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Biotech / Medical : Ligand (LGND) Breakout! -- Ignore unavailable to you. Want to Upgrade?

To: John O'Neill who wrote (19472)	4/23/1998 10:51:00 AM
From: Flagrante Delictu	Read Replies (2) \| Respond to of 32384

John, There have been several posts on the VD thread in the last few days on the question of whether the warrants or the stock of LGND are a better buy. If you read them all, you'll find many who don't think the warrants are preferable to the stock, and one lonely voice crying in the wilderness in an attempt to show those seemingly unwilling to listen to reason, how substantially superior they actually are, when purchased now for $6.125 less than the stock. The argument revolves around the typical issue of one side espousing what they understand the academics to have pronounced, and the other side showing how things actually work in the real world, IMO. It's the issue of the theoretician vs. the practitioner. The practitioner points out that contrary to what the theoretical models espouse in general, the decision should be made on the pricing differentials that exist between the two at the time of the transaction, the time to expiration , the user's cost of capital & the terms of the exchange of warrants into stock( one warrant and $7.12 can be exchanged for one share of stock at any time from now until 6/3/00),as well as the assumption that the warrants will be held until expiration, not the theoretical cost of capital to a Morgan Stanley trader, trading the Morgan account & thereby getting money at substantially lower interest rates (the risk free interest rate, currently around 5.5%) than the espousers of the academic jargon can get in their own account (around 9%), which renders the numbers they refer to incorrect for their own accounts as well as yours. Hopefully, it will lead you to the simple, verifiable truth.

To: John O'Neill who wrote (19472)	4/23/1998 11:50:00 AM
From: Russian Bear	Read Replies (1) \| Respond to of 32384

John, The warrants are a bargain relative to the common. You made a good purchase. I lost my bookmark file two days ago (don't ask...,) so I will post an analysis of LGNDW's fair value as soon as I am able to locate my old link to a BS calculator. RB

To: John O'Neill who wrote (19472)	4/23/1998 12:32:00 PM
From: Russian Bear	Read Replies (1) \| Respond to of 32384

Okay, John, I found the link: As promised: cboe.com I used 770 days to expiration (until 06-03-2000,) a strike of 7.12, a value of 14.75 for the underlying, 60% volatility, and a risk-free rate of 5.5%. You can verify that the theoretical value of the warrants is computed to be 9.12 under those assumptions. Using the margin interest rate rather than the risk-free rate, as per Bernie, I get a theoretical value of 9.26 (using a fairly low 7% margin rate.) Alternately, you can enter a price for the warrants, 8.75, and ask the model to compute the "implied volatility." This turns out to be a mere 39.1%. In my view, expecting the volatility to _decline_ over time, given the expected parade of clinical developments, NDAs, achievement of profitability (or the failure to do so,) etc., is a highly unnatural and unrealistic assumption. The clear conclusion of this analysis is that the warrants are a good buy relative to the common. Bernie may have his own methodology, but he concurs with this conclusion, as he has already indicated. Good luck, RB