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

To: Intel Trader who wrote (5145)	8/13/1998 4:07:00 PM
From: Biomaven	Respond to of 6136

More on the tracking stock: They say about 25% of the R&D expense goes with the oncology division. So AGPH general earnings will jump around $1.13 pre-tax per fully-diluted share (assuming I've done my math right - R&D last year was $150m, 33m diluted shares outstanding). So we are probably looking at earnings around $1.50 pro forma for the general division for the past year. (I've ignored any tax effect, because I don't know how it's going to be handled). Next question is what the market cap of the oncology division will be. My wild guess is $75 - $100m. That would leave the market cap for the general at $625 - 650m, or a price of around $20 and a historical PE of 13 (and a PS ratio of around 1). That all looks pretty cheap (or maybe not, depending what multiple you want to give to Viracept). These are quick back-of-the-envelope calculations, so feel free to correct / expand on them. Peter

To: Intel Trader who wrote (5145)	8/13/1998 4:44:00 PM
From: Joe E.	Read Replies (1) \| Respond to of 6136

Well, I'm no a fan of the stock split because I think it makes the company much more expensive to run and much harder to understand, plus practically guarantees investor lawsuits and thus higher insurance costs. Nevertheless, the proxy statement is interesting, and will force the market to value the pieces separately. So what value do you put on a division that has spent perhaps $170 million on drug research and has no drug on the market? It looks like this division will have to spend at least $50 million more before they can field their first drug, presuming their lead candidate makes it. They can borrow this $50 million, though, so their chance of running out of cash to spend is low. If we consider the $150 million an investment, and say that maybe a third was blown on their first, failed drug candidate, and other research that can now be duplicated for a fraction of the cost, then perhaps they are worth $100 million. This is one seventh of the total value of AGPH. Then if the distribution is 4 shares of Oncology for each AGPH, Oncology should trade about $13. With 7.7 million shares out, maybe 30,000 will trade each day. I expect a bid-asked spread of about 3/8. So I have to pay 3% each time I buy or sell. Lovely. The closing bid/ask on AGPH today was .1875, or 0.8%. Thank you management for making it 3 and a half times as expensive to trade the Oncology division. ( And since the HIV division will drop in price by about $3.25, the cost of trading goes up there too by about 15%.)