biotech index, page-2

I was looking at a US biotech today and what a totally different sector it is... they just don't seem to mind if companies make huge losses and keep raising capital, but take a much longer term view, which makes it much easier for their sector to have huge amounts of investment money.

The company I looked at was Genomic Health - they listed in 2005, made $5m in revenue (up from $300k the prior year) and by FY07 were making $69m in revenue on a breast cancer diagnostic. So initially, it didn't seem surprising that with such a growth rate, the company market cap is $635m. However, what was quite startling on closer look was that every year they have made a loss of $25-$28m, despite the change in sales... they just spend dramatically more on sales/marketing/R&D each year to go with it.

It struck me that on this side of the globe, we would never tolerate such a frivolous attittude to profit - in fact, if the company kept spending at that rate, we would soon ditch the shares to a market cap that made it impossible for them to raise new investment capital. Yet, by taking the longer term investment view, US companies are getting enough capital to develop products and sales considerably faster than other companies in other parts of the globe. Their companies, investors and eventually, economy, must be the winners from this. No wonder the southern hemisphere tech companies end up reinforcing their investors cynicism by failing to beat competitors to market and/or running out of cash.