tag:blogger.com,1999:blog-2149523431587168680.post563035153399273802..comments2024-01-16T00:12:23.220-05:00Comments on Oddball Stocks: Biotech net-nets, a value mirageNate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-2149523431587168680.post-64414426845193893012012-10-06T13:39:17.237-04:002012-10-06T13:39:17.237-04:00I think investors can also sometimes fall into the...I think investors can also sometimes fall into the trap of assigning significant economic value to the NOLs generated by a biotech firm that trades at net-net levels. Their thinking is further supported by the hope that these NOLs would be desirable (and fairly priced) by an acquirer if the firm is unable to make a profitable go of it on its own. The most deceptive implication of such assumptions is that the NOLs cause the margin of safety to appear much larger than it truly is.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-11748920980881119832012-10-05T15:50:18.965-04:002012-10-05T15:50:18.965-04:00Interesting is also the way biotech start-ups rese...Interesting is also the way biotech start-ups resemble explorative mining company of which there is an abandunce on Canadian and Australian stock exchanges.<br /><br />Biotechs are in my view not so suitable for net-nets-stategy not only because so view make it far in the trails. A net-nets-strategy brings about selling almost automaticly when a stock hits his net-nets value. In the case of biotechs (and explorative miningcompany) that leaves to much money on the table. <br /><br />I can tell after my experiences with Inhibitex: I sold disiplined at ncav after waiting patiently for two years. Couple of month later the company was taken over for a stockprice ten times my disciplened selling price.<br /><br />I've been engaged with a women who worked near the board of such a start-up. It was interesting to see how highly educated employees where so overestimating the chances of approval for their main product. Although their carreers were already attached to a certain extent to succes of this company and the product pipeline. And although each employee had a optionplan. Still some bought additional shares on their private account because they thought they knew more then the market.<br /><br />They bought at 8 or 9 times bookvalue and after FDA disapproval or mice who died, I forgot, but what I do know was that the share went down 95%! How do we call that bias of which this is an example: familiarity-bias.<br /><br />These employees option-plans are also quit funny. Some employee got filty rich, just out of luck. We know those stories. <br /><br />But there is some risk for the individual employee in the short time frame between execising the option and selling the shares. And everybody on the paylist got an optionplan also the less highly educated, fainthearted, financial problematic, lab nurd. <br /><br />Anyway, there was one who on the day he let his options be exercised and his volatile shares be sold, he was so nervous of becoming into debt because all of this that he had to be driven home 'cause it was unresponsible to let him drive himself.<br /><br />Oeps, I intended to give some short notes.<br /><br />Maarten<br />NetherlandsMaartennoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-73481554553121737592012-10-05T12:56:33.901-04:002012-10-05T12:56:33.901-04:00CBMX was a really neat company. Really neat produc...CBMX was a really neat company. Really neat product too. Total failure as a stock though...jeffhttps://www.blogger.com/profile/17760356835994559641noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-81384592168607267572012-10-05T11:45:05.027-04:002012-10-05T11:45:05.027-04:00I only really know of VRX through Sequoia (guess I...I only really know of VRX through Sequoia (guess I should disclose that client accounts hold SEQUX). This excerpt from their annual goes to the issues you brought up in RE: layman investors buying into heavily marketed net cash biotechs:<br /><br />"As we discussed in last year’s report, we like Valeant’s approach to the pharmaceutical business. In an industry marked by heavy spending on unproductive research and development, Valeant over a period of years has acquired a stable of older branded drugs, generic and OTC drugs. Many of its drugs are steady sellers in niche categories of dermatology or neurology. In our view, Valeant is essentially a value investor in pharmaceutical products."<br /><br />To wit, Ruane and Co. know probably zero about buying the correct drugs rights etc. They just know how to hire people that can shift the scratch ticket-like odds in their favor.Henryhttps://www.blogger.com/profile/04710577667432873289noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-86916870321018859402012-10-05T11:20:23.599-04:002012-10-05T11:20:23.599-04:00Henry,
Thanks for the comment. I appreciate the ...Henry,<br /><br />Thanks for the comment. I appreciate the nitpick, you're right, FDA trials are all on humans.<br /><br />I'm not very familiar with Valeant, but it appears they make acquisitions of the most promising biotechs then carry the drugs to completion. A company like Valeant has the knowledge and expertise to diversify their prospects, and know which ones will most likely work the best. Most investors don't have this set of skills.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-20905009400015517682012-10-05T10:40:57.179-04:002012-10-05T10:40:57.179-04:00Two points: (1) This is why a company like Valeant...Two points: (1) This is why a company like Valeant makes sense from the perspective of the (relative to doctors, researchers, etc) layman investor - you've essentially very hired knowledgeable pros to do this research and pick how they'll deploy the cash. (2) Nitpicking I know, but FDA trials start with humans - the only stage that doesn't involve giving novel molecules/treatments/devices to live humans is preclinical - in fact "give this to humans and see what it does" is exactly what "clinical" means.Henryhttps://www.blogger.com/profile/04710577667432873289noreply@blogger.com