TMFHelical (99.03)

May Summary

June 10, 2008 – Comments (3) | RELATED TICKERS: AFFX , SGEN

When blogs first got started, or even earlier were just being commented on in the suggestions board, I thought they (and caps) would likely be more 'self' oriented than directed outward to an audience.  One thing I wanted to do with a blog was comment on CAPS portfolio moves, yet I find I've been more focused on posting interesting (to me) things related to the biotech / healthcare industry.

But .... I still see my CAPS port as being predominantly a place where I can learn from investing moves (rather than a game to win).  So recording what I did and why is a record I want for myself.  So lets start with what I did in May 08 and record some thoughts.

I ended two positions - HHJ and AFFX. 

Affymetrix (AFFX) was a short term bullish play that I jumped on after a downgrade and a lowered forecast by the company.  This is a good company but in an odd place.  It competes most closely with Illumina, which has been gaining ground on it of late.  Arrays have also been called a 'placeholder' technology by many in the science press, and potentially one that will wane as other tech, particularly next generation sequencing comes to the  forefront.  Well, this is still an industry growing revenues at >15%, and when I see that, I want to participate.  Affymetrix isn't unreasonably priced (like Illumina) but the market doesn't love it right now and it is looking for future growth directions (clinical - perhaps?).  Closing was the right call, as it is down again since I locked in the gain, but I may go bullish on this again.  The lack of clear long-term direction makes me hesitant to do so long-term.

HHJ - Healthshares ETF focused on Cancer.  I dislike these narrow ETFs and the design is bad too (quarterly rebalancing).  They are not diversity.  I tapped this 3 times for an underperform and could do that for a long time (but will stop with 3 --- maybe).  The thing is, biotech focused at cancer targets has been directed at kinases more and more, and I am more and more encouraged that the past high failure rates of cancer drugs may be a thing of the past.  I hope so.  The discovery that angiogenesis (blood vessel growth) inhibitors don't choke off tumors as originally hoped, but do 'normalize' tumor vascularization making many chemotherapies more effective, also speaks to a more promising future for anti-cancer therapies and new drug approvals (via partnered trials).  So this former deadwood sector may have some promise, big promise (but don't buy the fund).  So I'm not rating HHJ underperform anymore, despite the bad fund design.  At some point I should cherry pick a few holdings.

May bearish calls - ARE.

This REIT serving life science clusters just doesn't yield enough to justify owning it.  This is a volatile industry, and while biotech is flush right now, it won't always be and these buildings are hard and expensive to convert to multiuse.  This can't help but go down when interest rates come up again, it just doesn't pay out enough, or have a good enough dividend growth rate, to want to own it.

May Bullish calls - SGEN, CRA

Celera has floundered for a good long time.  They have wanted to be a diagnostics company for many years now, and may actually be getting there now.  The problem as I saw it was they had such a huge cash hoard there was no sense of urgency.  The unraveling of Applera (ABI and CRA were tracking stocks of it but are now independent) makes them an interesting buyout candidate.  They are still ~30% cash (~$4 per share).  I'd rather see new management with a better focus on products than research (buyouts tend to accomplish that - so be warned if you work in CRA R&D), but for now CRA has some modest potential -- just not potential like 1999.

Seattle Genetics (SGEN) - this company has focused on what seemed to be an obvious strategy.  Instead of making drugs based on antibodies, make the antibodies as drug carriers to deliver therapeutics where they need to go.  Well ... not so easy after all.  But the pipeline is maturing and the existing candidates have some promise.  Purely speculative play with an expected long time frame to play out or fail.  One has to invest small amounts for long times (then ignore them) to profit grandly on biotech plays like this IMO.  Now looks like a good time for a long term play in SGEN.

In reality, I have no position in any of these companies.

Ralph (Zz)