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

To: Biomaven who wrote (6153)	4/13/2002 12:17:30 AM
From: Biomaven	Respond to of 52153

Here's an ELN-type deal from Allergan, courtesy Forbes: Allergan. The Irvine, Calif. pharmaceuticals maker is ramping up an ad campaign as it awaits government approval of its Botox product for wrinkle-fighting. All this has The Street cheering Allergan's stock to $58, 34 times earnings. But behind the glowing numbers are some curious off-balance-sheet research entities that Allergan (NYSE:AGN - news) has used to protect its bottom line. Allergan joins PeopleSoft (FORBES, Jan. 21) and Elan (Sept. 17, 2001) in this cost-shifting masquerade. In Allergan's deals, it joins another company in a joint venture, makes a cash investment, then gets some or all of the cash back in the form of a fee for doing R&D. Chief Financial Officer Eric Brandt argues that Allergan uses the move to compete with the pharmaceutical big boys and that its accounting is legitimate. Flash back to 1997, when Allergan launched a subsidiary, Allergan Specialty, and funded it with $200 million. The unit was going to develop drugs for eye diseases like glaucoma. In March 1998 Allergan spun off the unit, distributing its Class A common stock to Allergan shareholders. Allergan recorded most of the $200 million as a nonrecurring charge (the sort Wall Street tends to ignore) and kept an option to buy the unit. Was the unit now dealing with its former parent at arm's length? Not exactly. Three Allergan officials, including its chief executive, sat on Allergan Specialty's board. Next, the unit recycled the $200 million back to Allergan to cover Allergan's own R&D expenses. For every buck Allergan spent on research, it billed Allergan Specialty $1.10. Besides covering costs, Allergan got a fee for licensing certain technology to the unit. If Allergan had incurred the R&D costs directly, the costs would have cut deeply into its earnings. Without Specialty, we estimate Allergan's 2000 earnings per share would have been $1.15, instead of the reported $1.61. Exercising its option, Allergan bought the unit on Apr. 16, 2001 for $70 million in cash. But the R&D weirdness didn't stop. Allergan then entered into an R&D partnership with Bardeen Sciences, a privately owned firm. Allergan forked over the rights to certain compounds as well as research on treatments for acne and a retinal disease project, among others. In return Allergan got future commercialization rights and an option to buy Bardeen, contingent on the success of the venture's research, among other things. Though Bardeen is independent, an Allergan executive sits on its board. Bardeen paid Allergan $27.4 million for research, which in turn spent $25 million on the work. Without the Bardeen revenue--that is, if it had simply incurred the R&D costs on its own dime--Allergan's fourth-quarter 2001 EPS would have been cut from the reported 63 cents to an estimated 54 cents a share, we figure. Allergan's Brandt doesn't dispute our EPS math, but says the company wouldn't have done the R&D without the two units. biz.yahoo.com Peter

To: Biomaven who wrote (6153)	4/13/2002 8:14:14 AM
From: tom pope	Read Replies (1) \| Respond to of 52153

the number of shares that it might issue as a result of such exchanges would significantly exceed the number of shares originally issuable upon conversion of such debt. something new - a discretionary toxic!