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: Bob Swift who wrote (3087)	5/27/1999 7:42:00 PM
From: Mike McFarland	Read Replies (2) \| Respond to of 10280

I'm sure this has been answered before, but I'm not going to go dig for it: Royalties end when the parent drug goes off patent-- is that just arbitrary--why would generic drugs replace SEPR's imroved version?

To: Bob Swift who wrote (3087)	5/27/1999 10:48:00 PM
From: jeffbas	Read Replies (1) \| Respond to of 10280

Bob, I have some serious problems with your "worst case" scenario. Analysts are now estimating an average $4.00 loss for 2000, and one analyst apparently cut his estimate to an insignificant profit for 2001. Your stream of numbers looks a bit like the income flow you would get from an oil field -- growing as the field is developed and then gradually declining. In my opinion, with this kind of earnings pattern it is particularly important to follow the old Graham Dodd concept that the current stock price should be equal to the present value of future earnings. Furthermore, with the long lead time on a payoff from pure drug research, it is tough to assign much value to new initiatives that are not in your model. Using an oil field analogy, I disagree that a 27 p/e is appropriate (which does not mean to say that I think the Street will assign a lower p/e) and conclude that the current price implicitly includes major provision for blockbuster potential. Note that if you substitute two $4 losses for 1999 and 2000 in your string of numbers and discount the stream at ONLY 30% per year, the present value of that stream is less than $20!! Furthermore, even with traditional Street analysis, if that stream of earnings is exactly what the company will deliver (except for the first couple of years), the stock will NOT sell at 27 times $14 peak year earnings in 2002, and would be down to 12 times or so by the end of the period (having had declining or flat earnings for years). All in all, I do not find it reassuring that about 2/3 of the current value of the company can implicitly be attributed to blockbuster potential -- and almost wish you had not stimulated me to put on my "actuary's analysis cap" in looking at this.