Investing in biotech stocks - My experience so far

BrockStoker

As for my original dilemma about AZN , I have talked it over with my portfolio manager ( who still feels AZN may have reached a peak and may not fare well if the joint-venture Covid vaccine trials come to nought). But I am going with the feelings that I have ----and which I needed to hear you say too before I proceeded. My 4,000 AZN shares will now continue to be held indefinitely, together with my sizeable Alexion and Cipla holdings----now likely to be joined by Arrowhead ( I just cannot decide on a number of shares to go for, as I don't want to take too much risk in a sector where , though poorly represented in overall portfolio, is doing so well.

My own strategy, if I'm unsure, is to dip my toe in first. I've been buying blocks of 50 ARWR at a time, trying to average down the price I paid, although technically I'm averaging up (in relation to when I first bought it at under $20). It all comes down to psychology. If ARWR continues along the course it's on it will surpass $1000 a share in a few years, so buying at $45 vs $55 shouldn't make much difference. Of course, what really matters at the end of the day is the total number of shares.

Nothing is certain and it could all go wrong, but I think that is highly unlikely. It could still get volatile again, and you could end up in the red for a while, so keep that in mind. Personally I will buy if it goes below around $45, but I'm not sure that will happen again. Wall Street/the markets are unpredictable, but I believe holding on will eventually be very well rewarded.

Perhaps it is because I have never had interest in science, always having taken Arts subjects throughout school, higher and further education, that I have not become knowledgeable about biotech companies----I certainly feel well versed in all my other sectors' companies, their structure and management, plans, competition, etc etc. But now I research Vortex and protein deficiency, I am feeling a need to do some serious research on the goings-on in the biotech world.

I also have a passion for the arts, and perhaps that helps to see things from different perspectives, which could be an advantage.

I'd highly recommend going back through the ARWR message board:

https://finance.yahoo.com/quote/ARWR/community?p=ARWR

At least go back a couple of months, but the further back you can go the better. Unlike most other YF message boards there are some very knowledgeable people/annalists posting there, and between them, the standard of due diligence is very high. Like all public forums there are some moronic posters that need muting, but most good posters are easy to spot by all the likes they get.

So I thank you for that spur which I needed and your encouragement, and especially your faith in AZN. Sometime , when you have a moment, you may be able to tell me your views on whether I am following a Teva  path with my holdings in Cipla ! But you are always being asked such questions on this site, I think you should start charging fees !

I would sincerely welcome your more in-depth reasons for choosing Orchard, a company which has

fallen by over 60% in the last 12 months.

Have a look here - It outlines the case for Orchard:

https://seekingalpha.com/article/4377854-gene-therapy-stocks-buying-opportunity

There is also a recent article on Teva if you look here:

https://seekingalpha.com/stock-ideas/healthcare?page=1

Scroll down and clear cookies if need to access article/s.

SA writers usually do a good job in outlining the main points to note, but sometimes overlook significant points. Never the less they tend to be better than MF and all the other Wall Street analysts.

I assume you have a dedicated biotech portfolio; and then you have a non-biotech portfolio.

Yes, pretty much. I have the biotech (95% anyway) stock portfolios, but I have a couple of fund portfolios too which are the core of my investments. The funds are heavily biased toward tech (about 15%), and biotech/healthcare especially witch makes up about 30 or 35% of the fund portfolios. I'm also currently holding a fair bit of cash, which will be used to buy a new house soon, and once the old house is sold I will invest in some more balanced/global assets to balance out the large overweight sector holdings a bit.

Once again I thank you very much for taking time to answer my original question, and much more, and for your patience with a biotech dunce. Thank you, Brock; I am sure I will reach out to you again as various aspects of biotech occur to me ( I can picture you wincing  ).

Once again, happy to help, but keep in mind it'll be a year since I bought my first stock at the end of this month. So far the strategy has worked, but only time will tell if I really am right.

At the end of the day it's the science that is most important, and the science should lead the business (to make profits) if it is good. If the science does not work, then a stock is doomed from the start. What we have with ARWR is CONSISTENTLY very strong science/data - better than it's RNAi competitors (DRNA, ALYM, etc). What also sets it apart from the competition is the CEO/management who seem to have found just the right balance, and know just what they need to do to make the company/science pay for itself whilst at the same time moving forward at a significant clip that it catching some unawares it seems. This minimizes dilution risk (a big risk for many small-mid size biotech share holders) and ensures that the company gets in quick to capture market share before someone comes along with something better.

One key thing, that makes me bullish, is the preclinical data, and how it relates to the clinical data we've seen so far. Basically, from what we've seen so far, the preclinical data (in animals - mice and sheep) has consistently under-performed the clinical data by a significant margin. In other words, if it did good in mice/sheep, then it did great in humans, and we have seen some GREAT preclinical data. In the next weeks/months we will start to see what that preclinical data translates to in the clinic. Management are hinting that there will be "wows", and so is the track record.

As I said, it's the science that matters, and one aspect to consider is this:

Unlike most other therapies/medicines, RNAi tech is actually making use of (tapping into) a pre-existing pathway our bodies developed to fend off viruses (and possibly other external threats?). Most drugs are basically "brute force" or using a "sledge hammer to crack a nut" which is ineffective (comparatively) and results in unwanted side effects, while RNAi is like accurately hacking in to the body's own "dimmer switch" system to turn down (or off) the things (usually proteins) that are the cause of the illness. It's a very precise and elegant way of doing things, and any scientist will tell you, when you come across these things, you need to take note.

IMHO the above, virtually totally de-risks ARWR, which is why I'm willing to invest a sizable amount in it and not be too worried about it. WS does not apreciate this angle, and how powerful the TRiM platform is at churning out new indications. Even if one or two do not pay off, others will, and with a rapidly expanding pipeline that is second to none in this size of biotech, it's a no-brainer for me. There are other reasons too, but I've outlined what I believe to be the most important.

coachman12

Thank you so much for the above post, Brock. You have gone to considerable time and trouble to provide me with what I believe is essential reading. Thank you, too, for the valuable links you have listed---I have read them all with great interest and will follow them up by doing further research myself. It gave me a new perspective and confidence to know that your educational background is "Arts-based" like mine----I never thought I would have any substantial confidence in the biotech portion of my portfolio, albeit that it is a relatively low % of my overall portfolio ; I no longer think like that after listening to you and starting to do my own research.
Today I took the plunge and added 500 Arrowhead shares ( at $49.2 ) as the 4th company within the biotech sector of my portfolio, which compares with about 6 on average in each of about 10 sectors in which I hold shares. I have a long way to go before I will be fully au fait with my biotech companies, as I do with companies such as Ocado ( my trusty favourite that I have invested in since Day 1), Aviva, BP, Cigna, Pinterest, Experion, Unilever, etc etc. But today I have begun on the journey of following all the developments relating to Arrowhead, thanks to your comments and the links you kindly provided. I'll keep in touch with your thread here if that's OK , especially on notable anniversaries of my decision to hold on to all my 4,000 AZN shares and to buy my first Arrowhead shares. Thanks again, Brock, and good luck with all your dealings, whether within your biotech portfolio or within your wider portfolio.
PS-I will be following Orchard with crossed fingers for you.

BrockStoker

My pleasure coachman, and welcome aboard the ARWR express

I think you will quickly start to understand the sector better if you keep up the reading. You don't need to be a biologist/bio-chemist to be able to follow these companies - but I think it helps if you have a rough idea of the mechanisms of action, and basic understanding of how to compare competing treatments. All of that is done for you on the ARWR YF message board.

More importantly, a rough grasp of how the tech is changing is crucial at this stage I think. Basic simplification (I'm not sure how accurate this is, but I don't think it needs to be perfect), but I think we can look at drugs in terms of generations. The first generation would be things like penicillin/aspirin, followed by the second generation of small molecule drugs like paracetamol etc. The third generation (also small molecules) includes the more standard drugs that you'd get prescribed by doctors today. The fourth generation is where we are now, at the cutting edge. Small molecules are getting pushed aside by things like monoclonal antibodies and gene therapies/RNAi which are more targeted (fewer side effects), and more effective.

This makes me weary of the smaller biotechs that are heavily invested in small molecule tech. Like we saw the other day with VRTX/ARWR, the cutting edge tech is already starting to take bites out of the small molecule focused companies. It's one of the reasons I went from holding over 20 companies in March to about 13 currently. For big pharma like AZN it's not such a problem as they have plenty of cash that can be used to make deals with companies like ARWR, but I would be worried about companies like Teva who rely on small molecule generics and don't have the cash to make deals like BP. That said, I still hold some biotechs (eg BCRX and OMER) that are working on promising small molecules, and hopefully they will still be viable treatments for a few years, but I will keep a close eye on them and the competition, with an eye to selling them if the threats become more tangible.

For comparison, contemplate this:

ARWR recently (a few weeks back) released data for it's HBV (Hepatitis B virus) treatment, for which the current SOC (Standard Of Care) is dire TBF - the current treatments have horrible side effects and do little to even control the condition. The data released was early data from a phase 2 clinical trial, and it showed a very significant reduction (considering the short time since patients were dosed) in harmful protein associated with the disease (while at the same time having few if any side affects). So much so, that there is a realistic possibility of FCs (Functional Cures) with continued treatment. That really is a big "WOW" considering how far away the competition is!

As per Bourbonisbest's post (now 5 days old) on the YF MB, the next installment of data from HBV trials is due very soon, along with many other readouts:

Quote:

These should all take place in roughly the net 60 days.

APOC3 readout
ANG3 readout
LPa readout
3989 HBV readout
AAT readout
update on COV 1, 2, and 3
muscle or COPD target moving forward

Additional data on any of the above during first half of 2016 and potential POC regarding:

HSD
ENAC
HIF2a

Note: I think he meant to say 2021 not 2016!

That is a lot of readout's for such a short space of time, and if the excellent data continues, I think the share price is likely to reflect this. It's hard to pick which ones will move the needle, but the 6 month biopsy data for ATT (if good - and I think it will be) should be one that will judging by the reaction we have had already (50% cumulative upward spikes in SP, first from ARWR trial data readout, and then when VRTX ditched their trial).

Now also consider that by 2023 ARWR is forecasting that they should have 20-30 treatments at clinical stage (ie phase 2 or 3).

Most of these are predicted to have peak sales of between $1-10 BN per year. Let's say (rather conservatively) that they have 20 treatments approved, and peak sales last 2 years, with 2 years of "1/2 peak sales", and an average of $3BN per year at peak. By my calculation that is $180 BN. I'm not even taking into account that some could easily have peak sales of $10BN+ (the HBV market is huge for example - well over 10BN - and we easily have the best in class treatment). We should realize those profits between 2025-2030.. and all the while new treatments will be steadily added.

ARWR's current market cap is $5 BN. $180 BN divided by $5 BN is 36. Edit to add, that translates to a share price of $1800.

Now I'm just doing calculations like this for myself for the first time, so take it with a pinch of salt, as I've probably overlooked something, but I think it's in the right ball park more or less.

Exciting times ahead for Arrowhead!

One last bit of advice regarding smaller biotechs in general (including ARWR) - Don't set any stop-losses as volatility will likely take them out.

Anyway, its nice to have someone else on this forum to discuss these things with, and if you (or others) need any pointers or help understanding the science, I'm more than happy to help where I can.

In other news, Orchard popped yesterday on good news, so I'm in profit now on all portfolios

https://finance.yahoo.com/news/orchard-therapeutics-receives-positive-chmp-100000276.html

coachman12

Once again, Brock, it is a big thank you.
I found your simplified "generations" explanation to be particularly helpful for someone like me whose main knowledge lies in other sectors of their portfolios.

For some time, I have been in a position where, generally, I am sitting back with a portfolio that seems as safe as that word ever applies in the world of shares, and I make few changes of any major significance, whilst just keeping my eye on notable company developments in my portfolio.
Now I have a new and most interesting diversion in learning more about a new biotech shareholding and also having an incentive to become more knowledgeable about the whole sector, including my three other more substantial biotech holdings in addition to the 500 Arrowhead shares. The Forum to which you pointed me is particularly interesting. Thank you. Let's see how their price progresses.
Before leaving you in peace for a while, is it an absurd question to ask whether Arrowhead is a likely candidate for a take-over by.....let's say Johnson and Johnson ( in view of the Janssen connection) ?

Finally, congratulations on your Orchard success bringing you profit on all fronts. 

BrockStoker

Before leaving you in peace for a while, is it an absurd question to ask whether Arrowhead is a likely candidate for a take-over by.....let's say Johnson and Johnson ( in view of the Janssen connection) ?

That's an easy one, and definitely not an absurd question. CEO Dr. Christopher Anzalone is on record as saying "There is no check big enough". That is what killed the rally that ended in late November last year, which was based purely on take over speculation. He wants to take it all the way in other words.

Not really related to the above, but here is a relatively recent article where he talks about Arrowhead's future:

https://www.bioprocessonline.com/doc/does-rnai-have-a-future-beyond-liver-disease-0001

I had the link saved, forgot about it, and only just read it tonight!

Edit to add: The links in that article are also worth clicking.

Finally, congratulations on your Orchard success bringing you profit on all fronts.
Thanks coachman. Quite a modest profit so far, but always nice to be in the green soon after buying a stock. I do like to find bottom, or at least get close.

BrockStoker

Coachman - In case you missed it (there was a link in the comments section of one of the articles), there is also a podcast/interview with CA here where he talks more about what ARWR is doing with RNAi tech:

https://www.bioprocessonline.com/doc/arrowhead-pharma-pres-ceo-dr-christopher-anzalone-on-taking-rna-interference-beyond-the-liver-0001

coachman12

BrockStoker said:

Coachman - In case you missed it (there was a link in the comments section of one of the articles), there is also a podcast/interview with CA here where he talks more about what ARWR is doing with RNAi tech:

https://www.bioprocessonline.com/doc/arrowhead-pharma-pres-ceo-dr-christopher-anzalone-on-taking-rna-interference-beyond-the-liver-0001

Yes, thank you Brock. I found Dr Anzalone to be likeable, enthusiastic and easy to understand. 
I am coming to terms with RNA interference in simple terms and I went back as far as Nobel Prize in 2006. I am also looking at the "competition" such as Moderna and Ionis. It's all interesting for someone who thought he was a lost cause as far as science generally was concerned given my educational background, which omitted science subjects long before even A Level stage.
It seems to me that whichever company moves fastest from liver research to other organs will have a tremendous amount of leverage. But what do I know ? I'm just enjoying this new burgeoning knowledge to which you have introduced me. Perhaps one day I will have more than 4 biotechs in my 10 sector portfolio. I'd have doubted that a few weeks ago but now...........?
Look forward to swapping news over the months Brock ( though you will probably get all the info before me). Thanks again for a little bit of a new lease of life on my rather staid long-running portfolio, which overall is very conservative/blue chip oriented within all its sectors. 

BrockStoker

Coachman,

Here's a quite good (very dumbed down) vid about RNAi which I posted earlier in this thread, in case you missed it:

https://www.youtube.com/watch?v=Vh3-NHdjnyQ&feature=emb_logo

I did hold Moderna (if you were not aware) previously, but decided to get out as I lost confidence in them, and I already had a significant profit. I didn't like their secretive nature, and I'm not convinced their vaccine will come to anything - perhaps it will, but it seems like a long shot to me given how many other vaccines have struggled. Also they are not an RNAi focused company, although they recently bough an RNAi asset from another company. They also seem very slow (at least compared with ARWR) at expanding their pipeline, and the process of trialing/getting drugs to market. While ARWR has not yet got anything to market, the speed of progress is quite astonishing, and I think we will see many drugs getting to market in a short space of time, all in one big "splurge". ARWR has been busy (quietly) "staking their claims" in many indications. I don't think companies like Ionis will be a threat, although they may get one or two indications to market. ARWR is just too far ahead for the competition to catch up, and all that will be left on the table for others are scraps.

If you read back over the thread you may have noticed I mentioned that ANYL and DRNA (previously arch enemies) had teamed up in order to take on ARWR, but I think this is just a last ditch effort to try to salvage what they can from a situation that is becoming increasingly dire for them. If there is any threat from competition it's from this partnership, but I honestly think they are just clutching at straws. If you compare recent performance, ARWR has had cash inflows, while money has steadily been flowing out of the competition as the market has started to realize what ARWR investors already know. The fact that ARWR is now starting to move out of the liver, as you mentioned, is just ARWR accelerating away from the competition even faster.

How do you monitor your stocks/portfolio? I recommend setting up a free account with Yahoo, and you will get the news feeds for all your stocks. There's no reason that I should get all the news first!

Speaking of which, nice to see the good news for AZN:

https://finance.yahoo.com/news/astrazeneca-wins-two-approval-recommendations-062334052.html

Interesting to see that it's down on good news. That's usually ARWR's trick!

coachman12

Thanks again, Bram Brock   
The RNAi vid is fascinating and it all adds to what I learn every time I look at the subject. I have certainly got a firm grasp of the basics now, but I will try to go further. 
I could not, until corona restrictions, find enough time to make the obvious interest in my portfolio into more than a knowledge based on broad, significant developments and advice ( which makes me work on research because I never take advice until I know it is the same advice I would give myself). I've already got my personal advisor smugly saying "told you so" about my decision to ignore his advice to sell off some of my AZN about a week or two ago-----but I've seen too many short-term downs to be bothered in the least. Yes, Brock, two pieces of good news for AZN yesterday. 
At the moment, I am trying to work out why Ionis is not doing well over a lengthy period of time, when there was a time ( from looking at the archives) when they were heralded as a far more interesting  prospect than Arrowhead. My research continues. I now look at the Yahoo ARWR every day.
You ask how I monitor my holdings. Well, I get a very detailed report and newsletter from my personal advisor; and an urgent email if there is a major development. Although I spent a long time, often through long nights, setting up my entire portfolio by myself virtually from scratch, I finally reached a point where I was content about all the things that are important to me, particularly sector diversification and balance----and to be honest I later reached a stage when I was too busy to personally monitor all the portfolio which I had lovingly built up all alone; I reached a stage where I needed help in the monitoring process. But of course I still have shares that are closest to my heart, like Ocado which I bought into upon floatation and have personally followed closely ever since ( buying more during Covid as shoppers became more and more aware of the future of shopping----I hope !). But I have found that I do not need to closely monitor every day or week on others that I regard as safe ( nay perhaps boring) shares such as Aviva, Gigna, Pinterest, Unilever, etc, etc---my newsletter and complete detailed maths charts suffice quite well every month ( knowing that I will be warned immediately at any time when there are really major events affecting my portfolio). 
My wife and I  have been in lockdown in a rather secluded holiday cottage where we were staying when corona began after a long Xmas/New Year break, and we've decided to stay here for the coming winter, after which a vaccine may have arrived (hopefully from AZN/Oxford ! ).
But , being locked away , I have had more PC time to review all my portfolio ( and found I am still basically very happy with overall content and performance), but had more time to "dabble" again ,"mess around" with the Latin American markets,  do some "fine-tuning" and find myself, out of the blue, interested in and excited by an alien (to me) sector (biotech) because of my time on MSE and reading your fascinating posts. And I have a real excitement about Arrowhead. I am seriously thinking of buying more shares sooner rather than later. An upward trend today, I see. 
And I look at Orchard and hope that prices will make a break-through from their 6 month plateau.

BrockStoker

Coachman,

Re "Bram": Yes, seems like I have written a few mini-novels recently. It's not unusual if I'm passionate about a particular subject, although more normally I'm much more reserved!

AZN - I can understand your advisor thinking there could be dips to come. CV stocks have been made that bit more volatile. But again, more good news so I hear - AZN vaccine trials could re-start very soon. I think even if the vaccine fails, the dip will be transient/short-lived.

If you've been reading ARWR YMB then you should have a good idea now why Ionis is not going to be a threat. There have been a few posts on the subject.

Regarding covid/the lockdown - it has been a bit of a blessing in disguise in many respects for me. It's certainly presented some excellent opportunities, and like yourself, has given me time to delve a bit deeper into things than perhaps I normally would. There have also been challenges for my wife and I, but I think we will come through relatively unscathed, and there are certainly many others out there that have suffered much worse that us due to this situation. I hope you have been coping OK!

It sounds like you have the monitoring under control then. I'm a little OCD when it comes to watching my holdings/the market, and like to see every twist, turn, dip, and bit of news, even though I probably don't need to. Certainly with ARWR, I think that is a stock that can easily just be left to do it's thing over the next few years, without the need for constant supervision.

I think if you are planning buying more ARWR stock you might want to move fast. Perhaps I'm wrong, and there will be some dips, but I would not count on it, at least for the moment. It certainly seems to be gaining momentum, and I would not be surprised to see it do something similar to what AXSM did at the end of last year - that was a 3 bagger for me (if I'd sold at the top).

If you are contemplating other stocks in the sector, I still like TXG (picks and shovels for the genetic revolution that is just getting warmed up) and ONEM (slightly more risky I think, but with much potential for growth if they can get it right). I only sold them because I wanted more ARWR, but if I had the extra cash, I would have kept them. I also think EVFM and AMRS (both of which I have significant holdings in) could make serious money, but they are a bit more risky.

Anyway, great to see ARWR making strong moves up. It looks like you got in at just the right time! If I might ask, what does your advisor think about ARWR?