Reflections of Qiu Guolu’s Value Investing Ideas on Biotech

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Value Trap

  1. Outdated, Inferior technology: such as IONSYS, Afrezza.
  2. Commercial failure:
  3. Mediocure follower, non-leader: such as Mirna Therapeutics (eventually reversed merged).
  4. Highly competitive and saturated indications: HCV field after Sovaldi.
  5. Accouting fraud: Valeant.

Growth trap:

  1. Overpay for hot biotechs: Dendreon.
  2. Missed technology path: RG-101 for HCV (Sovaldi took all)
  3. Diversification, no focus: OPK (so many subunits and directions)
  4. Accouting fraud: Valeant

Margin of safety:

  1. broad applications/assets, one must work: DVAX, ABUS, ALNY
  2. value so low that all bad scenarios are priced in: all my picks
  3. back up system: be careful of bankruptcy risk.

True vs false risk:

  1. Perceived risk and real risk:
    1. When price are high vs low
    2. Read into the data: what is real risk in the drug’s data and unmet medical need.
  2. Exposed vs hidden risk:
    1. Risk usually exposed after “bad data”, “clinical hold”, “discontinuation”, “restructure”, “CRL”, “dilution”,
    2. “sector consolidation”, “healthcare reform”, “drug pricing”, “election”.
  3. Fluctruation vs Ruin risk:
    1. Buy cheap;
    2. buy with solid thesis
  4. 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.
    1. Be patient, wait for risk exposure, no guess or anticipating; wait until everyone knows and avoids the risk, and price depressed.
    2. 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).