Biotech Values

[tinkershaw]

Tysabri may be an interesting drug, but more people went BK in ELN stock than most others I know

I am not going to go into a whole diatribe here because, as with this example, all depends when you bought and when you sold. ELN has given so many different opportunities it was ridiculous.

All you really had to know what that tysabri worked, tysabri worked very well, tysabri had a clear path to market, and tysabri was worth more than the current marketcap plus debt. Creates a low risk enormous return environment, with time on your side.

No, I did not own ELN into the release of the Phase II alzheimer data. By that point in time exactly what doubt was surrounding ELN?

The reason I can do it successfully is because I don't buy everything, adn I have done it in real time for many years. I freely admit DNDN was the one time that I bought a stock that broke my usual rules for biotech, but even then, time was on my side (that is if I bought within my rules, which I use so that I can hold it longer term, even if there is a short-term glitch in the road).

I will just toss AMLN in. I sold out prior to the FDA CRL on bydureon. Had a nice triple up to then. Why did I sell out? At that point in time exactly what doubt was left in the shares? Which created a very poor reward/risk ratio, even if the risk of rejection was so low. Very nice reward/risk ratio however when the shares are sitting in the single digits desite the fact that they have Bydureon. Perhaps there will be some glitch that keeps any long acting GLP-1 off the market, but absent this small chance that some unknown adverse event will keep it off the market, at some point bydureon will be on the market. Back when it was in single digits, the market cap was worth less than this drug, and the risk/reward was similarly dang good.

What I don't like to invest in are these drugs that you have to pound through detailed statistical analysis to find marginal and mostly ambiguous efficacy. Either it works or it does not work. If you cannot make that statement without undue dicing of facts, then it is not a drug I want to invest in. When I say very rare drugs, that is what I mean. Just a few are like tysabri, telaprevir, bydureon, and I did the same with m-enoxaparin because we all knew the drug worked, it worked very well, etc., it was again, just a matter of time.

When you can buy something for less than the marketcap, and you know it is just a matter of time (and there is always some at least small risk that something untoward will happen), then put time on your side, as these are great investment opportunites and not just lottery tickets.

As for buying best in breed, I'm all for it, except, depends when I'm buying it. Apple, as your example was dead money for many years. Exactly what would have given you the idea that Apple would suddenly take off? I am not capable of systematically picking a few long-dead stocks as winners because at some time in the future (in retrospect) they may come out with the iPhone or iPad.

I can only invest prospectively. But yes, holding best in breed is a not a bad strategy. It depends on how aggressive you are. I mean QCOM is best in breed, and I bought QCOM in '1999 while there was quite a bit of doubt, and again in 2003 after a market crash and the end of the 2G era. 5x in 1999, 3x return in 2003-2005/6. I sold QCOM despite it being best in breed because quite frankly, its risk/reward was no longer so special despite best in breed. Hey MSFT is still best in breed. ARMH is still best in breed, but of the 3, only ARMH had real future growth potential that could produce multiples of returns.

Anyways, it is a biotech board. I am not telling anyone to do anything. Just putting forth some experience I have had, and I actually find it to really be about finding superior risk/reward opportunities, and not buying on some vision or promise, but on real world, known information, that an inperfect market provides us.

Tinker
P.S. I did buy ELN when itself (much less investors) nearly went bankrupt. Again, because it was eminently clear that tysabri worked so darn well and was worth enouh that ELN was not going bankrupt.

The time to sell comes when the doubt is removed and it just looks too good. The time to buy comes not when there is some visionary platform, or some evidence of "activity" or the drug works on a "known pathway" or shows marginal improvement, but when you really know a drug works, and it works well, it meets an unmet need, and has a clear pathway to market. Even Pfizer otherwise blows Phase IIIs, so nothing is certain. And yes, even with all this, there is still "art" involved.