Steven Syre’s column in Friday’s Boston Globe (#msg-34410364) makes a good segue to my 2008 biotech portfolio recap. Because there are still four trading days remaining in the calendar year, the numbers presented below are preliminary; I’ll update them after the close of business on Dec 31.
My biotech portfolio consisted of three stocks at the beginning of the 2008: MNTA, GTCB, IDIX; at the end of 2008, it consisted of two stocks: MNTA and IDIX. In other words, I had two big winners and one disaster. All told, my biotech portfolio gained 56% during 2008; naturally, I’m pleased with this result given that all biotech and broad-market indexes in 2008 were sharply down.
For simplicity, let’s call the size of my biotech portfolio at the start of the year $100; the following discussion shows how this $100 grew into about $156 at year-end. (Please see the end of this post for links to transaction-related info.)
1. MNTA – At the start of the year, I had $36 in MNTA (i.e. a 36% portfolio weighting), which consisted of 5.04 shares worth $7.14 each (the closing price on 12/31/07). I did not sell any shares of MNTA during the year; rather, I added 1.71 shares during November 2008 at prices of 6.89-7.62 when MNTA went into a tailspin along with the rest of the market. This addition was a 34% increase in shares relative to what I previously held, bringing the shares owned to 6.75. At the year-end price of 10.92, these 6.75 shares are worth $73.71.
2. GTCB – At the start of the year, I had $36 in GTCB (the same portfolio weighting as MNTA), which consisted of 41.38 shares worth $0.87 each (the closing price on 12/31/07). During April, July, and August, I spent $4.39 to add 8.28 shares at prices of 0.36-0.61, expanding the number of shares held by 20% in the mistaken belief that the company’s BoD would opt to sell the company rather than effectuate a ruinously dilutive financing transaction.
Alas, on November 3, the company announced such a ruinous dilution. Two weeks later, I started liquidating my holding; regrettably, by waiting two weeks while the share price kept falling, I was able to get only 0.14-0.18 instead of the much higher prices that were available immediately after the financing announcement. The 49.66 shares I sold yielded proceeds of $7.85; netting out the $4.39 spent to add shares during the year, the net proceeds were $3.46. I haven’t repurchased any shares and have no immediate plans to do so; GTCB thus stands as my largest mistake ever in biotech investing.
3. IDIX – With a 2008 gain of 138%, IDIX was one of the best-performing stocks—biotech or otherwise—in the entire world. This is the 1-year chart:
At the start of the year, I had $28 in IDIX (a 28% portfolio weighting), which consisted of 10.37 shares worth $2.70 each (the closing price on 12/31/07). IDIX shares broke out of the gate quickly with the disclosure of clinical progress in HCV and HIV at the JP Morgan conference in January 2008. Positive developments on the clinical front continued through the late winter and spring with presentations at the CROI and EASL conferences. By mid-summer, the stock had risen three-fold to more than $8 and I thought it had become fully valued based on the fundamentals; however, I wanted to play the buyout vig stemming from the May 2008 expiration of the standstill agreement between IDIX and NVS. My “compromise” solution was to sell about 1/3 of my holding, 3.11 shares, at an average price of 7.94, netting proceeds of $24.69.
During autumn, as the global financial crisis set in, IDIX went into a tailspin with the rest of the market; it bottomed at 3.36 on Oct 10, but I wasn’t nimble enough to take advantage of the opportunity and the shares then went on a nice run back to 6.10 in just ten days. Fortunately, I got a second chance: when the price dropped back to the 3’s again in November, I was ready and spent $12.10 to buy back the previously-sold 3.11 shares at an average price of 3.89. Soon thereafter, IDIX began a run that was nearly a carbon copy of the run in October. At the year-end price of 6.43, my 10.37 shares are worth $66.68; in addition, I netted $24.69-$12.10=$12.59 in cash proceeds from transactions during the year.
-- All told, the $100 in my biotech portfolio at the start of the year turned into $156.44, consisting of $73.71 worth of MNTA, $66.68 worth of IDIX, and net cash proceeds of $16.05 ($12.59 from IDIX and $3.46 from GTCB).
Current holdings and outlook for 2009
MNTA – I continue to hold a large position and I’m as bullish on the stock as I’ve ever been for the reasons cited in the ReadMeFirst (#msg-34384001). The balance sheet was recently strengthened and is rock solid. My cost basis is only 5.94 because I acquired the bulk of my position in Nov 2007, immediately after the FDA’s non-approval of the generic-Lovenox application. Thus, I think MNTA has a decent chance to eventually become my largest-ever biotech gain in absolute dollars (an honor held by GENR, which I sold in 2004).
GTCB – Although I have no immediate plans to get back in, I recently responded to quantumdot’s request to handicap GTCB’s future in #msg-33853604 (JMHO, FWIW). Comments welcome.
IDIX – I continue to hold a large position because the valuation is relatively modest, the balance sheet is respectable, and there aren’t many companies with bona fide drug-discovery skills in the antiviral arena. In HCV, IDIX is the only company that has programs for all three of the established MoA’s: nucleoside polymerase inhibitor, protease inhibitor, and non-nucleoside polymerase inhibitor. With the demise of Roche’s R1626, IDIX’s IDX184 is the second-furthest advanced HCV nucleoside polymerase inhibitor in development by any company (#msg-34338776).
All told, I don’t think IDIX at the current price has the enormous upside potential of MNTA, but I do think IDIX is a solid holding and there are several market-moving catalysts on the 2009 calendar. Moreover, it seems likely that NVS will at some point move to acquire the 44% of IDIX that it does not already own. For further details, please see the ReadMeFirst at #msg-34339122.
Appendix: links to posts with transaction-related info
Market Data 
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