Ebb & Flow

Investors typically pay a premium for biotech earnings, largely on the promise of future growth. Thus the fact that NPS Pharmaceuticals (NPSP) is getting Enzon on the cheap on a price-to-earnings basis implies that NPSP is getting a bargain.

Based on the share prices prior to Thursday's announcement, the imputed take out price for ENZN is about $17.68. Thus NPSP is buying the company for less than 17 times the $1.04 in operating earnings ENZN posted in its fiscal year ended June 30, 2002. Even then, NPS is paying a premium to the market multiple: ENZN was trading at only 13.5 times '02 earnings prior to the deal...