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

To: LLCF who wrote (638)	2/28/1999 8:23:00 PM
From: Biomaven	Respond to of 1073

David, Jeffrey, John, et al: Current accounting completely misses biotechs - we really need a more sophisticated version of oil exploration accounting, where you capitalize drilling costs until you abandon the hole, in which case you write them off. Murphy kind of goes half way to this, but as people point out, doesn't do the write-off part, which in the case of biotechs requires considerable judgment. The other adjustment that is needed is for partnered programs. Assume we have a sponsored program that does $1m in research which is all paid for, and there is a 40:60 partnership on anything successful. Current accounting methods call this a wash, irrespective of whether the research is ever successful or not. The more sophisticated version is that this produces $400k in "profits" each year, with the caveat that these might have to be subsequently written off if the research is abandoned. I agree that valuing companies this way would be extremely useful, but also quite difficult and time-consuming. I'd love to know what MLNM's current "earnings" are when computed this way. I'll put a pointer to this discussion over on the biotech valuation thread. Peter