Replies to post #50942 on Biotech Values

[microcapfun]

Safe from the mortgage meltdown? Think again.

I thought I was fairly safe too, owning techs and biotechs. (Note the use of past tense.)

Of course those cash-flow-negative biotechs which need to continually return to the capital markets have found themselves in a much worsened situation since the credit landscape got tighter than a 12-year old virgin in an ice bath.

But that's not what I'm talking about.

I've started looking up the balance sheets of the some biotechs I follow and/or own. Y'all might want to do the same for companies that you follow. Start with a search under "mortgage" in the 10-K. For example ... Human Genome Sciences:

>> The Company’s short-term investments include mortgage-backed securities with an aggregate cost of $59,056 and an aggregate fair value of $58,698 at December 31, 2006.

The Company’s marketable securities include mortgage-backed securities with an aggregate cost of $100,295 and an aggregate fair value of $99,687 at December 31, 2006.

The Company’s restricted investments include mortgage-backed securities with an aggregate cost of $5,549 and an aggregate fair value of $5,446 at December 31, 2006. <<

The 10-Q's often don't give sufficient detail, but they do list investment losses and unrealized losses. However most of these losses probably came after June 30, so some nailbiting until the Q3 10-Q's come out may be in order.

Some further notes:
1. There is generally no way to know the quality of mortgage-backed securities from the 10-K, for example the sub-prime exposure. That's why most of us will have to wait a few months before finding out how bad it is.
2. Anecdotally and from a WSJ article a few days ago, hedgie types have been targeting companies which appear to have a lot of mortgage exposure - of course shooting first and asking questions later.
3. Other investments are at risk - even if they don't have the word "mortgage" in their name. For example it turns out that some money market funds have significant mortgage or bad credit exposure. That's right - money market funds .

Any thoughts, observations, examples, anecdotes?

I'm hoping this won't turn out as badly as it might, but I do think it's time to stop snickering at the 'poor suckers' with shares in Bear Stearns and Countrywide ...

micro