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Fermion's Biotech Investing (All Welcome)
Old 07-31-2016, 09:29 AM   #1
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Fermion's Biotech Investing (All Welcome)

I am interested in sharing my current biotech investments and hearing from others about what biotech companies they may be thinking about or invested.

I have dabbled in biotech over the past decade with some (but not great) success. I have probably had the most success with Gilead although it has required a lot of buying and selling on pops and drops instead of the more desirable buy and hold. Ten years ago you could have purchased Gilead and just held it. You would have realized some 500% gain. Recently it has not performed well, even as the PE has dropped below 7. I have 2000 shares right now but will probably trim that back to 1000 if and when some positive news drives the price back near $90. My cost on these shares is around $82. They are generating $3760 per year in dividends which is not bad for buy and hold.

I have a small position in Endocyte (4000 shares), which is a tiny company investigating small molecule delivery systems for destroying cancer tumors. I trimmed back my shares after the CEO left earlier this year although it has not been clear if his reason for leaving had anything at all to do with the company itself. They have more cash on hand than the current market cap and a few drugs in early stage development that are promising but nothing great right now that would knock it out of the park sans a partnership agreement.

I am looking at UTHR (United Therapeutics) now but have just started researching it and may not buy any of that stock at all. They do look interesting...small now but profitable and maybe could be the Gilead, Celgene or Amgen of the future.
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Old 07-31-2016, 10:00 AM   #2
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Good idea. Subscribed to the thread. There are a couple of folks on slope of hope who actively trade bio's. Currently my primary area of interest is in drug delivery.
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Old 07-31-2016, 10:53 AM   #3
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Thanks for the thread. I'm starting to dabble in biotech with a small portion of my assets (fun investing) after missing out on all the fun the last several years. But I don't like to gamble and doing the research on biotech firms is difficult as there is usually a lot of speculative information and the outcomes of company successes are a function of a series of future tests.

I have a small position in GILD also and expect it to rebound after the end of the year. Most of mine was bought around $90. I sold Amgen when it got to $165 recently and made a little profit.

My best performing health care fund has been T. R. Price's Health Sciences Fund (PRSHX) which I have had for several years and is now closed to retail investors. I also have a small position in VHT (ETF) and that's part of my Vanguard tax deferred holdings.

Other than that, I am looking forward to hearing what others are thinking/doing in the biotech area.
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Old 07-31-2016, 11:11 AM   #4
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Can you explain what you look for in an investment?
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Old 07-31-2016, 12:47 PM   #5
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Can you explain what you look for in an investment?
I look for undervalued stocks relative to both the biotech sector and the overall market. I also look for overreaction to an event, such as a drug company having a failed trial on one drug and the stock tanking even though they have many other profitable drugs.

It is a tricky sector right now because of the negative politically motivated attacks against "high" drug prices. There is some degree of truth to the high prices but also some survivor bias as many investors lose a ton of money in failed biotech companies who never come to a dollar of profit. It is ok to use $0.50 worth of sand, plastic and aluminum to sell a $600 phone, but if you try and sell $1 worth of ingredients in a drug for $1000, you are criminal. Both required billions in research and development with no assurance of success but one saves lives and the other consumes them.

Endocyte is a good example of losing a ton of money. They have a market cap now of about $120m and yet several billion have been invested in the company over the past 10 years. Nobody talks about Endocyte in the news though, or how horribly bad they feel for Endocyte investors losing their money.
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Old 07-31-2016, 02:21 PM   #6
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In another thread, we talked about Gilead, who is taking a beating right now. Its miracle drug that cures, really cures, Hepatitis C has dropped in price from $200K initially to $50K to treat a patient. Many cancer drugs that do not cure but just to prolong patients' life, and in agony at that, cost in the $100Ks for just a few months of low-quality life.

On the Web, someone points out that we do not price human life consistently. If $50K is too expensive to save a life, why is it that deaths caused by accident or negligence are sued for millions of dollars?

I recall having a discussion with a coworker some years ago, this one with a PhD as many did in this research group, about Exxon's profit. It appeared Exxon just announced earnings of some billion dollars, and he decried the excessive gouging by the company. I had to gently ask him if he knew the total sales of the company, and to do a simple division to see what the profit margin was in term of percentage of sales. Then, he should look similarly at the profit margin of other well-known companies like Intel, or Apple, or even our own megacorp for comparison to see who was "gouging".

OK, back on the subject of biotech investment... The problem with risky biotech is that we do not know what research will come to a fruitful conclusion, what will not. I bought Gilead somewhat inadvertently as the result of a put option getting exercised. Because of individual company risk, I have been slowly getting biotech ETFs as a sector play. The two that I have or had in the past are IBB and XBI. IBB has more of the established biotechs (Amgen, Gilead, Biogen, etc...), while XBI has more of the smaller companies.

I will continue to monitor this sector and to add to my position as appropriate. Right now, I have around 3% of portfolio in this sector. I may go up to 5%.
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Old 07-31-2016, 03:43 PM   #7
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Here is a current screen of profitable "pure" biotech with market caps of $5B to $500B sorted by PE. This list does not include Merck, Pfizer, J&J but I can add them in. It would also be interesting to see next year predicted P/E and earnings growth.

Code:
Symbol   Company Name               Price      P/E       Market Cap
UTHR     United Therapeutics Corp.  121.01      6.69       5.30B
GILD     Gilead Sciences Inc.        79.47      7.00     108.20B
BIIB     Biogen Inc.                289.93     16.92      63.33B
AMGN     Amgen Inc.                 172.03     17.59     128.82B
ABBV     AbbVie Inc.                 66.23     19.95     104.68B
GRFS     Grifols S.A. ADR            16.94     19.95      11.44B
MDVN     Medivation Inc.             63.99     42.52      10.44B
CELG     Celgene Corp.              112.19     46.94      86.18B
QGEN     Qiagen N.V.                 26.80     50.06       5.47B
ILMN     Illumina Inc.              166.35     57.16      24.50B
REGN     Regeneron Pharmaceuticals  425.12     67.48      42.41B
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Old 07-31-2016, 06:32 PM   #8
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What GILEAD needs to do is water down their medicine.

So is it a conspiracy that cancer drugs prolong your life, enough for you to exhaust all your savings and then you die ?

Drug companies spend 2/3 of their "development costs" of drugs on advertising, so really the cost to develop drugs is much lower than touted by them. And the ads are annoying when I'm trying to watch tv.
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Old 07-31-2016, 06:41 PM   #9
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It's not a conspiracy about cancer drugs not curing patients. Rather, the drugs have not worked as well as they hope for. Cancer cells will mutate, and the drugs lose their efficacy. The net result is that the patient lives for a few more months instead of getting cured.

This is not too different than bacteria mutation to evade antibiotics drugs. Our own rogue cells can be even more devious.

The interested should read The Cancer Chronicles: Unlocking Medicine's Deepest Mystery, George Johnson (2013).
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Old 07-31-2016, 07:59 PM   #10
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I have some of my 401K contributions going into Fidelity Select Biotechnology (FBIOX) and Fidelity Select Health Care (FSPHX). The last year hasn't been great (largely due to Gilead), but overall these have done well for me.
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Old 07-31-2016, 09:31 PM   #11
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I bought 100 shares of Gilead Friday for $79.49.
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Old 08-01-2016, 04:21 AM   #12
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Originally Posted by Fermion View Post
I look for undervalued stocks relative to both the biotech sector and the overall market. I also look for overreaction to an event, such as a drug company having a failed trial on one drug and the stock tanking even though they have many other profitable drugs.

It is a tricky sector right now because of the negative politically motivated attacks against "high" drug prices. There is some degree of truth to the high prices but also some survivor bias as many investors lose a ton of money in failed biotech companies who never come to a dollar of profit. It is ok to use $0.50 worth of sand, plastic and aluminum to sell a $600 phone, but if you try and sell $1 worth of ingredients in a drug for $1000, you are criminal. Both required billions in research and development with no assurance of success but one saves lives and the other consumes them.

Endocyte is a good example of losing a ton of money. They have a market cap now of about $120m and yet several billion have been invested in the company over the past 10 years. Nobody talks about Endocyte in the news though, or how horribly bad they feel for Endocyte investors losing their money.
But and a big butt. The phone is optional. The drugs could be life or death, that's just a horrible statement to make.
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Old 08-01-2016, 05:44 AM   #13
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We have MDT, JNJ and ABBV (in-laws brokerage). Besides these companies, we also have REIT positions in HCP and HTA for income.

I have two articles front and center, for more research in biotech and pharma companies.

Quote:
5 Attractive Biotechnology Stocks For Healthy, Long-Term Returns
Jun. 10, 2016
Includes: ABBV, AMGN, BIIB, CELG, JAZZ
5 Attractive Biotechnology Stocks For Healthy, Long-Term Returns | Seeking Alpha
Quote:
10 Biotech And Specialty Pharma Bargains - Do You Have The Guts To Speculate?
Jul. 1, 2016
Includes: ADHD, AKRX, AMAG, CXRX, ENDP, GILD, MNK, MYL, SHPG
10 Biotech And Specialty Pharma Bargains - Do You Have The Guts To Speculate? | Seeking Alpha
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Old 08-01-2016, 06:33 AM   #14
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Part of the problem is we let the rest world pay low prices, so we are subsidizing the rest of the world. The Euro countries drug companies even do it to us. Their is some greed, as lately it has been in the news.
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Old 08-01-2016, 06:39 AM   #15
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The purpose of the thread is to discuss investment strategy and opportunities. There is ample opportunity to discuss moral and ethical aspects of health care elsewhere.
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Old 08-01-2016, 05:22 PM   #16
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The purpose of the thread is to discuss investment strategy and opportunities. There is ample opportunity to discuss moral and ethical aspects of health care elsewhere.
Wow, somebody is on topic!
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Old 08-01-2016, 08:09 PM   #17
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Being on the road, I am not able to monitor the market like I used to. Before leaving Fargo today for Wisconsin, I put in a limit sell for 1000 Gilead at $81. I just checked now and it hit, so that was a nice little $1500 trade over the weekend. I still have 1000 shares but Gilead will be volatile for the next few weeks before it settles down. It should rise again toward next earnings, it is pretty cheap here. I am a buyer again at $79ish.
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Old 08-01-2016, 08:12 PM   #18
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Just wonder, if you buy/sell Gilead for short-term gains, should you care that much about its long-term prospect?

One can do short-term trading on any stock, if he can read and time the market right.

So, what am I missing?
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Old 08-01-2016, 08:19 PM   #19
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Yes, I think you should care. The last time I did buy and sell while not caring about long term prospects was Nokia, and I almost lost my shirt. It was only Microsoft making the stupid move of buying them that saved me.

Gilead is a stock you don't mind getting stuck with, because they are making money hand over fist. They don't have a moat like Coca Cola, but they are going to squeeze another $30B to $40B out of HCV and the stock is pretty cheap even without that (would be around PE13 or 14 with just the growing HIV pipeline)

I can't resist trading it around earnings though, when analysts downgrade it while still maintaining a price target 25% above the current price.
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Old 08-01-2016, 08:23 PM   #20
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With individual stocks, I only buy the ones I think have good long-term prospects, if not to thrive then at least to survive to give me some divvies. That did not keep me from losing money.

The ones I tend to trade short-term are index ETFs. Those, I have no emotional attachment to, and seem to make me more money, or at least I break even.
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