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I just thought I would say a few words here. I am glad to see the article spawned some discussion. In reply to some of the issues, here are some thoughts.

It seems most of the issues above deal with the general idea of using a DCF analysis. I agree 100% that it is only as strong as the assumptions that you make given the nature of the beast.

The reason I wrote the article was that I was using quite positive figures in every aspect when evaluating FoxHollow and kept getting low valuations for the company. In the numbers used for the article I had the COGS dropping to 15% at a rapid pace, which is optimistic, revenues meeting analyst expectations for the next 2 years, and having the company's R&D as well as SG&A expenses being on the low end of guidance. You mentioned the 15 year time frame as meaningless, and again I used this as an optimistic outlook of the timeframe in which the SilverHawk could have meaningful sales. This article was to show that the SilverHawk was not going to have blockbuster status, so if FoxHollow invents a new and improved device, this period should be extended for valuing the firm, but as a product in a quickly evolving medical industry, I think the long 15 year period only adds to my point. Even with all of the assumptions favoring FOXH's outlook, I continued to get numbers that showed the company to be overvalued. It would take very drastic inputs to have the company as having huge growth potential from its current stock price.

I also think it is worth mentioning that using multiples has huge assumptions embedded into the analysis and a reliance on the quality of the valuations conducted for the peer firms. Further they become less viable for valuing companies with negative cash flows.

About the clinical trials, it is obviously impossible to do a double-blind study as we are dealing with procedures in which the patient and doctor would inherently be aware of which treatment is being performed. I was saying there needs to be a thorough, large-scale study that shows increased efficacy in using the SilverHawk as compared to the alternatives such as the standard of care (the bypass) as well as the currently avaiable minimally-invasive options such as stents, angioplasty, and Spectranetics laser.

I also thing it is important not to overlook the issues with management. I find it hard to be excited about a company's prospects with the turnover at key positions FoxHollow has experienced and especially the appointment of Simpson as permanent CEO after they publically announced an extensive search for a qualified replacement.

I think there is a definite future for the removal of plaque from arteries using a catheter, but it is an imperfected science. From what I have heard from vascular surgeons who have used the device, they have told me the device is neat but not where it needs to be to develop a widespread adoption that extends into the common hospital. This definitely has the potential to change in the future, but the device still has a ways to go.

The SilverHawk has achieved strong sales and FoxHollow will be profitable very soon, but everything I have seen hints at it beginning to plateau. Unless annual growth continues as it has the past two years, which would require a rerversal of quarterly growth trends, this is not going to be a multibagger.

Glenn
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