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November 2008

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42

Ten Rules of Small Cap Biotech Investing: Lessons From the Ugly

November 24, 2008 – Comments (1)

Those who do not learn from their mistakes are doomed to repeat them. That's why I've closely studied small cap biotechs that have failed over the last two years. If you've read my blog for the last month, you'll have read about the rules I've developed for spotting tomorrow's Ugly biotech stocks when they're still just Bad biotech stocks. Here, in my last post about Ugly biotechs, are the full set of ten rules of baby biotech investing, along with a special bonus Meta-rule that will guarantee you never again lose money investing in these companies.  [more]

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Ugly lessons in biotech: Avoid binary events

November 20, 2008 – Comments (1) | RELATED TICKERS: DNDNQ , CRME , LGND

I had originally planned to make Biotech Rule #9 the one about investing based solely on pundit opinion, then decided that there was another rule that really needed to be established. So my prior Rule #9 is now Rule #10, and what I had in mind for Rule #10 will now be a biotech Meta-Rule, a rule that renders all the other rules irrelevant. But that's for the next post. For now, I want to address the issue that impoverishes biotech investors more than any other, which is the practice of investing in small cap biotechs immediately before an important binary event such as phase III data or an FDA decision.  [more]

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Ugly lessons from Biotech: Exelixis

November 11, 2008 – Comments (2) | RELATED TICKERS: EXEL , ALTU , ARQL

In June 2007 Exelixis was riding high with a market cap well over a billion dollars, despite having no marketed products and in fact never having progressed a developmental compound to a phase III trial. The apparent reasons for the premium Exelixis enjoyed over other small biotechs were the sheer number of early stage products in the pipeline, as well as the company's ability to generate partnerships with larger pharmaceutical companies. Two major collaborations were with Genentech and Glaxo. The Glaxo deal seemed particularly significant as it allowed Glaxo to license several of Exelixis's early stage compounds. Ultimately, Glaxo only decided to continue the collaboration on one compound and walked away from the remainder of the deal. In 2008 Exelixis stock began a stuttering decline with intermittent rebounds at successively lower peaks. The decline accelerated with the broad market collapse in October and Exelixis now trades at a 350M cap, a 70% decline from recent highs. The Genentech collaboration remains intact on an early phase compound.  [more]

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Ugly lessons in Biotech: Pay attention to interim data from phase III trials

November 05, 2008 – Comments (2) | RELATED TICKERS: NFLD

One of the fascinating things about baby biotech blow-ups is that they so often seem obvious in hindsight. The ability of these stocks to remain afloat despite seemingly ominous news is testimony to the tenaciousness of investors clinging to their beloved companies. Unfortunately the market awards no credit for loyalty. To avoid losing money in biotech, it is critical to have the objectivity to realize when you have made an investing error as well as the self-discipline to sell at a loss when the risk/reward ratio becomes unfavorable.  [more]

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