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Biotech / Medical : Agouron Pharmaceuticals (AGPH) -- Ignore unavailable to you. Want to Upgrade?

To: John Metcalf who wrote (5079)	8/5/1998 7:01:00 PM
From: Joe E.	Respond to of 6136

John: You said "Agouron's 10-K addresses the availability of tax-loss carryforwards, and explicitly states that they expect to generate sufficient income to utilize them. In this regard, they will get the same advantage that big pharmas, or any other profitable company, has in R&D. In fact, they have tax-loss carryforwards, in addition to current research spending. Applying the nominal tax rate (40%) and the effective tax rate (15%) described in the 10-K suggests that they could choose to reinvest 85 cents of each dollar earned, or let 60 cents drop to the bottom line." You are right that they expect to be able to use their various tax assets - but this is eventually. Right now they have $150,000,000 in tax loss carryforwards. So they will pay minimal cash taxes whether or not they spend a lot on R+D, at least for a couple of years. They had the option of not accelerating the R+D and letting their profits accumulate nearly tax free until they used up their tax assets. This would build up a war chest, and avoid the risks and rewards of biotech R+D. As I said, the market does not think much now of the risk/reward balance in biotech R+D in AGPH's fields. Big pharmas avoid presnt cash taxes with R+D while AGPH avoids only future cash taxes. Whether they report their profits at a 15% tax rate or a 40% tax rate makes little difference in their valuation, IMHO. It is the cash taxes now and in the future that matter. My opinion is that AGPH is close to the leading edge of their fields of investigation and wants to take advantage of the many opportunities they see. Sounds sensible to me. My question was about whether big pharmas have some non-tax advantage. Do you have any thoughts on that you would care to share?