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The 30-Year-Old CEO Conjuring Drug Companies From Thin Air


giofranchi
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Sounds like a perfect acquisition for VRX right?

 

Exactly opposite of what VRX does.

VRX is in the business of buying "net nets" or "melting ice cubes" and squeezing as much as possible out of them

 

This guy on the other hand is setting up something similar to BRK for drug companies :). long term compounder with venture capital like returns.

 

oddball- I looked, but there is no font for sarcasm in here.

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Sounds like a perfect acquisition for VRX right?

 

Exactly opposite of what VRX does.

VRX is in the business of buying "net nets" or "melting ice cubes" and squeezing as much as possible out of them

 

This guy on the other hand is setting up something similar to BRK for drug companies :). long term compounder with venture capital like returns.

 

oddball- I looked, but there is no font for sarcasm in here.

 

Funny, I was looking for the same font...

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I should probably do more digging before speaking but it sounds like he is riding the biotech bubble right? Buying some orphaned pharma product and then ipo-ing it.

 

Much more skeptical of this business model than VRX. But who knows, it might work.

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I should probably do more digging before speaking but it sounds like he is riding the biotech bubble right? Buying some orphaned pharma product and then ipo-ing it.

 

Much more skeptical of this business model than VRX. But who knows, it might work.

 

He's worth $700M. For him, it already has worked.  As long as he holds on to $50-$100M or so and puts it into something safe, even if it stops working he is all set.

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I haven't looked into it beyond the article but from a social point of view I much rather prefer this company to Valeant. If he launches 20 IPOs and 18 fail but 2 major drugs get discovered that would have been ignored. I think that's worth it.  Valeant on the other hand is in the business of shutting down research.

 

[RANT]

Pharmaceutical companies are in the business of making money.

 

Hypothetical example

A pharmaceutical company had 2 candidates

1. Something that would cure a person.

2. Something that would need to be taken daily to control symptoms.

Company will go for the second option because there is more money to be made that way. Any cures will be shelved/cancelled. Cures don't make money. A cure is a way to lose a customer. If this guy succeeds(and I hope he does) it will force companies to look deeper into their vaults at stuff they have shelved/cancelled/ignored in case there might be a few billion dollars lying around there. The biggest winner could be the patients who might end up using a drug (which may never have existed if not for this guy)  that might relieve their symptoms or possibly even cure them.

 

This is also why no research is done of herbal meds because the company cannot patent it and so cannot make any money. They will try to do any and everything possible to discredit any alternative cures.

[/RANT]

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This and VRX reminds me of the recent Buffett comments in the last AR.

 

Before I depart the subject of spin-offs, let’s look at a lesson to be learned from a conglomerate mentioned

earlier: LTV. I’ll summarize here, but those who enjoy a good financial story should read the piece about Jimmy

Ling that ran in the October 1982 issue of D Magazine. Look it up on the Internet.

 

Through a lot of corporate razzle-dazzle, Ling had taken LTV from sales of only $36 million in 1965 to

number 14 on the Fortune 500 list just two years later. Ling, it should be noted, had never displayed any managerial

skills. But Charlie told me long ago to never underestimate the man who overestimates himself. And Ling had no

peer in that respect.

 

Ling’s strategy, which he labeled “project redeployment,” was to buy a large company and then partially

spin off its various divisions. In LTV’s 1966 annual report, he explained the magic that would follow: “Most

importantly, acquisitions must meet the test of the 2 plus 2 equals 5 (or 6) formula.” The press, the public and Wall

Street loved this sort of talk.

 

In 1967 Ling bought Wilson & Co., a huge meatpacker that also had interests in golf equipment and

pharmaceuticals. Soon after, he split the parent into three businesses, Wilson & Co. (meatpacking), Wilson Sporting

Goods and Wilson Pharmaceuticals, each of which was to be partially spun off. These companies quickly became

known on Wall Street as Meatball, Golf Ball and Goof Ball.

 

Soon thereafter, it became clear that, like Icarus, Ling had flown too close to the sun. By the early 1970s,

Ling’s empire was melting, and he himself had been spun off from LTV . . . that is, fired.

 

Periodically, financial markets will become divorced from reality – you can count on that. More Jimmy

Lings will appear. They will look and sound authoritative. The press will hang on their every word. Bankers will

fight for their business. What they are saying will recently have “worked.” Their early followers will be feeling very

clever. Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you

how old-fashioned that math is --- zip up your wallet, take a vacation and come back in a few years to buy stocks at

cheap prices.

 

 

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This and VRX reminds me of the recent Buffett comments in the last AR.

 

Before I depart the subject of spin-offs, let’s look at a lesson to be learned from a conglomerate mentioned

earlier: LTV. I’ll summarize here, but those who enjoy a good financial story should read the piece about Jimmy

Ling that ran in the October 1982 issue of D Magazine. Look it up on the Internet.

 

Through a lot of corporate razzle-dazzle, Ling had taken LTV from sales of only $36 million in 1965 to

number 14 on the Fortune 500 list just two years later. Ling, it should be noted, had never displayed any managerial

skills. But Charlie told me long ago to never underestimate the man who overestimates himself. And Ling had no

peer in that respect.

 

Ling’s strategy, which he labeled “project redeployment,” was to buy a large company and then partially

spin off its various divisions. In LTV’s 1966 annual report, he explained the magic that would follow: “Most

importantly, acquisitions must meet the test of the 2 plus 2 equals 5 (or 6) formula.” The press, the public and Wall

Street loved this sort of talk.

 

In 1967 Ling bought Wilson & Co., a huge meatpacker that also had interests in golf equipment and

pharmaceuticals. Soon after, he split the parent into three businesses, Wilson & Co. (meatpacking), Wilson Sporting

Goods and Wilson Pharmaceuticals, each of which was to be partially spun off. These companies quickly became

known on Wall Street as Meatball, Golf Ball and Goof Ball.

 

Soon thereafter, it became clear that, like Icarus, Ling had flown too close to the sun. By the early 1970s,

Ling’s empire was melting, and he himself had been spun off from LTV . . . that is, fired.

 

Periodically, financial markets will become divorced from reality – you can count on that. More Jimmy

Lings will appear. They will look and sound authoritative. The press will hang on their every word. Bankers will

fight for their business. What they are saying will recently have “worked.” Their early followers will be feeling very

clever. Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you

how old-fashioned that math is --- zip up your wallet, take a vacation and come back in a few years to buy stocks at

cheap prices.

 

But not 3G?

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I should probably do more digging before speaking but it sounds like he is riding the biotech bubble right? Buying some orphaned pharma product and then ipo-ing it.

 

Much more skeptical of this business model than VRX. But who knows, it might work.

 

Of course it is easy to dismiss him as just another hedge fund wonder-kid who is riding the biotech bubble and is destined to fail miserably as soon as that bubble bursts… And that seems exactly what everyone has done!

 

But I like the strategy: there might actually be drugs which are resting on the shelves for reasons that have nothing to do with their intrinsic worth. If you can find and buy some of them, it could become a very lucrative business. Moreover, lots of R&D has usually already been done on those compounds, therefore, even if some more R&D investment might be needed, the risk to sink too much money in any project remains low.

 

Do you know many other entrepreneurs so young, who have already articulated such a clear strategy, and who have already such a good track record? I don’t. Therefore, I don’t think I am dismissing him as easily as most of you are doing… Instead, I’ll keep watching him closely! ;)

 

Cheers,

 

Gio

 

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Gio - I couldnt tell from the article what his track record was. Has he taken an orphaned drug and made it a success yet? How big of a sample size is needed to prove that he can do this consistently?

 

The strategy seems to be buying lotto tickets. Maybe he has an edge but the burden of proof should be really high imo.

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Gio - I couldnt tell from the article what his track record was. Has he taken an orphaned drug and made it a success yet? How big of a sample size is needed to prove that he can do this consistently?

 

The strategy seems to be buying lotto tickets. Maybe he has an edge but the burden of proof should be really high imo.

 

Well, from the article we get to know that he has found at least two multi-bagger for the edge fund he started working for when he was 25, and that he was made partner just a couple of years later. The Alzheimer drug is his first attempt on his own, and has already been a great success. If he is buying lotto tickets, he has already won the national lottery at least three times! ;)

 

To me they look much more like very cheap options.

 

Of course, I am not saying I am investing… All I am saying is I am not “dismissing” and I’ll keep watching with interest.

 

Cheers,

 

Gio

 

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