- Outdated, Inferior technology: such as IONSYS, Afrezza.
- Commercial failure:
- Mediocure follower, non-leader: such as Mirna Therapeutics (eventually reversed merged).
- Highly competitive and saturated indications: HCV field after Sovaldi.
- Accouting fraud: Valeant.
- Overpay for hot biotechs: Dendreon.
- Missed technology path: RG-101 for HCV (Sovaldi took all)
- Diversification, no focus: OPK (so many subunits and directions)
- Accouting fraud: Valeant
Margin of safety:
- broad applications/assets, one must work: DVAX, ABUS, ALNY
- value so low that all bad scenarios are priced in: all my picks
- back up system: be careful of bankruptcy risk.
True vs false risk:
- Perceived risk and real risk:
- When price are high vs low
- Read into the data: what is real risk in the drug’s data and unmet medical need.
- Exposed vs hidden risk:
- Risk usually exposed after “bad data”, “clinical hold”, “discontinuation”, “restructure”, “CRL”, “dilution”,
- “sector consolidation”, “healthcare reform”, “drug pricing”, “election”.
- Fluctruation vs Ruin risk:
- Buy cheap;
- buy with solid thesis
- successful biotech investment is to take those risks that have been exposed, felt by everyone, with corresponding discount but very little real danger — those “false” risk.
- Be patient, wait for risk exposure, no guess or anticipating; wait until everyone knows and avoids the risk, and price depressed.
- Very little real danger: have to fully understand the company, indication, drug and underline problem. Fully confident that it is NOT a problem (false risk).