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Dear Prohost,

     We appreciate your reasoning about investors overlooking the value of science, technologies and products in their evaluation of biotechnology companies. The truth is that, yes, we overlook the value of the firms that have sophisticated technologies, but have no chance to generate revenues for many years. The biotechnology industry is about developing drugs, which is a very expensive task. Most small firms have little cash when millions of dollars are required to develop one product. In addition, most of the products in their pipelines are either in preclinical or early clinical trials. Do you see the wisdom of our attitude towards these firms?

Anthony S.

Dear Anthony.

     We always stress three facts to be considered while evaluating biotech firms: The technologies, the products and the management. We also reiterate in each and every issue of our E-letter and N-Letter that when we are assessing start-up firms’ technologies, we also look at whether top-tier drug makers (biotechnology and pharmaceutical companies) lack such technologies and products. Lacking these technology becomes the key to solving the problem of lack of cash in the small poor firms. This miracle happens through co-development of the good products or payments from the rich to the poor to get to some rights. Science and excellent products have undeniable values that could be extremely high, regardless of the firms’ capability to solely develop them.

    Two examples surfaced in the past week alone. Although the news was not about co-development of products, but about acquisitions, still investors in two creative firms have gained twenty percent on their investment overnight in one case and doubled their money in the second. Here are these and other stories:    

     Genzyme (GENZ) decided to acquire a small firm called AnorMed at $8.55 per share, when the firm’s stock was trading at a little around $5. Those investors who appreciated this firm’s stem cell technology and other oncology and viral technologies and products doubled their investment as the stock rallied to over $9.  

     The second story came from Sentigen Holding (SGHL), whose shares jumped 20% last Friday when Invitrogen (IVGN) decided to pay $3.37 a share in cash to buy the provider of research services and products for drug discovery. If some investors do not appreciate small firm’s breakthrough technologies, drug makers do and pay the price. Invitrogen was able to value Sentigen’s screening program for G-protein coupled receptor and its other cellular studies.

      Another example is Medimmune’s (MEDI) decision to team with Infinity Pharmaceuticals to develop a new class of cancer drugs, aimed at helping unhealthy cells to naturally destroy themselves. MedImmune valued the small firm’s technology and made upfront payment of $70 million to Infinity, which is a privately held company.

“Though the drug is in early stage development, the move looks like a wise one for Medimmune”, said Prudential Equity analyst Jason Zhang.

He is right.

Dozens of other examples exist. 

Best regards.

Prohost

Prohost is independent publication providing information on biotech companies. Prohost does not accept compensation from companies that are featured or profiled. It is strongly recommended that any purchase or sale decisions to any of the featured companies be discussed with a financial advisor or broker prior to completing any such purchase or sale decision. All statements or expressions are the opinion of Prohost and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. Investing in embryonic companies, micro-cap and growth securities is highly speculative and carries a high degree of risk. It is possible that an investor can lose all of his/her investment in this type of companies that are profiled. The information that Prohost relies on is either through the profiled company, news services, research reports, interviews, or other outside sources that Prohost believes are reliable. Prohost makes no representations, warranties or guarantees as to the accuracy or completeness of the disclosure of the profiled companies and accepts no responsibilities for inaccuracies or misleading content in any material supplied by those clients. There can be no assurance that future events relating to the profiled company will occur as anticipated. The information contained herein is provided as an information service only. Past performance of featured companies does not guarantee the future success of any currently featured or profiled company. We encourage our readers to invest carefully and read the investor information provided by the Securities and Exchange Commission ("SEC") and/or the National Association of Securities Dealers ("NASD"). We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at: http://www.sec.gov/consumer/cyberfr.htm