Evaluating Bio-Techs

Clinton Chee has posted a list of factors he thinks is important when analyzing Bio-Tech stocks. This list is summarized below:

  • P : Price of stock
  • NTA : Net Tangible Assets (Total Assets minus Intellectual property and other intangibles)
  • P/NTA : Ratio of Price to NTA – a value of 3 or below is considered underpriced and worth buying. A value of 9 or above is definitely not worth buying
  • TEAM : Rating system based on the qualifications of the directors
    1. Professor = 1.5
    2. PhD = 1.0
    3. Master = 0.8
    4. Hons = 0.7
    5. MBA = 0.6
    6. Biotech Exp (10year) = 0.5
  • BurnPeriod (Runway) : the number of quarters left before cash runs out, based on the previous quarters cash burn rate. Over 4 quarters is fair. Over 8 quarters is worth investing.
  • ProductPipe : the stage of the product development ranging from pre-clinical tests to commercialization. Over a value of 5.0 is a good sign.
    1. Phase 1 = 1
    2. Phase 2 = 2
    3. Phase 3 = 3
    4. Market Approved = 4
    5. In Market =5
  • ForeignMarket : Companies with products that sell internationally are more highly rated. (see key below). Over a value of 3 is a good sign.
    1. Plan to Enter = 0.5
    2. Just Entered = 0.9
    3. 1-3 years = 1.5
    4. Over 3 years = 2.0
  • Cash/Debt : the ratio of cash to debt of the company.

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