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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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In the Pipeline

« All the Myriad Ways | Main | Catalyst Catfishing »

May 20, 2004

A Capacious Rat-Hole Indeed

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Posted by Derek

Today's Wall Street Journal kicks off, right in the pole position above the fold, with an article about the total profit/loss figure for publically traded biotech firms, 1990-date. Care to hazard a guess? I surveyed lab colleagues today, and most guesses were something like "Hmm. . .must be a loss, I reckon." One optimist thought they might have been even, or running to a slight profit ("Mostly because of Amgen," he explained.)

Well, the figure is indeed a loss, a 40 billion dollar loss so far. And keep in mind, that's not counting all the venture capital money that's evaporated when companies vanished even before floating stock. An impressive figure!

The natural question is why investors continue to throw money at the sector, and the answer is, as the Journal puts it, "boundless optimism." Reminds me of the chapter title in the stockbroker's classic "Where Are the Customer's Yachts?", titled "Customers: That Hardy Breed." People remember the Amgens of the world, few and far between though they are. As the article points out, a dollar put into Amgen when it went public is worth $165 today. (For comparison, a biotech index fund would have returned 8-fold over that period, and the Dow about 20-fold.)

But there have been a lot more than 165 biotech companies to invest in during that time, so (on the face of it) that 165-to-one payoff is something of a sucker's bet. Of course, we're not just throwing money down on a huge roulette wheel. Biotech stocks are subject to analysis, to a cold-eyed appraisal of their technology and their finances, their burn rates and scientific boards, their patent portfolios and licensing deals and FDA filings. Right? I invest in them too, you know. We're not just buying lottery tickets. We're investing. Right? Anybody?

Comments (3) + TrackBacks (0) | Category: Business and Markets


1. Nick Henriquez on May 21, 2004 5:12 AM writes...

Cheer up Derek,

Even at the (your words) sucker's bet odds these shares are a lot better as an investment than say, the lottery! To my mind, especially when a company wants to go public there's a lot of hype going on which should make pessimists out of investors just to re-inject realism into the various figures.
No amount of cold-eyed analysis can tell from the outside whether certain risk-assessments are realistic (very rare), optimistic or a completely lost fight between the science boys and the marketing boys (that would be a definite sucker's bet).
Judging by the figures in the Wall Street Journal I'd say that either the marketing boys talk faster (true in most cases) or investors will simply have to wait a while longer before the revenues come pouring in (well, it COULD happen, couldn't it?)

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2. David on May 25, 2004 12:08 PM writes...

Overall, I'm way ahead in my biotech investing (more than doubling my money in the past 6 years). However, while the performance of the biotech subsector of my portfolio has more than doubled, guess what the rest of my portfolio has done? That's right, more than doubled.

I've never been convinced you can make more money in biotech than anywhere else. In my view, it's something I'm sort of familiar with, so I'm better off investing in biotech and some other stocks than, say, retail (where I've yet to sell a stock for a profit). The beauty of America is that there are many ways to make money.


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3. Mike on August 21, 2004 7:15 PM writes...

Biotech stocks can be a the best investment in a few years, at this moment I think that are other more profitable stocks.

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