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

To: Berk who wrote (5571)	9/2/1998 2:32:00 PM
From: Thomas M.	Read Replies (1) \| Respond to of 9719

You will probably be interested in this thread: #Subject-22340 Tom

To: Berk who wrote (5571)	9/3/1998 12:43:00 PM
From: Vector1	Read Replies (1) \| Respond to of 9719

Dick, Interesting question. First while I agree that there is a large value arbitrage between the large and small caps I do not think the large caps are as overvalued as the "nifty fifty" were. Some of those companies were trading at 70-80 times earnings. In a low interest rate environment I believe that for example GE should jsutify a 25-30 multiple of earnings. It is currently at the high end of that range and could correct 10-20% but not the 70% that occured in the early 70s. Second, I do believe the LBO shops will be active in acquiring public companies in out of favor industries. LBO funds usually have dedicated capital for at least 10 years and can afford to be patient. Biotech however is not one of the areas that they will play. Likely areas will be oil service, E&P, semiconductor equipment and shipping. If M&A activity is to heat up it may come from the larger biotechs buying some of the smaller out of favor companies. GENZ, BGEN and AMGN have substantial cash hordes. To date thay have used them on specific JVs but as companies beging to run out of money without any possibility of accessing the public markets this could be an excellent opportunity for these companies. Of course in the short temr the market will punish the aquirer because most of these acquisitions in the short term will be dilutive to earnings. Examples are AGPH and INCY. However, in the long term it could be a great move. I hope that was responsive. V1