Forum Archive Index - May 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi All, 

I see that no-one has responded to my challenge on how to become a 
successful investor in Biotechnology.   So here is my take on the topic.

For investment in biotechnology I give equal weighting to both the 
science behind the technology being developed, and the business plan 
behind commercializing that technology.   These being my two 
requirements, you can see that none of the science seed research 
projects grown into companies make it onto my radar screen.   IMO, 
there is no point in having the best science in the world if you do not 
have the sales channels in place to market the product you are 
producing.

My initial foray into biotechnology saw me identify a company with good 
science and a good sales force ready to exploit the product.  I was 
patient and waited for the stock to lose any bubble in its share price (or 
so I thought, the share price halved), then I moved in and bought the 
stock.

Not long after that the share price halved again......

After this sobering lesson I decided that perhaps I wasn't the hot biotech 
stock picker I thought I was.    The company did move into profit (a rare 
thing for a biotech, so at least my judgement wasn't totally misplaced), 
but in no way did it achieve the kind of results that would have justified 
my purchase price.   Until, that is, around 1999 at the height of the 
NASDAQ boom where I had the good fortune to have my shares taken 
over.

So all ended well and I did end up with a small profit on this investment.  
To this day,  I don't regard my original investment strategy as unsound.   
But I have given up on my quest to become a hot biotech stock picker.  I 
stand by my assertion in a previous post that investment in 
biotechnology is at best a zero sum game, which amounts to a 
guarantee that biotechnology investors as a group will lose in the long 
run.

However, what if an investor in the commercial world publicly identifies a 
biotech research company that has commercial promise and acts?   And 
what if  I could get in on this deal at virtually no cost?     Well, a couple 
of months ago I got in on just such a deal on these terms.    I am 
referring here to the Wrightson's buy into Genesis Research and 
Development.

I still have the Genesis Research and Development Prospectus and it 
has duly achieved an honoured(?) position in my 'library of shame'.   
GEN was always going to be a long-shot and the big weakness I saw in 
the prospectus (which was why I didn't invest) was that I didn't see a 
satisfactory strategy in the offing to bring any products developed to 
market.  However, bringing product to market is exactly what WRI does. 
So when WRI bought into Genesis, at a very good price (less than the 
cash value of the bank deposits) I sat up and took notice.

Genesis Research is still a cash burner, so buying into the company 
even at a good price means that it is not guaranteed that this will be a 
good investment.  However the price paid:

0.1542 x 5.75m shares x $1.31 equates to $1.1615m

Given that there are 134.2m WRI shares out there this equates to 
around 1c per share.  In other words it would not be catastrophic to WRI 
if this entire investment ended up flushed down the dunny.  On the 
upside a closer co-operation between WRI (who have their own crop 
research centre out at Lincoln) and GEN could lead to significant 
rewards, especially as WRI *does* have the sales channels to get a 
commercial reward from any successful product development.  It has 
since been announced that GEN is to split into two, one half 
concentrating on the 'health business' and the other the 'plant business'.
What is the bet that WRI will be driving the latter half?

>From the Wrightson perspective the risk reward equation looks good.   

Downside: 1c per share.    

Upside:  Whatever the market thinks is a suitable premium for a 
successfully developed high tech product.  IMO any upside is more 
likely to be reflected in a changed market perception that WRI is no 
longer a commodity company with cyclical assets.    Changing the 
perception of WRI is a long term objective of MD Dr Alan Freeth and 
could result in a major re-rating of the WRI share price.

In summary I feel the risk/reward trade off for investing in WRI is more 
attractive than ever.   At $1.11  (and a yield of 15%) WRI is, IMO still 
*the* stand out investment on the NZSE.  I don't know when the market 
will finally realize how cheap WRI is, but I certainly wouldn't want to be 
underweight in WRI waiting for it to happen.   This is why I topped up at 
seemingly insane price of $1.01 on 31st March 2003!

SNOOPY

discl: hold WRI
 
But do not hold GEN directly.   I'm quite happy to leave the decision of 
where my indirect holding in biotechnology company GEN goes, in the 
capable hands of Dr Freeth and the WRI board.

--
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
"Stay on the upside of the downside, 
Anticipate the anticipation!"




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