Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Biotech / Medical : Sepracor-Looks very promising -- Ignore unavailable to you. Want to Upgrade?

To: BMcV who wrote (1252)	10/7/1998 3:47:00 PM
From: BMcV	Respond to of 10280

Ok, here's the story. It's from the New England section of the WSJ, so I'm going to type it here since it may not be generally available to people in other parts of the country. Basically he says what all of know (I hope), that things still can go wrong with SEPR and it may not be the next Merck. I don't have a scanner and the article takes up nearly two full columns, so bear with me. (see next)

To: BMcV who wrote (1252)	10/7/1998 3:49:00 PM
From: Biomaven	Read Replies (1) \| Respond to of 10280

Sometimes SEPR is weak for a reason unrelated to the stock's fundamentals. I use such opportunities (like today) to buy distant out-of-the-money calls, and I've done very well with this strategy so far. Just remember, to paraphrase the master - "every now and then you should take a look at the market to see if anyone is offering to do anything stupid." Peter

To: BMcV who wrote (1252)	10/7/1998 4:02:00 PM
From: BMcV	Respond to of 10280

WSJ write-up: >>Second Opinion: Analyst argues Sepracor stock is far too pricey by John Hechinger Could investors end up with a bad reaction to Sepracor? Until now, the Marlborough, Mass biotech company has wowed Wall Street with an unusual strategy: developing safer, more effective versions of blockbuster drugs for allergies, depression and heartburn. These medications have already racked up billions in sales by their manufacturers, including such health-care powerhouses as J&J and Schering-Plough. Sepracor's knock-offs promise fewer side effects, and they've won big-time believers. In some cases, the very drug companies whose best ideas Sepracor is, well, borrowing have joined forces with the upstart--licensing new versions of their own products. Sepracor also has been lauded in the press, including a glossy spread in the current Fortune magazine, headlined "Drug Pirates Make Good". The firm's shares soared to a high of almost $73 last week, more than doubling in only a year. Since then, however, the stock has given up a few of those gains and now sells for about $62. Part of the reason: a lone analyst at a major brokerage firm has soured on Sepracor. On Friday, David Maris with BS in NY downgraded his investment opinion to a "neutral" from an "attractive". Mr Maris says he didn't change his mind about the company's strategy--or its progress in developing new drugs. But he says the stock's lofty price now reflects investors' already optimistic expectations for the company over the next several years. "Given the shares' appreciation over the past few months, this may represent a prudent time to take some level of profits," he wrote in his Friday report.

To: BMcV who wrote (1252)	10/7/1998 4:16:00 PM
From: BMcV	Read Replies (1) \| Respond to of 10280

WSJ write-up part 2: >>Fast-acting In mid-June, Mr Maris started recommending shares when they traded for $38.75. As of last Friday, when he downgraded the stock, it had soared 64%--a spectacular showing given the current market plunge. Consider investor's enthusiasm: at the stock's current price, the market values Sepracor at $1.7 billion, even though the company has yet to earn a dime and is expected to post more than $70 million in losses this year. Some analysts don't look for the company to be profitable until 2001, when Morgan Stanley predicts that Sepracor will report sales of $477 million. Of course, biotech firms trade on long-term promise, not near-term profits. But Mr Maris says he still can't find enough business several years from now to justify the company's stock price. He expects Sepracor to report earnings of $1.15 a share in 2000 and $3.80 in 2001. Like most biotech analysts, he discounts those earnings back to the present to come up with a reasonable stock price--all the while factoring in how fast he believes earnings can grow once the company has established products to sell. He figures Sepracor can ultimately sustain an enviable growth rate of 25% to 30% a year. Yet, even with that assumption, he pegs the stock's fair value at $52 to $57, substantially lower than its price today [not any more--BMV]. Investors, Mr Maris says, are ignoring what he calls "innovation risk". Major pharmaceutical firms aren't standing still. So as Sepracor works on knock-offs, these companies could come up with a whole new product. Or there's the other scenario: doctors and patients simply resist switching to Sepracor's new and improved medications, at least for a time. "People assume 100% rapid conversion to new, improved drugs," he says. "It's almost never as smooth as expected."

To: BMcV who wrote (1252)	10/7/1998 4:39:00 PM
From: BMcV	Respond to of 10280

WSJ write-up part 3: >>Risk factors Still, six other brokerage firms that follow the company all recommend the shares, giving them their highest "buy" ratings, according to First Call, the Boston firm that tracks investment research. Most analysts say the shares could easily trade in the $70-to-$80 range with a year. Douglas Lind, an analyst with Morgan Stanley in NY, rates Sepracor a "strong buy" and sets a $73 one-year price target. He calls his assumptions quite conservative and says he could make an argument for $120 by tweaking growth rates. Mr Lind says he doesn't see the stock dropping much below $60. What's more, he expects the company to make a key announcement later this year: a partnership with a major drug company to market Sepracor's improved version of Prozac, the blockbuster depression drug from Eli Lilly. That deal, which could mean several hundred million dollars a year in annual royalties, isn't factored into his projections. "I want to be buying this stock aggressively on this pullback," he says. Micheal Tong, an analyst with Salomon Smith Barney in NY who believes the shares will reach $80 within a year, isn't worried either. "The downside is more emotional than fundamental," he says, as investors worry that the stock has had too strong a run. Mr Tong and other Sepracor bulls note the company's pipeline of 20 drugs, including plans to make improved versions of such popular allergy drugs as Claritin and Hismanal. In July, Sepracor said it had licensed to J&J the rights to Sepracor's safer form of Propulsid, J&J's popular heartburn medication. Recently, federal regulators warned that the drug may cause fatal heart-rhythm problems. David Southwell, Sepracor's CFO, says the company plans to launch as many as six drugs between the fourth quarter of this year and 2003, each with a sales potential of $1 billion a year. So he figures the projections of bullish analysts are, if anything, conservative. Mr Southwell says the company, with its diverse offerings, is actually less risky than some major drug firms, which can rely heavily on a single hit product. Because Sepracor's drugs will be safer than existing varieties, he says patients have a strong incentive to switch.

To: BMcV who wrote (1252)	10/7/1998 4:53:00 PM
From: BMcV	Respond to of 10280

WSJ write-up part 4: >>What about the investment downgrade from BS's Mr Maris? Mr Southwell says the analyst, who started following the stock only in June, doesn't understand Sepracor's potential as well as the bullish analysts, some of whom have been watching the company for years. "We're not getting anywhere near the number of calls we would have gotten if a more influential analyst were to lower his rating," Mr Southwell says. Still, some investors appear to be betting against Sepracor. Short-sellers have made the company one of their most popular New England targets, according to Market Guide, a Lake Success NY research firm. As of mid-September, 4.2 million shares have been sold short [!!!]. That's almost 15% of all shares outstanding and a 21% increase since June. (The company and analysts say that at least part of the short-selling isn't bearish because it represents a hedging strategy used by investors who bought Sepracor's convertible preferred stock earlier this year and are seeking to protect themselves against losses.) Meanwhile, at BS, Mr Maris defends his knowledge of the company. He says he pored over filings and interviewed executives at major drug makers and the US FDA. He says he also met for a full day with company officials last month, as well as hosting them at a health-care conference. Mr Maris says he took pains to give Sepracor its due, even including sales from products for which the company has yet to sign up marketing partners. He also says he could revisit his opinion if the firm makes a major announcement later this year, such as a deal involving its version of Prozac. Until then, he says he is just trying to protect his clients from what he considers real risks of investing in Sepracor at its current levels. "Long term, I believe there's never anything wrong with taking profits, especially when your returns have been so exceptional in such a short time."

To: BMcV who wrote (1252)	10/7/1998 4:55:00 PM
From: BMcV	Respond to of 10280

I think this sets up a real test of the bulls' convictions on Sepracor. Let's see if tomorrow we see anyone reiterating their "strong buys" on the stock.