WHY I HAVE NEVER BOUGHT A DRUG COMPANY
Like the products they produce, drug stocks can be exhilirating to own. Their growth can be fantastic and short-term gains are often through the roof. Unfortunately, these companies can also be incredibly risky. Investors learned that today when shares of Matrixx Initiatives imploded:
Buying and selling stocks is hard enough as it is. If you give me a company that makes paper (a relatively simple product) it will take me days or weeks to break down their balance sheet and thousands of other variables before I can decide whether it is a decent investment. And even after that the odds of that stock outperforming its industry peers are still pretty low. Give me a company that even doctors have trouble understanding and we’re talking about nothing more than full on gambling. Investors in Matrixx Initiatives found that out the hard way today….
I never trade or invest in these companies either, no matter how large or small the market cap. These companies bang up against what is, to me anyway, the most fascinating concept in humanity….”The Placebo Effect”. In the double blind trials some patients taking sugar pills actually experience the same improvement in condition as those on the meds! I think 90% of what they manufacture is a bunch of pooh run through a slick marketing department.
ELAN is another such example. Biotechs are a gamble, unless you are a biologist. And even then you have no idea when this or that study will come out and with what results.
Right along side another high flyer that blew up at the end of April (SQNM)
Drug companies are only OK when they are cheap enough that they are priced like a royalty stream, and you get the pipeline and R&D for free.
Respectfully, I’ll have to disagree. There are ample opportunities in drug companies that offer huge potential gains with low/moderate risk -if you know what to look for and are “pragmatic” in your approach. For example:
- Approved drugs or royalty streams – Can’t “blow-up” and provide a wider-moat against competition; caveat- generics (LGND, SUPG)
- Diversified pipeline; a 200-batting average is enough for huge success if the company is developing a dozen drugs (EXEL)
- Partnerships; typically bring cash and development expense coverage
- Cash; I’ve purchased at least 6-10 companies over the past 6 months for 1/3 to 1/2 of the current cash on hand. The trade was to wait it out for 6 months as the worst news was already discounted. Any positive news (or market sentiment shift) leads to huge gains. Case in point – VNDA, AEZS, PPCO, KERX – all up by multiples of 6 to 15 times over the past 6 months.
I’ll admit I’m biased as I’ve seen gains of over 125% in my portfolio over the past year despite the market meltdown.
Greed,
To each his own. Personally, these companies are over my head, but I have zero background in medicine so that makes sense….
I do have a background in medicine and I can tell you first hand that the drug companies will be fighting an endless uphill battle into the future because we have a bankrupt country and there will not be nearly the money available as compared to the past for drugs. This will propel and accelerate the movement toward natural therapies which is already well underway. It is only ignorant people who take drugs like Lipatore. Viagra because there is a vast amount of research and information available documenting the horrible side effects. Most drugs are a total scam and are very dangerous but have been backed doctors and combined with the brainwashing of the general allopathic medical establishment and gazillions of dollars of promotion.
On the other hand, I have no issue with trading drug stocks and usually prefer the short side but a trade is a trade. I wouldn’t even consider a long term position but in and out for few hours or days has worked out nicely for my trading account.