Biotech Values

[DewDiligence]

Re: Biotech opportunity in China

I would not directly invest in any Chinese company because foreign investors aren’t real shareholders with BoD representation. Rather, foreign investors in Chinese stocks are more like the holders of “tracking stocks” that were popular during the circa-2000 tech/biotech/internet bubble, who mostly ended up getting exploited and losing a lot of money.

Investing in the prospects of China and other emerging markets indirectly is a different story, and this is a prominent feature of some of my largest holdings. I moderate an iHub board dedicated to this investing theme, which I call The Global Demographic Tailwind (#board-15427).

Within pharma/biotech, many of the biggest names are strong ‘TGDT’ plays—e.g. ABT, PFE, AGN, MRK, NVS. Among these, ABT is the purest TGDT play insofar as its drug business consists entirely of sales in emerging markets, while its medical devices, diagnostics, and nutrition businesses also have a large (and growing) proportion of sales from emerging markets.

Right now, while China is in a bit of a funk due to the sharp sell-offs in the Shanghai and Shenzhen stock markets, it may be hard for some people to appreciate the logic of TGDT as an investing theme. However, the tailwind from the emergence of middle-class consumers with disposable income in countries that never had such individuals until recently will ultimately overpower the headwinds that are generating so many scary sounding headlines.

*Genzyme, for instance, had four such tracking stocks.