This space is really hard for me sw. It seems that the small pharma’s are just story stocks and I do not know hoe to evaluate them. I do not have the expertise to gauge how likely the outcome is. I have just stayed away from the space, except for Gilead and Exel and Exel did not turn out very well. I am thinking of buying a small basket on a pull back and see how that works but I am not sure if I even want to do that. What does everyone else think of these?
What does everyone else think of these?
I agree with you, Andy. I own GILD because MF Pro follows it closely, and I’m comfortable leaning on them (and it looks reasonably priced, both by their measures and by Saul’s). I briefly toyed with CELG but didn’t stick with it. But otherwise I just wouldn’t own any companies in this space, and I think that’s perfectly fine.
I don’t see any need to own companies in every industry. I don’t own any energy companies, either. I’m very heavy-weight on tech, but tech as a whole is very broad with fingers in many pies, so I don’t feel like that’s overly risky beyond short-term movements (and I’m not a trader, so I don’t really care about the short term).
At the end of the day, I strongly believe that it’s about the business and not the industry. I’m not going to let the tail wag the dog. I think the whole industry-centric approach comes from traditional portfolio management theory, and I don’t put much stock in that.
Just my 2 cents, of course!
Biotech is a very hard space for everyone. When I worked in Business Development for JNJ, only 10% of deals reached their targets. Most vastly under performed and a few hit gold.
One approach is to buy a Biotech ETF such as IBB. Current holdings:
My sense is that Biotech is not that cheap right now and we are pressing on the limits of value based upon the likely outcomes (given a large degree of uncertainty).
Right now I have small positions in AMGN and BIIB. Like CELG these have established products as well as promising pipelines. I also hold some JNJ which has exposure to biotechnology (monoclonals etc.) I also own some HALO which appears quite expensive. However it is a company where I have some pretty strong special knowledge. Even so, the current price implies that their product vs. pancreatic cancer has a fairly high chance of success.
Overall it is a high risk/high reward area. I want some exposure but not too much at present. I am a more conservative investor than Saul.
Thanks Neil and SW. I keep flirting with this sector because the gains can be enormous but maybe I just need to stick to the ones that are making money instead of the ones that “might” become winners. Your statistic of only 10% reaching their targets SW is pretty sobering.
“Your statistic of only 10% reaching their targets SW is pretty sobering.”
It is also worthwhile pointing out that JNJ had many internal scientific and technical experts as well as top consultants looking at these deals, experts on the clinical science, patent experts, experts on the projected markets, did extensive market research with physicians etc.
Most individual investors can only guess at many of the important issues.
And despite all that expertise only 10% of the deals hit their targets…
I work in the field of medicine and think investing in these companies is hit-n-miss. What I’ve done is invest in the biotech field through one mutual fund and one ETF and they both have done outstanding these last 2 yrs. I’m up 27% on these investments this year alone since Jan 1st.
Hoping to pick the right story stock just seemed to rife w/ risk as my attempts in the past have been fair-to-middling. I second your feelings on this.
Thanks for the idea, an ETF might be what I am looking for. It would spread my risk across a basket of stocks. One of the TMF’s was saying that the best way to invest in these stocks would be to only buy after they have at least two drugs that have passed FDA approval. He claims that you will still see a nice lift to your portfolio while reducing the risk.
I can second the recommendation of IBB. It is up about 75% for me in less than two years. I started off not doing any biotech because it was so full of traps of things that sounded good, but then would have bad side effects or not really work or something that killed the financial return. Then, I got sucked into a couple and managed to prove that the problem was there (remember DNDN, which worked and got approved and still went down the tubes). I am happier with IBB, although I still have a little EXEL and talked myself into GILD more recently, but, of course, that is not a startup.
I like IBB but need to check into it more. Look at the 5 year chart Tamhas, pretty much steadily up. I might put a little money into it and then wait for a pull back. But I need to check into the costs and exactly what is in the ETF. Thanks all for the information.