Valuating intellectual resources

Valuing Biotech: It’s the Future, Stupid  September 20, 2011 – 12:07 pm
Valuing Intellectual Property

New York, July 9 (SharewellNewswire.com) – Valuing emerging biotech or healthcare companies exclusively based on past performance is like valuing an MBA prospect by little league performance. From developing a blockbuster product (good) to product recalls (bad), revenue can take off in any direction for healthcare. At the same time, my research has shown that the positives outweigh the negatives with a strong margin of safety. Thus, the industry, as a whole, appears to be trading well below intrinsic value – an opinion that is shared by the Russell 1000 Value Index Fund, whose 2nd largest holding is in healthcare.

By innovating around unmet clinical needs, healthcare can maintain strong free cash flow that dwarfs past performance well into that future. Accordingly, the industry should be valued based on future fundamentals, intellectual property, and catalysts while accounting for risk. Opko Health (OPK), for example, has favorable risk/reward that is not reflected in past financial statements. After all, development on a Phase 3 candidate registers as just a cash flow loss. By contrast, Eli Lilly (LLY) has a lack of catalysts to make up for exclusivity losses – its past revenue figures may exaggerate future ones.

Opko’s favorable risk/reward stems from its diversification in a series of catalysts ranging from Alzheimer’s diagnostic technology to STD-treatments, emerging market penetration, and blood testing, among others – all of which can generate hundreds of millions, if not above a billion, of dollars in revenue. Not everyone of these products may be successes (though positive clinical trials and stock market reactions suggest otherwise); but, when strung together, they offer more than an adequate margin of safety to reward an investment. Here’s why:

Source: Press Release Print

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Technical Analysis is a good place to start. It

Lot of companies & narrows your focus. It should be followed by a clean fundamental analysis & then you whould establish entry & exit points based on valuation & time for each trade.
If the stock hits your low mark you bail. If it is profitable & hits your high mark, you sell half & continue to ride the wave.
Finally, make sure you are hedged. Use options to protect yourself against more than a certain amount of loss. You can always be wrong, just don't own it.

In Defense...continued

But a participatory economy enjoys advantages in managing this trade off compared to capitalism. Most importantly, direct recognition of 'social serviceability' is a more powerful incentive to innovation in a participatory economy, which reduces the magnitude of the trade off since more innovation will occur in a participatory economy than in capitalism for the same speed of adjustments. Secondl... Economy. Forthcoming.
Levy, David. 1991. Book Review: Seeking a Third Way. Dollars and Sense 171 November 1991: 18-20.
Pramas, Jason. 1991. A Roundtable on Participatory Economics. Z Magazine July/August 1991: 73-74.
Weisskopf, Thomas. 1992. Toward a Socialism for the Future in the Wake of the Demise of the Socialism of the Past. Review of Radical Political Economics 24 (3&4).

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