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

To: quidditch who wrote (10712)	2/29/2004 2:09:26 PM
From: scaram(o)uche	Read Replies (1) \| Respond to of 52153

>> when SEPR was in single digits, I saw only doom and not opportunity. << Not me! I bought at the very bottom, $4. .......... ................. ............................. ......................................... and sold at $6. Sigh.

To: quidditch who wrote (10712)	2/29/2004 2:19:10 PM
From: Biomaven	Read Replies (4) \| Respond to of 52153

quid, What you raise is a very important issue. It speaks to the whole idea of a "feedback loop" which often underlies very large price movements in a stock over several months. In SEPR, we previously saw this with a vengeance on the downside, where the non-approval of Soltara hit the stock very hard. What happened was not just that they lost the lead drug in their pipeline, but they also lost credibility, and the large amount of convertible bonds they had sold seemed to pose a significant financial risk, which increased as their stock price declined. This loss of financial strength in turn hurt their pipeline, as they were forced to slow down or postpone some programs. (Another interesting example of a feedback loop on the downside was Enron - they had what were in effect (undisclosed) toxic converts, and as their stock price declined so the impact of these grew and grew, furthering the decline). In long-term investing you always have to be on the look-out for these feedback mechanisms because they serve to amplify any price movements and extend any trend in time. In SEPR's case, the turning point at the bottom was when they repurchased a bunch of their converts at a discount and suddenly their financial risk receded. (That's around when I bought the majority of my current shares). The Estorra approvable will I believe continue this feedback effect for the reasons you mentioned, among others. Suddenly the rest of their pipeline regains credibility. Further, the increase in their stock price reduces the dilutive effect of their last offering because of the hedge they instituted at the time. If you look at their pipeline, they still have two very low-risk projects. The first is the Xopenex MDI - very hard indeed for me to see how this could run into problems. (Not zero risk of course - no new drug is - for example, they could always run into some manufacturing issue that could delay things). The second low-risk project is arformoterol - this is an isomer of a non-controversial approved drug with no dosage increase - again hard to see much in the way of risk. Finally, once they get over the initial spend for Estorra, you should see dramatically improving financial results. On the downside, there is always the possibility of a Xopenex patent challenge. They might also be tempted to increase their R&D spend and hence push profitability further out - I think this would be a mistake, even if the increased spend could be rationally defended. Peter