No. of Recommendations: 8
Hi everyone!

I started looking for a biotech/biopharmaceutical company to be considered as a rule maker.
My first criteria was the pipeline. Specifically, I focused on companies with the
largest number of drugs in phaseIII + stage because these will still take 2-3 years
to start realizing any potential profits. Any earlier stage drugs are so far from bringing
in revenues, I chose not to include them. Literally, I looked through the ENTIRE phaseIII,
IND, FDA action taken categories from recap.com to find which companies had the most
drugs at the end stages of development (I tried not to count products that were simply
derivatives of existing drugs, but new compounds). I was interested in finding both
larger pharmaceutical companies with alot of exposure to biotech, and the strongest pure
biotechs. These were the results:
SGP 13
JNJ 10
NVS 11
ELN 9
ABT 7
DNA 11
CHIR 9
AMGN 5
IMNX 4

In this link to my Yahoo briefcase, you can see the RM rankers for SGP, ELN, DNA, CHIR,
AMGN, IMNX and the numbers for NVS and JNJ in the comparisons.
http://briefcase.yahoo.com/bworthylake

Here is how the companies stack up using the KARM scoring

ELN AMGN DNA CHIR IMNX SGP
Dominant Brand 0 0 0 0 0 0
Repeat purchase 1 1 1 1 1 1
Convenience 0 0 0 0 0 0
Expanding Poss 1 1 1 1 1 1
RM ranking 33 33 34 35 37 42
Points from RM 0 0 0 0 0 1
YoY Rev growth 49% 23% 24% 4% 31% 14%
Points Rev inc. 2 1 1 0 2 0
Gross Margins 79% 88% 80% 76% 86% 80%
Points from GM 2 2 2 2 2 2
Net Margins 33% 33% 21% 21% 0.40% 23%
Points from NM 2 2 2 2 0 2
Cash/Debt 0.4 0.4 5.0 2.8 14.0 1.1
Points for Cash 0 0 1 1 1 0
Flow Ratio 1.8 5.4 1.2 0.9 0.9 1.2
Points for Flow 0 0 1 2 2 1
Cash king Mar 29% 23% 23% neg neg 15%
Point for CKM 2 2 2 0 0 1
KARM Score 9 8 10 8 8 8


All very low numbers. To try to account for special issues facing biotechs I made
the following alterations to the KARM scoring. First, I increased the Gross Margin
requirement because pharmaceuticals need outrageous GM to pay for the high cost of drug
development. Then, I removed all 4 of the first points because all pharm/biotechs
score the same way, and replaced them with two criteria- R&D as percent of revenues,
and number of drugs in phaseIII trials. Here are the amended results:

Gross Mar. 0 2 1 0 2 1
>86%
80 -85% 1 point
<80% 0 points

R&D/Revenues 23% 25% 26% 24% 49% 13%
>25% 2 points 1 2 2 1 2 0
20-24% 1 point
<20% 0 points


phaseIII + 9 5 11 9 4 13
>8 2 points 2 1 2 2 1 2
4 to 7 1 point
0 to 3 0 points

Revised totals 9 10 12 8 10 8

ELN was very difficult to analyze because of its difference in accounting format. I found ELN to have alot of debt and poor flow ratio. I believe my numbers are accurate but would welcome any discussion about how any calculation was done. The best companies look to be either DNA or IMNX. IMNX has a lower "revised KARM" score, but lots of potential for increase because the Net margins and cash king margins are low. IMNX only turned profitable last year. Note that all of these numbers are from the 1999 Annual reports which are obviously somewhat old. I would like to look at IMNX's numbers for 2000. The other thing to consider is the quality of the pipelines. I will try to look into these issues and post a more thorough KARM report on one of these two companies.

Becky
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