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: Sam Citron who wrote (7511)	12/15/2002 8:36:35 PM
From: Harold Engstrom	Respond to of 52153

1. They are more volatile but that doesn't mean they should be discounted. 2. All businesses that are worth investing in typically have their returns in the future. 3. This cuts both ways and currently I would bet that the worm is set to turn again as the FDA gets a head. Biopharmaceuticals have the potential to generate enormous revenues with high growth rates. And, their promise unfolds over long periods of time, enabling knowledgable, patient investors (including amateurs) the ability to profit. Sugar water companies like Coke and razor blades and battery companies like Gillette will not give you a great idea of what is coming in 4 years. They entail less risk, but also will provide less reward. A Rick Harmon or Biomaven or Miljenko can often detect opportunity, take time to analyze it, and have time to capitalize on it to an extent that I have not seen present in other industries. Why would you pay a greater multiple for Coke than Pfizer or Amgen? What is the barrier to entry for soda pop or razor blades? What other industry other than bio/pharma gives you a 7-10 year window into oncoming competition where the professional money is guaranteed not to act until the last minute?

To: Sam Citron who wrote (7511)	12/15/2002 9:59:51 PM
From: Biomaven	Read Replies (1) \| Respond to of 52153

(1) They are riskier (more volatile) than the market; But most of this fundamental risk is not related to the general market or economy (unlike virtually any other sector), and a large portion of the risk can be diversified away by holding a basket of biotechs. (2) Their returns (not their costs) are primarily in the future rather than the present You have to distinguish between profitable and early-stage biotechs. Profitable biotechs have a license to print money - the margins (90%) are about the same as printing dollar bills. For early-stage biotechs, your point is true, but the low prevailing interest rates reduce the impact of this, and current stock prices already imply a huge discount rate. (3) They are subject to unpredictable changes in the rules of the game by the FDA. This was in my view a one-time event, and the prices now reflect the new FDA standards. I view the FDA as now likely to ease up some over the next few years rather than tighten further. Peter

To: Sam Citron who wrote (7511)	12/16/2002 2:11:18 AM
From: Miljenko Zuanic	Respond to of 52153

<<It seems to me that you have just laid out a pretty good case for discounting biotechs, if not shorting them.>. One way or another, going long or short, will not help you much if you can not separate winners from losers. Volatility is actually good, long term. It gives you chances that you missed early. As Rick said somewhere here at SI: "one do not need to run after train". There are many stops. Only one needs to be prepared for jump. How you prepare yourself will dictate your investment return. Second very important think is eliminating market noise. BTW, this is valuation not speculation tread. Miljenko