Biotechnology and healthcare investing

[DocSnowball]

Hoping for some pointers to a personal question that others may relate to as well. I am a physician and educator, completed my MBA with focus areas in healthcare and investing earlier this year, and studied valuation through an NYU course in the summer. I am an active investor with a full time job that I am happy in. It's been helpful to learn randomly one idea at a time, and use my IRA as a learning lab for the last three years while remaining focused in my area of expertise of Infectious diseases. However, venturing outside this little area has been hard. Like many of you, i've progressed from studying ideas to understanding a company to at least trying to map out an industry ecosystem and see how it will dynamically evolve, sometimes the hard way. However, most ideas end up falling into the disconfirmed or too hard bucket.

 

I'm interested in learning more about biotechnology and healthcare related investing and looking for advice on how to build skills both in investing in individual companies as well as building a strong portfolio. Do you invest in these fields at all? Can you share any advice on how to learn further in this sector, and any resources, books, or people who working with or following may help in learning more about investing in these fields. Do you have any favorites or go to people or resources for this sector?

 

Thanks in advance for sharing your thoughts. With gratitude.

[thowed]

I'd have thought one of the best ways to begin is reading Annual Reports (and Quarterly ones) from the various closed-end funds specialising in Healthcare and Biotech.  There are a number in the UK and Switzerland.  Orbimed (US-based) and BB (Swiss) are the two big names, and their listed funds have a lot of commentary and resources.

 

This is on my reading pile, though I  have no relevant background, so I'm sure you'll get much more out of it.

 

There is also the more early-stage stuff, where again you can find some UK permanent capital vehicles with literature.  Woodford Patient Capital Trust - it hasn't done well so far, but I think there are definitely some interesting companies in the portfolio (e.g. Autolus).  And the big UK universities are also supporting this sort of stuff through vehicles like IP Group.

 

I hope that's some help.

 

Let me know if you make any interesting findings!

[DocSnowball]

I'd have thought one of the best ways to begin is reading Annual Reports (and Quarterly ones) from the various closed-end funds specialising in Healthcare and Biotech.  There are a number in the UK and Switzerland.  Orbimed (US-based) and BB (Swiss) are the two big names, and their listed funds have a lot of commentary and resources.

 

This is on my reading pile, though I  have no relevant background, so I'm sure you'll get much more out of it.

 

There is also the more early-stage stuff, where again you can find some UK permanent capital vehicles with literature.  Woodford Patient Capital Trust - it hasn't done well so far, but I think there are definitely some interesting companies in the portfolio (e.g. Autolus).  And the big UK universities are also supporting this sort of stuff through vehicles like IP Group.

 

I hope that's some help.

 

Let me know if you make any interesting findings!

 

Thank you so much. I started with looking at Orbimed, and it is very informative. Will look forward to reading the others in the future.

[nsa122]

I have similar background/interest (different specialty).  Biotech seems like a difficult place to be a value investor with all of the uncertainty and lack of visibility, but I have had the thought that perhaps if you did some bottom feeding by buying shares for less than cash on hand, you are at least getting a discount on what previous investors have paid and effectively getting whatever their intellectual property is for effectively free. There are a few small caps in that situation now, I suspect there were a lot more 2-3 years ago but haven't looked back to see.  Seems like even the smart crowd can be wildly wrong about what ends up working and what not.  I recently bought tiny amounts of CMRX, PRTA and ITRM...welcome to hear your opinion on any of those. Maybe cheap lottery tickets to some extent.  Also own some Gilead, Incyte and Celgene but those are more established/predictable cash flow companies. All of the above may be complete blunders but there's my two cents. There are also some good podcasts around.

[nsa122]

Oh and I bought a little Motif Bio...let me know what you think of that since you've got an ID background :-)

[scorpioncapital]

The main problem I have with healthcare investing is dependence on government or insurance payments for revenue & profits. Almost like industrial companies that depend on government contracts. There are tangential areas such as recurring revenue streams, or areas that are not regulated in the same way. You have to think carefully about competitive advantages, nature of the particular area of investment.

[DocSnowball]

The main problem I have with healthcare investing is dependence on government or insurance payments for revenue & profits. Almost like industrial companies that depend on government contracts. There are tangential areas such as recurring revenue streams, or areas that are not regulated in the same way. You have to think carefully about competitive advantages, nature of the particular area of investment.

 

This is so true. While any industry is subject to these forces, being in healthcare I can understand that it is by no stretch of imagination a free market, rather dependent on the kindness of strangers. However I've been looking at companies trying to make what Thiel would call Zero to One kind of products (CAR-T cell therapies may be an example of this although most are at rich valuations). Most biotech funds I look at are diversified into owning 100s of companies perhaps for these reasons - this level of diversification is not possible for an individual investor who has the philosophy of owning 5-20 very good companies long term. This is partly why it is so difficult to build a good biotech portfolio, and makes me wonder if I should go back to indexing (better to index albeit ex-US for now than invest actively outside one's circle of competence). David Swensen's latest portfolio is 60% VWO and 20% EFA. That says something!

 

@nsa122: without going into detailed discussion here (there is a separate thread in strategies), my experience in owning early stage biotechs making a single or a few antibiotics has been that the companies are having a hard time surviving because 1) big Pharma is not buying them even after FDA approval 2) inpatient antibiotic sales have been abysmal 3) valuations and short selling prevent them from raising cash. Many are trading below NPV. I've invested in those that offer outpatient transition options, and have seen market caps come down to 10-20% of 52 wk highs at present. As you mention, the lottery ticket aspect is either a new reimbursement model or a legislation that offers pull incentives. Whether this is a failed business model or a value opportunity, only time will tell.