Biotech Values

[microcapfun]

Wallstarb still confused about valuations



Consider one particular company as a proxy for why your method of determining biotech valuation - collectively or individually - makes no sense. On July 20, company XYZ has a market cap of $100M and net tangible value of $10M. It sells $10M worth of shares, and on July 21 it has a market cap of $100M (stock price went down ~10%) and a net tangible value of $20M.

XYZ's pipeline didn't change from July 20 to July 21. Management didn't change. The FDA's hurdle heights didn't change. The economy didn't change. Yet the ratio of market cap to net tangible value just went down by a factor of 2. If you thought the stock was at fair value on July 20 - WOW! What a bargain it is on July 21!

And maybe it would be, if it had a quarterly burn of $10M. But what if it was cash flow breakeven when this happened? In that case the extra $10M in the bank is rather irrelevant.

This argument showing the absurdity of valuing biotechs solely on the basis of net tangible value works just as well with a collection of companies as for one.

The point is that cash or net tangible value is but one small component of determining what a company is worth. Particularly in the case of small cap biotechs it is a tiny piece of the story, but you act like it is the entire story.


>>But maybe you should figure out what the aggregate "pipeline value" is for the 300 or 400 small cap bios we track and let us know when they are "rich" or "cheap" comparatively.<<

I'm not nuts enough to track 300 or 400 small cap bios, but if I did there are a lot of parameters which I'd slop into a formula beyond net tangible value. (E.g. many analysts assign so many points for each Phase 3 candidate, a lesser number for each Phase 2 candidate and so on.)

I track a total of 8 companies right now, because the only way to really know what a company is worth is to study the CRAP out of it.


>>You sound like an investor who didn't get out recently while the getting was good, and I'm sorry for that.<<

You can tell how heavily invested I am simply from the fact that I trashed your method of valuation? That's impressive!

I try to avoid reading your moronic posts with booming headings signifying nothing, but occasionally I slip up.

I'll try to exert more self-control in the future.

micro