To: Q. who wrote (2102 ) 3/16/1999 5:57:00 PM From: Anaxagoras Respond to
<<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. >> TSC the other day). In doing so, I recalled Dale's questions from a while back, and so I came over hear to re-read some stuff, and thought that this might be of interest, FWIW.<<M Scores range all over the map, from under 1x, where you are buying into the technology for much less than the venture capitalists spent to create it, to 40x or more. Like growth-flow multiples, M Scores in the 10x to 12x range are typical. Under 8x is interesting, under 5x is compelling, and under 3x- there are many of them around these days- means that if the science works you will make lots of money. At under 3x, you often pay less for the stock than the venture capitalists paid in the last round of private financing. Check the company's initial public offering prospectus under "Certain Transactions" to see what the venture capitalists paid.>> P. 152
