Replies to post #74466 on Biotech Values

[wallstarb]

To use DNDN as an example - first bite at the apple for their drug the hype/hope $$$ factored in is/was a lot more then the second or third time they try - once bitten twice shy. Since it has a history of failure (or "non-success") it will be guilty until proven innocent. Now if they get approved this time - I agree theres more upside - because this time there's only $300m (DNDN has negative tangible net assets) built into the drug.

Our investment thesis is to try to find drugs with a lot of potential - with as little or none of that built into the stock and make sure the company has enough cash to get through enough of the drugs "product cycle" so that people will see that potential and start to build it into the valuation of the company. Knock on wood but we have never had a losing year and this strategy has worked well for me in the past and our BEST years tend to be the market's worst because of the extreme valuations and opportunities (2008/2009 is looking to be even better then 2002/2003 for us)

Maybe there is a little "greater fool theory" - but unless you believe the markets are "efficient" then I don't know how else to describe it - biotech especially trades on "hopes and dreams" if you dont agree and want something that trades a lot more logically - then I suggest trading bonds or doing some arbitrage (I used to run a fairly large fixed income arbitrage fund, it's pretty logical and boring!)

[DewDiligence]

Re: Biotech hype and MoA labels

…your response is tangential to Dew's statement that, to put it more bluntly, MoAs are a dime a dozen. Virtually EVERY drug has an MoA touted by their developer. Even after it fails, most management teams come up with a new or modified MoA. It says more about the management team than the science.

To restate what I believe to be Dew's point - MoA is clearly hypothesis generating. But it is too easily generated post hoc and thus should be treated with HUGE scepticism - hard data on commonly accepted (or completely pre-specified) endpoints is much less easy to game.

Thanks, Clark—this is precisely the point I was seeking to convey.