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Biotech Roundup: Panels, Acquisitions, and Cheating


[Tap, tap, tap] Is anyone at the SEC listening?


I sat in on two panels this week, something I don't get to enjoy often enough.

The first was for investor relations types. I think they liked it when I told them investor relations was perhaps the most important function at any dev-stage company. While I could be accused of playing to the crowd, I really believe that. I am asked all the time if there are any thumb rules or shortcuts we use to screen companies. "Not really," I usually reply, "except that when a company doesn't return repeated calls to meet with us, that's usually a good sign they don't know what they are doing."

You can chalk that up to the "obvious" column, but bad IR is often a sign of bad overall operations. If a CEO doesn't realize Wall Street is his/her customer, then there is usually a great deal of other stuff he/she doesn't realize that makes a more obvious difference down the road.

The second panel was one I didn't have a chance to prepare for because I was a last-minute addition. The gist of the panel was to discuss what biotech analysts look for in biotech companies. I was the only independent guy among the four panelists, and when the moderator led off with four questions about conflicts in research, it looked like an insider job!

When the discussion got around to sector valuations, all four of us were generally positive on the sector. Two of the panel members thought valuations were probably frothy right now, one thought they were about right. Me? I wrote two weeks ago about how I thought things were going to take a rest. We added some IBB last October to increase our exposure to the sector and took that weight off on the 7th at 82.50. The ETF has hung around that level, mostly, since that time.

There is no doubt, however, that the sector has cooled off. Buying is more selective as the rush to get exposure has passed. If that rush is to reignite, we need to see an acquisition of a biotech firm at a nice share price multiple sometime before the end of April.

Schering AG sweepstakes

In this space last week, I mentioned Merck KGaA, not to be confused with US-based Merck (MRK), announced a hostile bid for Schering AG (SHR) (not to be confused with US-based Schering Plough (SGP)). That bit noted that Schering AG's board authorized the company to use acquisitions to defend against the hostile bid.

That's all moot as Bayer (BAY) stepped in and bought Schering AG late this week. It was a nice deal for Schering shareholders, I guess, but it looks like more than a few Schering AG employees will be losing their jobs (6,000 workers at the combined companies will be fired).

This is not the kind of biotech acquisition that I've been talking about. It is an example, however, of a trend of M&A in Europe that recalls the hostile merger environment of the go-go 1980's here in the States.


It's almost that time of year again where ASCO gets a free pass from the SEC to release material, non-public information selectively.

ASCO's annual meeting is the first week of June this year. That means they will send out abstract books to a select group of people in the middle of May. Those people, and the hedge funds who pay them to get the book, will have access to trial data before everyone else. Companies are prohibited by ASCO from talking about the data until after it is presented at the event, so for two weeks a select group of individuals get to trade on insider information.

Just keep this in the back of your mind if you see your favorite oncology stock start to gyrate in mid-May.

No positions in stocks mentioned.

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