Amylin II. Excuse The Sarcasm.

July 27, 2007 by Joe Ponzio

I like to think that I’m doing some good here on the blog. Your emails, comments, and return visits have led me to believe that. That said, I don’t think that I am a “guru” and that everyone else is wrong. My point on this site is simple: you can invest like Warren Buffett. Still, you don’t have to. And some people clearly don’t want to.

Yesterday, I got a comment that brought me back to 1999.

Please, Excuse The Sarcasm

When this comment came in, a few points really struck me-not quite funny, but disturbing. When your data and reasoning is right, you are right. It’s not my thing; Buffett himself says it. But, when your data and reasoning are as follows, well this is exactly why people lost so much money in the early 2000s:

It’s On Its Way

Amylin is an up and coming biotech company not a big pharma one

I don’t argue that. Up and coming, and burning through cash while it “comes up”-not worthy of my retirement money (or my play money for that matter). F Wall Street is not about Wall Street’s next hot stock; it’s about owning wonderful businesses. Amylin is not a wonderful business; and, until Amylin becomes wonderful, it is nothing more than a stock tip.

Wall Street Love It

Sure you make a good point, but the experts like Meg at Goldman Sachs and many others such as Eastborne and Fidelity seem to have a very different opinion

Does Meg work for Goldman Sachs-the Goldman Sachs that, according to this August 24, 2006 SEC filing owns 1.3 million shares of Amylin? Did Meg tell this visitor that her firm has $62 million riding on Amylin’s stock price?

Or is he putting more faith in Eastbourne Capital Management’s independent review because of their 19,236,767 shares? Maybe we should listen to Fidelity because their 15,577,167 shares are just the right amount to remain impartial.

I know-that just means they’re committed to Amylin’s success, right? Maybe it’s me, but I have a hard time listening to some broker tell me how great a business is when that broker stands to lose $1 billion if we don’t buy the stock. No offense to these institutions, but when push comes to shove, are they going to protect your portfolio…or theirs?

I think we’re better off valuing the business.

It’s The Best Drug In The World

And the drugs (first in class) byetta and symlin are selling well, for injectables, and will continue to grow much more before further clincial trial news comes out this year and prior to the once weekly version of byetta(LAR) comes out in a couple years.

I looked at the business of Amylin, rather than relying on the hope of the sales of their drugs. But, this visitor forced my hand. I spoke with a friend in pharmaceutical sales and was told that Byetta is better, but many doctors are using Byetta as a backup to Merck’s Januvia. For newly diagnosed diabetics, doctors are trying the oral Januvia before committing patients to a lifetime of Byetta shots.

“If Januvia doesn’t do it, we’ll switch you to Byetta.” That doesn’t sound like a commanding moat or a model for market domination. And let’s not forget-they still have to last those “couple years” while burning through more cash.

Cash From Biotechs Is Different Than Other Cash

“You and Zachs really should learn how to value to biotechs, especially those already selling top drugs…

Let’s ask Buffett how to value biotechs-and all other investments:

The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.

Does this visitor have a reasonable, rational basis for determining the cash that can be taken out of Amylin? Does he have a way to determine the value of Amylin? Why is he so married to this tough-to-value company? (Insider or analyst, perhaps?)

It Doesn’t Matter Where Cash Comes From

And finally:

and with over 1 billion in cash on hand!

As of March 31, 2007, Amylin has $634.5 million of cash and cash equivalents. Considering that none of that cash came from operations and $508 million of that cash came from an April 2006 stock offering, I wouldn’t bet my retirement on their financial strength just yet.

…And There’s The Problem

It all adds up to one thing: Massive uncertainty. Is that how you want to invest your money?

The rationale that this visitor used to try and convince me of the superiority of Amylin is the exact reason why people lost so much money in the early 2000s. Wall Street F-ed investors by selling the world on ideas-regardless of the underlying business. F me once, shame on you. F me twice…

Perhaps I won’t sway this visitor, but I’d imagine that thousands of you are not going to commit your retirement money to Amylin until it ceases to become a company with “wonderful” prospects…and becomes a wonderful company. Now the real question-if I can put Amylin’s business in Plain English, why won’t Wall Street?

A Quick Note About Comments

My goal here is not to discourage you from commenting; in fact, I encourage it. Still, if you try to convince F Wall Street visitors to buy anything but wonderful businesses, I’ll fight tooth-and-nail for their retirements.

A Note From Joe Ponzio

This section is for comments from F Wall Street visitors. Do not assume that Joe Ponzio agrees with or otherwise endorses any particular comment just because it appears or remains on this website.