Marksans Pharma & Biotech Wave
Abraham George Market Musings
I have always felt the new generation of technology companies and biotech are the places to be for the best opportunities in investments. While it was much easier to find technology companies, I haven’t done much work on biotech companies.
Actually the opportunities are much more in biotech if you can and are lucky to find the right ones. If you are not investing in medicine biotech or drug makers you are missing out on a massive part of the economy. Health care spending makes up more than one sixth of the entire US GDP. Many investors buy biotech by buying into one or two of the blue chip pharma companies like Pfizer or Novartis. Or they buy an exchange traded fund, like the iShares NASDAQ Biotech fund (IBB) which holds a basket of more than 275 biotech and specialty pharma companies. Both choices can be hugely profitable but if you are looking for outsized returns from the biotech sector, you need to dig deeper.
As an analyst mentioned, “If you catch just one biotech bull market in your life time, you may never have to work again”. These opportunities will come from only one percent of all the biotech sector. Finding them is practically impossible. But more than any other sector, biotech companies show off their future products. Therefore investors can get a glimpse of which companies have the best prospects.
Since many years the business model has changed for the Big Pharma companies. Big pharma was paying the research costs for so many clinical trial failures. Instead the new strategy is to let investors take the risk. Then if there are signs of success the Big Pharma will step in to buy the successes. As retail investors the hard part is finding the successes before the Big Pharma whales can beat us to them. There should be many but there are three cardinal guidelines when deciding on a company coming out with a new drug.
Since there are many failures as investors we should be focused on a company that comes out with a drug that has minimal side effects. The drugs we back could still be a supplemental drug even if a better treatment is developed in the future. Has strong positive effects - meaning the drug works and does what doctors need it to do. Huge market potential - We want to be focused on drugs that can help hundreds of people per year, if not millions. But the most important thing is this. We need to focus on early stage clinical trials. These are phase one and phase two trials, when researchers have moved past animal testing into treating people with the diseases. By this time you should have developed enough informational edge. You don’t wait for anymore answers. Instead, you predict the future.
I give you a real life example. Some time back a very close friend of mine alerted me to an Indian pharma stock named Marksans Pharma. He was very impressed with their corporate governance and so was I. I didn’t have money at that time, and it slipped my mind. But I did tell about it to my niece and a few other friends who all invested. Last Friday it was announced the promoters have issued 364 crores Rs warrants to expand their European and US business. Last Friday, the stock was up 20% and it is more likely it will be up on Monday as well. With the warrant prize at 74 it is very unlikely prices will go below that now. Now, that is what I call “creating your own luck”.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.
Laurus labs, Dcal, Neuland labs few are good
Btw, nice pic