin Biomedical is short a stock I own, and I'll then look at it with a jaundiced eye. The same is true for a dozen other firms you might name.) It won't be easy for most individual investors to match the returns of that mafia. (More than one racked up 200% last year.) But you know my old saw: The average biotech stock moves more than 200% from low to high in a year. Buy them right and you can have a good time. We'll see if that time is June 7. The Spring in Biotech's Step If you don't count sundry remarks on RealMoney.com Columnist Conversation, the last time I opined in this space was April 18 -- right after the Fed rate cut. I thought biotech was due to head down because it had bounced 33% from the April 4 bottom along with the rest of Nasdaq. And in the following week, biotech dropped 10%. Then biotech rebounded more than I expected. It's now a little bit above where it closed after the rate cut, as are several other indices we watch: Not a Bad Spring for Biotech 4-Apr 18-Apr Change 10 May From April 18 Amex Biotech Index (BTK) 413.72 554.65 34.10% 549.79 -0.9% Nasdaq Biotech Index (CXBT) 674.92 883.55 30.90 904.62 2.4% Nasdaq Composite (CCMP) 1638.80 2079.44 26.90 2128.86 2.4% Nasdaq 100 (NDX) 1370.75 1830.79 33.60 1838.32 0.4% Philadelphia Semi Index (SOX) 463.49 685.16 47.80 619.04 -9.7% Amex Drug Index (DRG) 374.91 382.89 2.10 396.67 3.6% Source: TSC research.