Biotech 2001 Roundtable
Do biotechnology stocks represent opportunities or pitfalls? Four Fools sat down to share analyses. Their verdict: It's a sector for investors able to act like venture capitalists and take huge risks. Above all, you should know your risk tolerance, have an investing plan, and learn all you can first -- before investing.
Motley Fool Research: Industry Focus 2001
InDepth: Biotechnology
By Motley Fool Staff
December 22, 2000
TMFTardior: We're here to talk about biotech investing. (We examined pharmaceuticals at length in a separate discussion.) Tom, you examined biotech in The Motley Fool's Industry Focus 2001.
TMF Tom9: Right. I covered two biotech industries, biomaterials -- tissue engineering -- and genomics tool makers.
TMFTardior: Could you define the biotech overall for us first?
TMF Tom9: I think biotech is like the Internet. It's about using new life science technologies to transform existing businesses or create new ones. In the long run, biotechnologies will change everything, but there will be very few actual new businesses created. Biomaterials is an example of a new business that biotechnology makes possible, while genomics toolmakers are more of a mix of newer companies, such as Affymetrix (Nasdaq: AFFX), and transformed existing companies, such as Agilent Technologies (NYSE: A) or Corning (Nasdaq: GLW), both of which are melding biotechnology with existing materials manufacturing know-how.
Biomaterials and genomics tool makers
TMFTardior: Why do you focus on those two biotech industries?
TMF Tom9: They're both fascinating and fun to study. For biomaterials, think a distant future of unlimited replacement organs, totally high tech tissue engineering. And then you have the tool makers -- the biotechnology infrastructure players. These two groups represent investment opportunities for ultra-aggressive and somewhat less aggressive investors, respectively.
TMFTardior: How do you mean?
TMF Tom9: Only very aggressive investors with very long-term horizons should consider any biomaterials companies such as Advanced Tissue Sciences (Nasdaq: ATIS), Curis (Nasdaq: CRIS), or Geron Corp. (Nasdaq: GERN), which may not see profits for some time. But companies that are making the tools to mine genomic data -- many are actually profitable, and growing, such as Applied Biosystems (NYSE: ABI), which is Celera Genomics (NYSE: CRA) sister company, and Invitrogen (Nasdaq: IVGN). So biomaterials is an area for investors willing to take some substantial risks, almost like venture capitalists, while investors in the toolmakers may have some, but less risk over a long-term investing horizon. The risk for investors in genomics toolmakers is that many investors find them attractive and so the companies are very highly valued right now. Expect a significant adjustment.
Venture capital-like risks
TMF Parlay: Hey Tom, just a thought, but isn't "investors must think like venture capitalists" one of the mantras that burned many dot-com investors this year?
TMF Tom9: True. And it's also very much a part of Rule Breaker investing.
TMFTardior: Which got toasted this year.
TMF Tom9: Risks abound! Foolish investors only invest in stocks money they can afford to lose and that they won't need for three to five years at minimum. And they don't buy on margin.
TMF Parlay: I guess many people don't realize that while some venture capitalists do make ridiculous returns on their investments (100x their initial investment, etc.) most have quite a few strikeouts where they might lose all of their investment in a startup. For venture capital-like returns, one should be willing to take VC-like risks!
Drug-making biotechs
TMF Centaur: I'd like to explore Tom9's comparison of biotechs to dot-coms a little bit more. While there are some sectors where the comparison can be made, it is a natural phase of all drug-making biotechs to lose money and make heavy investments in R&D until the first drug product is approved or licensed to a larger partner. So, one of the opportunities that I see in 2001 is if the market continues to punish all companies that don't have a clear path to profitability in the next 90 days, some of the development stage biotechs will likely offer some incredible bargains.
TMFTardior: With profits so far in the future...
TMF Centaur: I'm talking about companies with potentially huge drugs in Phase 3 or Phase 2 testing, or companies like Celera Genomics that have almost insurmountable leads and strong competitive advantages that are truly sustainable.
TMF Tom9: Right. Though Celera's competitors, such as Incyte Genomics (Nasdaq: INCY), may not see those leads as quite so insurmountable.
Human Genome Sciences and protein drugs
TMF Tardior: Is the market properly discounting the time to profitability? Human Genome Sciences (Nasdaq: HGSI) for example has a market cap over $8 billion. But won't have a product for years.
TMF Tom9: Though HGS has licensed drug candidates to partners who may bring them to market sooner and share the pie with HGS. Yes, I think we'll see some pullbacks next year for HGSI, Millennium Pharmaceuticals (Nasdaq: MLNM) -- despite likely FDA approval of leukemia drug CAMPATH -- and others. They're very highly valued. By the way, I own shares of HGS, as well as Celera.
TMF Centaur: Well, in the Fool's Guide to Biotech Investing, we talk about how to try to measure the time value of a drug that it is Phase 2 right now based upon the size of the market and the odds of approval. HGS is very different in that it's not being valued solely on the size of its pipeline, but the potential value of all of its patents on therapeutic proteins. That's a different game altogether, and that's a game that most individual investors probably shouldn't play.
TMF Tom9: Because it's an open question whether new genomic and proteomic information will mean that HGS, privately held ZymoGenetics -- whose CEO we recently interviewed -- and Genentech (NYSE: DNA), who are the three main therapeutic protein patent applicants, will have valuable patents or may need to revisit their data. Zymo will be a big test of the validity of Celera competitor Incyte's data.
Watch the drug pipelines
TMF Centaur: I think that if the market continues to demand profits from every company, it will be the companies that have large clinical pipelines and late stage drugs that will be the big opportunities for Fools willing to go against the tide. Further, in the Fool's Guide to Biotech Investing, we talk about tiers of risk, so that investors can really understand how inherently risky the businesses are that they are considering putting their money into.
TMFTardior: Care to name names?
TMF Centaur: Some interesting names of net yet profitable companies with large pipelines are ICOS (Nasdaq: ICOS), Gilead Sciences (Nasdaq: GILD), and Texas Biotechnology (AMEX: TXB). But again, only if the market drives the price down in some Pavlovian profit reflex do these companies become big opportunities. They probably aren't there yet.
Last words for biotech investors
TMFTardior: What one thing should every biotech investor keep in mind?
TMF Centaur: The one final thought I'd like to leave on the table is that biotech investors like all investors, need to have a framework and apply it consistently in their investing. As long as the framework is rational, and they have the discipline to apply it, the market's turbulence will not coerce them into making poor investment decisions.
TMF Tom9: Biotech is absolutely fun and fascinating, and by all means follow it, as you can through the Fool's biotech news page. But I'd pound the table that it isn't for the risk averse. Follow Zeke's advice and have an investing strategy whether you are a more aggressive, risk-taking investor, or a more conservative investor. Both kinds can have excellent strategies. But biotech investors should know that significant risk is part of the landscape -- unless you buy big drug makers -- Big Pharma -- and assume they will benefit from biotech.
Feedback about News & Commentary? Please send mail to news@fool.com
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schon ein, zwei tage älter... aber interessant!
Do biotechnology stocks represent opportunities or pitfalls? Four Fools sat down to share analyses. Their verdict: It's a sector for investors able to act like venture capitalists and take huge risks. Above all, you should know your risk tolerance, have an investing plan, and learn all you can first -- before investing.
Motley Fool Research: Industry Focus 2001
InDepth: Biotechnology
By Motley Fool Staff
December 22, 2000
TMFTardior: We're here to talk about biotech investing. (We examined pharmaceuticals at length in a separate discussion.) Tom, you examined biotech in The Motley Fool's Industry Focus 2001.
TMF Tom9: Right. I covered two biotech industries, biomaterials -- tissue engineering -- and genomics tool makers.
TMFTardior: Could you define the biotech overall for us first?
TMF Tom9: I think biotech is like the Internet. It's about using new life science technologies to transform existing businesses or create new ones. In the long run, biotechnologies will change everything, but there will be very few actual new businesses created. Biomaterials is an example of a new business that biotechnology makes possible, while genomics toolmakers are more of a mix of newer companies, such as Affymetrix (Nasdaq: AFFX), and transformed existing companies, such as Agilent Technologies (NYSE: A) or Corning (Nasdaq: GLW), both of which are melding biotechnology with existing materials manufacturing know-how.
Biomaterials and genomics tool makers
TMFTardior: Why do you focus on those two biotech industries?
TMF Tom9: They're both fascinating and fun to study. For biomaterials, think a distant future of unlimited replacement organs, totally high tech tissue engineering. And then you have the tool makers -- the biotechnology infrastructure players. These two groups represent investment opportunities for ultra-aggressive and somewhat less aggressive investors, respectively.
TMFTardior: How do you mean?
TMF Tom9: Only very aggressive investors with very long-term horizons should consider any biomaterials companies such as Advanced Tissue Sciences (Nasdaq: ATIS), Curis (Nasdaq: CRIS), or Geron Corp. (Nasdaq: GERN), which may not see profits for some time. But companies that are making the tools to mine genomic data -- many are actually profitable, and growing, such as Applied Biosystems (NYSE: ABI), which is Celera Genomics (NYSE: CRA) sister company, and Invitrogen (Nasdaq: IVGN). So biomaterials is an area for investors willing to take some substantial risks, almost like venture capitalists, while investors in the toolmakers may have some, but less risk over a long-term investing horizon. The risk for investors in genomics toolmakers is that many investors find them attractive and so the companies are very highly valued right now. Expect a significant adjustment.
Venture capital-like risks
TMF Parlay: Hey Tom, just a thought, but isn't "investors must think like venture capitalists" one of the mantras that burned many dot-com investors this year?
TMF Tom9: True. And it's also very much a part of Rule Breaker investing.
TMFTardior: Which got toasted this year.
TMF Tom9: Risks abound! Foolish investors only invest in stocks money they can afford to lose and that they won't need for three to five years at minimum. And they don't buy on margin.
TMF Parlay: I guess many people don't realize that while some venture capitalists do make ridiculous returns on their investments (100x their initial investment, etc.) most have quite a few strikeouts where they might lose all of their investment in a startup. For venture capital-like returns, one should be willing to take VC-like risks!
Drug-making biotechs
TMF Centaur: I'd like to explore Tom9's comparison of biotechs to dot-coms a little bit more. While there are some sectors where the comparison can be made, it is a natural phase of all drug-making biotechs to lose money and make heavy investments in R&D until the first drug product is approved or licensed to a larger partner. So, one of the opportunities that I see in 2001 is if the market continues to punish all companies that don't have a clear path to profitability in the next 90 days, some of the development stage biotechs will likely offer some incredible bargains.
TMFTardior: With profits so far in the future...
TMF Centaur: I'm talking about companies with potentially huge drugs in Phase 3 or Phase 2 testing, or companies like Celera Genomics that have almost insurmountable leads and strong competitive advantages that are truly sustainable.
TMF Tom9: Right. Though Celera's competitors, such as Incyte Genomics (Nasdaq: INCY), may not see those leads as quite so insurmountable.
Human Genome Sciences and protein drugs
TMF Tardior: Is the market properly discounting the time to profitability? Human Genome Sciences (Nasdaq: HGSI) for example has a market cap over $8 billion. But won't have a product for years.
TMF Tom9: Though HGS has licensed drug candidates to partners who may bring them to market sooner and share the pie with HGS. Yes, I think we'll see some pullbacks next year for HGSI, Millennium Pharmaceuticals (Nasdaq: MLNM) -- despite likely FDA approval of leukemia drug CAMPATH -- and others. They're very highly valued. By the way, I own shares of HGS, as well as Celera.
TMF Centaur: Well, in the Fool's Guide to Biotech Investing, we talk about how to try to measure the time value of a drug that it is Phase 2 right now based upon the size of the market and the odds of approval. HGS is very different in that it's not being valued solely on the size of its pipeline, but the potential value of all of its patents on therapeutic proteins. That's a different game altogether, and that's a game that most individual investors probably shouldn't play.
TMF Tom9: Because it's an open question whether new genomic and proteomic information will mean that HGS, privately held ZymoGenetics -- whose CEO we recently interviewed -- and Genentech (NYSE: DNA), who are the three main therapeutic protein patent applicants, will have valuable patents or may need to revisit their data. Zymo will be a big test of the validity of Celera competitor Incyte's data.
Watch the drug pipelines
TMF Centaur: I think that if the market continues to demand profits from every company, it will be the companies that have large clinical pipelines and late stage drugs that will be the big opportunities for Fools willing to go against the tide. Further, in the Fool's Guide to Biotech Investing, we talk about tiers of risk, so that investors can really understand how inherently risky the businesses are that they are considering putting their money into.
TMFTardior: Care to name names?
TMF Centaur: Some interesting names of net yet profitable companies with large pipelines are ICOS (Nasdaq: ICOS), Gilead Sciences (Nasdaq: GILD), and Texas Biotechnology (AMEX: TXB). But again, only if the market drives the price down in some Pavlovian profit reflex do these companies become big opportunities. They probably aren't there yet.
Last words for biotech investors
TMFTardior: What one thing should every biotech investor keep in mind?
TMF Centaur: The one final thought I'd like to leave on the table is that biotech investors like all investors, need to have a framework and apply it consistently in their investing. As long as the framework is rational, and they have the discipline to apply it, the market's turbulence will not coerce them into making poor investment decisions.
TMF Tom9: Biotech is absolutely fun and fascinating, and by all means follow it, as you can through the Fool's biotech news page. But I'd pound the table that it isn't for the risk averse. Follow Zeke's advice and have an investing strategy whether you are a more aggressive, risk-taking investor, or a more conservative investor. Both kinds can have excellent strategies. But biotech investors should know that significant risk is part of the landscape -- unless you buy big drug makers -- Big Pharma -- and assume they will benefit from biotech.
Feedback about News & Commentary? Please send mail to news@fool.com
-----
schon ein, zwei tage älter... aber interessant!
