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Biotech / Medical : VD's Model Portfolio & Discussion Thread -- Ignore unavailable to you. Want to Upgrade?

To: Harold Engstrom who wrote (5071)	6/2/1998 5:31:00 PM
From: Biomaven	Respond to of 9719

Harold, have been looking more closely at SEPR since you advised that I load up. The pipeline looks great, but the company actually has a negative book value and analysts project lots of losses for the near future. Is there a good chance of another offering and accompanying share dilution? What makes this your number one pick? SEPR is a very different beast from any of the other biotechs I follow. It's not really a biotech at all - it's not driven by cutting-edge research, and I believe its pipeline and revenue/royalty stream in 5 years or so are going to look much more like that of a big pharm than any biotech I know. One key recent development was the deal with SP for the improved Claritin. Patent expirations are perhaps the biggest single problem facing the big pharmas, and for several important drugs SEPR is the answer. The idea is for the original franchise holder to license SEPR's improved version, and then roll it out as "Claritin II" (my name) before the Claritin patent expires. By the time the generics hit the ground, they are competing with an "old" drug. Jim Silverman reported from the SEPR annual meeting that SEPR claimed that SP was spending $200m this year alone on trials for Claritin II. (SEPR will probably get around a 7% royalty on the new Claritin, which is nothing to sneeze at (pun intended) for a multi-billion dollar drug.) Now it is true that currently SEPR is all pipeline and no profits (which I guess does make it like a biotech <G>). However, the strength of its pipeline, both in terms of the likelihood of the drugs being approved with little hassle and in terms of the drugs then finding a big market, is what distinguishes it from any other biotech. Financially, they are currently cash-rich. The negative book value is not significant, as this reflects their convertible debentures which will undoubtedly be converted. Other than the new stock from these conversions, I don't see any other dilution happening in the medium term. I'm not sure why they have been so weak recently. My guess is that they have become more aggressive in developing their pipeline, and this has pushed out some analyst's predictions of when they will reach profitability. If this is the reason, then this is a perfect opportunity to take advantage of the Street's focus on near-term earnings instead of long-term outcome. Peter