Forum Archive Index - May 2003

[Jerry&sam <samjer@xtra.co.nz>]

Title:

Cheers Snoopy and everyone whose shared their thoughts about biotechs.

Here's mine on what's worked for me with making money in biotechs, which
I have in SIR, VCR, PTD and NAL.  I've also taken paper losses in CIR, PLT,
PBO   (haven't sold these, because I  still have faith in them, and bought
them when I was still learning those hard lessons about sticking to one's
set Stops. )  

I've been investing for three years, and have made every mistake going, but
I've made enough in biotechs alone this year to pay my son's university fees.

I don't think getting in at the ground floor with a newly-listed biotech 
is the way to go.  For the  biotechs engaged in drug research and development,
 so much time and risk is required to get the product to market, that your
money could be tied up for years, literally.   Plus the necessary capital-
raising along the line usually dilutes  the shares so much, that there's
little value left in one's original investment.   Bio devices or treatments
are much quicker in development, but sucessful marketing, as Snoopy points
out, is equally important to actually making money instead of burning it.
Plus marketing is another huge cost to an emerging company.  


Instead of getting in at the ground floor, I think,  to make money,  an investor
needs to treat all biotechs as short-term trading stocks, even if one ends
up holding them for a longish time  ( so long as they are on an uptrend).
 In order to  know when to buy and what to buy, you really do need to love
the science, that is, learn all you can about the company,  study their websites
and follow daily company announcements on the stock exchanges.

Knowing what company announcements are significant, and what are just hype,
is another skill that comes with experience and knowledge.  I made a 20 %
return in two days on PTD when I noticed their Humira FDA approval announcement
 on Jan 2 this year.  I bought immediatedly (placed my order at  just under
"at market").  The stock when up hugely for the next two days, and I sold
when it started to drop.  Did the same thing with NAL when on 13 Jan  their
Laser-Assisted Drug Delivery received FDA approval. 

All of Phaedrus'  advice on TA has been  absolutely invaluable for me, in
learning to  cope with biotechs, esp trend analysis, and setting stops.  Fundamental
analysis, except in its crudest forms (like does the company have enough
money to keep going long enough to get their product to market?) is completely
pointless with biotechs, esp since institutions often take share placements
 to keep the company going.    I more than doubled my money in six months
with Sirtex though studying its chart every day (it was in a steady uptrend,
with big spikes of volume every now and then, so it looked like something
was up),  and then selling  to the market when  a takeover offer from Cephalon
was announced.  ( I didn't like the offer, which seemed to  be very confrontational,
like "take it or leave it, but if you leave it, how ya gonna sucessfully
market your little SR spheres, then, huh?"  I must confess that I thought
the takeover  would go through, since Bruce Grey the majority shareholder
and founder of the company, endorsed it. However, other major shareholders
didn't like it, and now it looks like the tekeover has failed, and the price
of SIR dropped 40 cents today.  

However, when I first bought  SIR, I hasten to point out (don't read this,
Phaedrus), that I stupidly watched it drop in several weeks to half of what
I paid for it.  (This has been the hardest thing for me to learn as an investor,
is to regard taking loses as a "cost of doing business").  However, I did
truly have faith in their product (liver-cancer treatment which had passed
all clinical trials and received FDA approval for marketing it in the USA
 ... which was when I bought, just when that announcment was several days
old .... the worst time to buy any biotech.

Which leads to another thng I've found ... with biotechs, you never buy on
a good announcement that is more than several hours old.   If you
see a significant announcement just as it appears on the ASX or NZ websites,
and can undertand its significance and what it means (not always easy), jump
in and buy at market, and then watch the stock  like a hawk for the next
few days, and then sell it when  it starts to drop significantly (which they
often do as soon as the market loses interest, and all those option holders
take profits.)

An inportant part of  keeping tabs on the mood of the market for a stock,
is checking its market depth, often.  If there are significantly more buyers
than sellers, then the price will go up.  When you see big sellers move into
the market, it's time to get out.  Market depth is also a great way of figuring
when to buy into a stock ... I have several watchlists of biotechs for which
I check their depth often .... I write these down in a big office diary,
so I can flip back and see whether there's been changes over the last few
months etc.  This checking of market depth works particularly well for biotechs,
since they tend to be rather thinly traded, so a change in depth shows up
clearly. 

Lastly, even tho understanding science, or at least,  scientific methods 
(I have a psychology degree, for what it's worth) is important with biotechs,
it's easy to outsmart yourself.  I watched Chemeq go up and up in classic
TA trend mode and didn't buy because I had severe doubts about the science.
I still do, but Gerry and others have probably done very well out of it,
thank you.  

So, ultimately, I would say, that in order to do well with biotechs, learn
the basics of Technical Analysis.  And don't forget Market Depth.

Jerry




tennyson@caverock.net.nz wrote:
> 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!"
>
>
>
>
> ----------------------------------------------------------------------------
> To remove yourself from this list, please use the form at
> http://www.sharechat.co.nz/chat/forum/