Common Biotech-Newbie Mistakes
Drug programs:
1. “If a drug does something notable in animals, it must be safe and effective for humans.”
2. “If a drug from the same class succeeds, it means my company’s drug will succeed too.”
3. “If a drug with the same mechanism of action succeeds, it means my company’s drug will succeed too.”
Dealings with the FDA:
4. “If a drug has Fast Track status, it means FDA approval is very likely.”
5. “If a drug has a Priority Review, it means FDA approval is almost certain.”
6. “If a drug has an Expanded Access program, it must be safe and effective, so the FDA will obviously approve it.”
7. “If a company has a meeting with FDA staffers and does not issue a negative press release, it means the FDA agrees with everything the company is doing.”
Behavior of company management:
8. “If the CEO says a company is talking to partners, it means a partnership is imminent.”
9. “If a company goes into a period of radio silence, it means they are negotiating a big partnership deal or buyout.”
10. “If an FDA application is started on a rolling basis pending the completion of clinical data, it means the data are positive. The company would not waste so many man-hours of work on the submission if it weren’t.”
11. “If a company is preparing for a launch—e.g. by advertising for sales reps—it means their drug will surely be approved.”
12. “If a company holds an investor conference call on a different day of the week (or a different time of day) from prior conference calls, it means a hugely bullish announcement is coming!”
Miscellaneous:
13. “If a former executive from Big Pharma joins a small biotech company, it means the small company must be a winner!”
14. “If the company’s Scientific Advisory Board has one or two famous individuals, it means the company’s drug candidates must work. These people would not align themselves with a failure!”
16. “If a well known investor or hedge fund owns shares, it means the company will surely succeed.”
17. “If a small biotech company is located in the same town as a Big Pharma, it must be a top candidate for a buyout.”
18. “If knowledgeable posters are bashing a stock, it means they are trying to ‘accumulate’ shares, so I should increase my holding!”
Statistics:
19. "If the trial wasn't halted for futility at the interim the trial must be a success."
20. "If the trial is 'running long' the trial must be a success."
21. "If my company has data from even a small (or post hoc) ph I or ph II then it hugely outweighs the general fact that drugs in similar indications (or using related MOAs or ...) have a very high failure rate in ph iii."
was originally posted on Investors Hub Biotech Values Board by Due Diligence on 01/26/2012.
10/06/17 by BiotechInvest
Question is how to avoid main mistakes and make good money in biotech investment? First of all newbie investors should never believe in statements like “it’s easy to make >100% annual gain in biotech investments”. Everybody who said it is just an ugly liar. If you have +30-35% annual gain in biotech you are already very smart investor. The secret is simple here: well balanced portfolio where you put 20-25 biotechs (both long-term and short-term investment). Short-term portion is usually contains High Risk/High reward biotechs and long-term one has middle/big market cap biotechs with good growth potential. Long-term portion usually doesn’t need frequent corrections but short-term one needs continuous monitoring and often corrections (but of course it’s not a day-trading). The ratio between long-term and short-term is most important thing. 2:1 or 3:1 are acceptable but 1:1 is too risky and most likely will lead to massive losses.
Next question how to choose long-term and short-term stocks? Only one answer: via a deep analysis of science background of each biotech company that you want include in your portfolio. Never follow advises of analysts from big funds, TheStreet, Motley etc. They are not scientists and in their analyses they only repeat some scientific terms and words (like parrots). They can be easy fooled by biotech reps and CEOs that promise some "major breakthroughs and strong effective drugs". As a result they write the papers that mislead all i.e. funds and small retail investors. Recent example is AXON when AXON CEO and his cronies fooled and misled big funds/institutions via false promises that they have an effective AD drug. The drug was ineffective and it was clearly for any scientist with a brain. Funds lose $2B and even never realized that they were fooled. At the same time everybody who knew it got very good gain with AXON by shorting this scam before Ph3 trial results release. However, AXON survived this failure very well (usual for scam biotechs) and still provide very opportunity to make money for smart biotech investors. One more: be very careful when you read the discussions on Yahoo MB (or Conversations now). The majority of participators are paid bashers and pumpers that want to mislead newbie investors. They are completely anonymous i.e. they don't any websites, twitter etc. accounts. Sometimes I write a few posts there but only with one purpose: to test their reactions when they see different opinion about pumped/bashed stocks. Paid bashers/pumpers usually very aggressive when they see opposite opinion and use any aggravating offensive words. It's funny to see their stupid attempts to suppress opinions that dangerous for their lies. But also there some real investors around that see those opinions and make some conclusions. To have more information they can visit my website and finally decide invest or not invest in pumped scam biotech. Hope some of them sold AXON at time and avoided huge losses or even make some money by shorting this scam. Next big scam is ORMP, then may be AVXL (again AD drug).
The list of good biotechs in my 2017 stock picks list or in current portfolio list at Home page.