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

To: John Metcalf who wrote (5151)	8/13/1998 7:08:00 PM
From: Joe E.	Respond to of 6136

John: I am a value type, you have me pegged. But I have plenty of stocks with no revenue and lots of research expense. These appeal to value types too. As a value type, one just forecasts the revenues. Like you, I am an investor in AGPH, and I think that R+D money spent is actually an investment, no matter what the IRS and GAAP treatment. However, for AGPH's oncology division, I think some of the R+D investment made in the past will not be productive, and will be discounted in the marketplace. That is the basis for my analysis. Upon reading the filing I have another worry about the oncology division, which is that the tax sharing arrangement will prevent the oncology division from ever making use of the tax losses they are generating now. Because of the tax sharing arrangement, the pharma division gets all of the tax losses to use, with no compensation to the oncology division. By the time the oncology division has product revenue AGPH will be paying 30% to 40% tax rates. So the oncology division will get no future tax benefits from its current and past investments in R+D. For this I now think another haircut will be administered. Probably something like 25%, taking the oncology division down to $75 million or so. Now the oncology division could be a great investment - all they need to do is discover a great drug and none of this bull will matter a bit. But if they have to be judged before the great drug appears, against other biotech's making big R+D investments now in hopes of future tax protected profits, they will get a discount. I remain a big fan of Agouron, but I think management needs to focus ALL of its time and attention on drug discovery and sales and leave the reorganizations to the fading industries like auto manufacturing and steel.