Biotech Values

[biomaven0]

>>This still doesn't explain why the sum of the parts can't be valued properly as part of a diversified company.

There are several possible arguments:

1. Complexity - analysts and the market don't do a good job of separately valuing the parts given they have different margins, different risk profiles and different expected durations.

2. Holder preferences - you are forcing a GSK shareholder to have holdings in what amounts to two different sectors. In theory you get a better fit by allowing each potential holder to tailor their holdings to their own particular preference. (In Modern Portfolio Theory lingo, the fixed combination might not be on the efficient frontier).

3. Management style - you really need different types of managers for the two very different areas.

On a more interesting note, I've always been extremely impressed with GSK chemistry capabilities. Whenever I've looked at a particular field GSK often seems to have the best initial compounds. But somehow their good stuff seems to get lost in translation, so to speak.