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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Dale Baker who wrote (2101)	2/21/1999 11:00:00 PM
From: Q.	Read Replies (1) \| Respond to of 2506

Agreed, Dale, that biotech and pharmaceutical stocks in the development stage are tough to analyze. Our inability to assess the prospects for the products doesn't help. If you read Asensio's report on HEB, in particular the historical stuff he dug up on the product and the CEO, you would think he's got a really good short pick here. (I think it can all be found on his website at www.asensio.com ). A couple of things to look for: Biotechs often trade at a certain multiple of market cap to cumulative R&D expenses. If that ratio is 20 or 50, then there's good reason to look to see if it is highly overvalued. Maybe they are not doing much R&D, and just producing hype. If the ratio is 1, then I would forget the stock as a short candidate unless I came up with something else that was really ugly, as Asensio did with HEB. One timing factor to pay attention to is where they stand in the clinical trial timeline. If they started phase II or phase III in the last 6 mos., it will probably be a while before they can generate news about those trials. If those trials started a couple of years ago, then there's more chance of news coming out. This is of interest since the product development news drives the stocks of companies that don't have revenues yet. So I suppose I would limit myself to stocks that are not likely to report news about trial results, that have a high price / cumulative R&D. Picking a stock like ENMD where the big partner has recently backed out of its deals would probably be a good way of relying on their expertise in evaluating the product's prospects. Anyway, I don't short many of these myself, for just the reasons that you identified. I would rather short a manufacturing company (or restaurant chain, or anything else that normally generates revenues and cash) where I can look at the product and the financial statements, and figure out the entire situation with at least a little bit of confidence.