I am not one to chase trends. I do not own any men’s tanks, or boat shoes as my wife will sadly tell you. Most investors are aware of The Crazy Biotech Run over the past year. Everything about these stocks should make prudent investors run for the hills. Every promising Biotech wonder-stock out there makes no profit, and probably won’t for several more years. Yet there is potential. Amgen, which started as a penny stock in 1983 has grown by 35,820% to date, and is still growing. As the school fund’s Healthcare Sector Analyst I would be remiss to completely ignore the potential, although great care is warranted.
The risks with new Biotech/Pharmacy companies are much higher than most staid firms with established cash flows and customers. The FDA has three basic phases for drug testing. With the passing of each phase, probability of future cash flows occurring rises, resulting in a higher price as a company’s drugs clear each phase. To the uninformed, gambling on barely understood companies, this can be a very risky, but rewarding proposition.
Big Pharma is scared stiff of Biotech. Companies like Merck and Pfizer are snatching up small, promising start-ups to supplement their upcoming patent cliffs. I believe that there are still some attractive investment opportunities out there for enterprising investors. I have identified Edit:4 stocks which I believe may be worth buying or selling, and will investigate and report on each one in a separate post. The three long names are: Epizyme, Aratana Therapeutics, and Synta Pharmaceuticals. The short contender is Oramed Pharmaceauticals.
I believe the recent IPO binge for Biotech firms is going to shake out into at least a few bad eggs. I should caveat my shorts. They are very rough sketches at this time, and I have a LOT of digging left before I can make a definitive judgement on whether or not to open a position. More to follow as I dig into each company separately.