Small cap biotech investing is pretty easy. The volatility makes it tough..... corrections hurt. But deriving profit from the sector is pretty easy, IMO.
Mantra........ research premiums expand and contract.
Drugs have value. People need them, and they command good margins. That means that research premiums should have a net POSITIVE value if a company has respected patents or a research infrastructure that effectively addresses a large market. As the odds of successfully addressing a medical need increase (as a molecule advances through successful safety testing in animals, for example), a research premium SHOULD expand.
So.... if a company has good stuff, its research premium should be positive, and the research premium should grow larger as successes can be measured.
It is popular now, during these illiquid times and in between the "POSs" and "MORONs", to read about burn. It is expensive to conduct research, and many biotechs will run out of cash before they can prove their worth. Good riddance........ we've had far too many companies limp along with twenty years of bait and switch. But, the jerk at Yahoo who keeps pointing to the inevitable for VPHM in light of burn? This is carrying today's popular BS beyond all semblance of logic. I've never seen a company role in cash relative to market cap like this.
So...... expansions in research premium due to success need to be countered by contractions due to burn.
RPs grow far too large during periods of enthusiasm. Similarly, RPs get shot to hell during periods of pessimism.
Those are rules. It happens over and over again, and it will happen FOREVER in a free market where development-stage companies address large markets and good margins. Volatility is our friend. I think.
:-) |
