Thomas--
biotech...is really scary from an investment perspective
As a long-time bio investor, I fully concur.
Still the sheer size of potential markets must give one pause. Writing biotech off as the equivalent to roulette begs the question. Surely there is risk and that risk is too great for many investors to swallow. But Andy Grove--no technology slouch--believes that if the twentieth century was the century of physics, the twenty-first will be that of biology.
In a real sense I consider biotech OT for this thread. As Uncle Frank rightly pointed out, GG metrics don't fit with biotech. But there are some points at which the GG discipline can carry over. The main reasons BB touched on in his post: the learning curve is steep, the field crowded, innovative products get cloned (or as with Immunex's Embrel patients develop resistance), and the FDA can slam a company in the blink of an eye.
So where does that leave the investor with only college-level biology? This is where GG principles can come into play.
The basket approach helps. For those who are interested in biotech, but nervous or time constrained, Morgan Stanley's Biotech Index is a good place to start looking. The index is not cap weighted and has broad diversity (unlike Merrill's Holders which is heavily weighted to the big names). The index cuts across the spectrum in terms of size and research specialization. Holdings include Abgenix, Amgen, Aviron, Biogen, Cubist, Celgene, Cephalon, Chiron, Cor Therapeutics, Celera Genomics, Curagen, Cell Therapeutics, Genentech, Genzyme, Gilead, Human Genome Sciences, Icos, Idec Pharmaceuticals, Imclone, Immunex, Incyte, Medimmune, Medarex, Millennium, Myriad, Neurocrine, MPS Pharmaceuticals, OSI Pharmaceuticals, Protein Design Labs, Praecis, QLT Inc, Regeneron, Tularik, Tanox, and Vertex.
The network is important. Most baby and mid-cap bios serve as research arms for big pharma and big bio. Look at the kinds of deals a company is able to strike with big pharma or big bio. That tells one a lot about how the research is valued--witness the deals a Millennium or an Imclone has struck. One may not be able to tell whether Imclone's C225 will actually be able to starve cancer cells by cutting off the blood supply, but a lot of knowledgeable people are putting their money where their mouth is and taking the bet. Then too there are the established relationships not just with big pharma, but with academic research. These are easily traced and give good clues to the quality of the team.
Cash is king. Bios burn money like nobody's business. The more cash a company has, the less vulnerable it will be to becoming forced to accept disadvantageous take-it-or-leave-it marketing and development arrangements.
The addressable market. Is it important? How big? What's the competition? For a long time, for example, no one was working on new antibiotics, but now germs are getting smarter and with their adaptation, the need for new antibiotics has grown sharper--giving a company like Vertex a new edge.
The technology. Some bios focus on particular disease: Cor Therapeutics on heart disease, Celgene on cancer. Others supply picks and shovels. Abgenix produces fully human monoclonal antibodies from mice. Millennium and HGSI started as pick-and-shovel companies with complex screening processes and are now emerging toward development companies. It is here that GG principles can be most helpful. How broad is the technology? Does it lead to multiple products and a deep pipeline? While a single product like Embrel can vault a company to prominence, it might not keep it there.
The business model. Many baby and mid-tier bios are simply not set up ever to turn a profit. They are run by scientists almost like academic labs. Board composition provides great clues here. Millennium, for example, has a deep board and is run by a Rhodes Scholar with a degree in philosophy. A board and management weighted only to the science side is a red flag imo.
Some random thoughts on an OT subject.
Judith |
