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Biotech / Medical : T/FIF Portfolio -- Ignore unavailable to you. Want to Upgrade?

To: John Metcalf who wrote (633)	2/28/1999 3:40:00 PM
From: jeffbas	Read Replies (1) \| Respond to of 1073

Along the lines of your comments, isn't the amount spent each year on R&D public info as are the product initiatives that are active and that the money is being spent on? I find it hard to believe that a competent biotech analyst spending full time on the industry wouldn't be able to allocate on some reasonable basis a year's R&D by program. Thus, as time goes by, a running track of the expenditures that still had value for programs moving along the way they should (adjusted for any competitive developments), a haircut value for programs struggling, and no value for ones abandoned, should be feasible on an estimated basis -- giving a valid execution of Murphy's theory. However, one inherent problem with his theory as I see it is that you would never identify companies with breakthrough developments with his screens (even as I suggest adjusting them), as those companies would have products with immense future value but might have little current expenditure. It would be interesting to correlate R&D spending per share for all drug and biotech companies to stock price 5 or so years later. My guess is that what you would statistically expect is what you would get -- the variation in performance is relatively low among the giant companies precisely because their R&D budgets are so huge that they are guaranteed to get their share of hits and misses; but that the variation is enormous in the small ones. Therefore, I would conclude that you have to look at individual research with some degree of expertise and somewhat independent of the dollars spent, if you want to invest in the small cap ones - which argues that Murphy's theory has limited relevance even if inherent problems are fixed.

To: John Metcalf who wrote (633)	2/28/1999 5:59:00 PM
From: LLCF	Read Replies (1) \| Respond to of 1073

<Murphy's basic method is to add the amount of money a biotech has spent on research to its cash value. In theory, research produces value, but you can see the problem.>< Murphy doesn't calculate the _value_ of the research, nor the viability of the program, nor amount of competition in the target field.> To JBash also: You know, I bet you'd get a decent list of bio's to invest in, or at least a more informative "growth flow" number, if you used his approach and went back and simply subtracted the amount of "wasted research" out of his numbers... this would be defined as simply programs that have been discarded. I think (I've stated before) from the standpoint of an analyst he has simply bitten off more than he can chew. He should be taking his "growth flow" idea and refining and "tweaking" it IMO... and he can probably only do this by focusing on fewer areas. We would then of course discuss science in order to toss some of the companies out as JB pointed out. Anyone want to work on "growth flow" numbers for some of our companies over on the value thread? DAK