<<Expected value is a meaningful investment metric - but I shy away from it >>
It's no more rational to ignore the value of success than it is to ignore the risk of failure.
Quite a lapidary remark, so I'm probably not the first one to make it.
The whole debate on Repros for the past couple of weeks has been entirely one-sided in focusing on the risk of the anemia trial missing. It is as if RPRX were priced for say 50% chance of Proellex coming to market in all indications. By my math it's priced for give or take a 5% chance of that success. I keep playing this broken record, and obviously the RPRX fans here see it similarly, but the discussion remains on the chances that this anemia trial will fail. It is not a balanced assessment of RPRX as an investment.
I agree that if the market worked there would be long funds taking advantage of stupidly mispriced stocks such as PRPX and ZGEN. (I define "stupidly mispriced" as stocks that have fallen by more than 20% since I've bought them. Slightly more seriously, it's that plus the condition that there has been no bad news about probability or magnitude of success since I bought.)
In fact I'd like to know what the hell BMRN is doing with its cash hoard and its overpriced stock. They could do a nice sideline in buying up shorted stocks of companies with decent prospects, then gradually selling their minority holding when the price comes into line with reasonable valuation. After a while all they'd need to do is announce they'd acquired 5% of the stock of a company to turn in a huge return as the short squeeze occurred. They'd make more money that way than selling Kuvan! The economic benefit would be to allow the companies access to capital, which is the excuse for the casino called Wall Street.
<<I can't complain in that the shorts stupidly drive down good management and give me an opportunity.
>
There I disagree strongly. Starving companies of cash can cripple them for good. So it turns out not to be an opportunity for you or anyone else. It certainly delays clinical progress. The fact that it happens probably causes investors to stay out of the sector, self-fulfilling. The fantasy that the markets allocate capital rationally in the overall economy is disproved every time, as Buffett puts it, that the tide goes out. But in small biotech it's pretty clear that distortions in the way big money plays are very damaging to individual firms with good prospects.
finally re DNDN, I was hoping you'd jog my memory concerning the value of the technical debates in the years pre AC. I agree that the skepticism about the coming DNDN interim being a winner has been valuable. I've stayed out partly for that reason, though with what I learned from the AC and subsequent weeks of the incompetence and self-dealing of management I'm not sure I could have convinced myself to buy the stock above say $3.
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