Seth Klarman,one of my favorite value investors,has made a mint purchasing undervalued biotechnology companies. Biotechnology companies always hold lots of cash and short/long term investments on there balance sheets to fund growth through research and development. Often, biotechnology companies sell below the “Net Cash” value. This means the companies sell below the amount of cash they hold on there books after all liabilities have been subtracted. This can be very lucrative. However, you have to remember that most of this cash is set aside for future spending on research and development. The best way to distinguish how to value this cash sitting on the balance sheet is to understand the companies burn rate. The burn rate is the amount of cash the biotechnology company will use over the year to fund its research and development. If you can distinguish the burn rate you can get an idea of the amount of cash on the balance sheet that is not subject to research and development and also how long the cash will sit on the balance sheet before it is spent. I present to you from the guys over at Financialchat.com a PDF of all biotechnology companies and a break down of there Net Cash as well as estimated burn rates. Enjoy.

bio net cash

Source: http://www.financialchat.com/?q=blog/biotech-net-cash-spreadsheet

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