Investing in biotech stocks - My experience so far

moneyfoolish

BrockStoker said:

There are also some interestingly suggestive patterns of insider trading which YHFMB poster "Bug" very observantly noted:

1) Chris did not sell shares as he typically does at year end.
2) CFO sells regularly, but didn't sell. Not even at all time highs.
3) Douglas Given gifted shares which he has done before but not often.
4) Chris gifted shares I have never seen him do that.
5) During mid year on the dip the CFO "Averaged in" to all of his option strikes.

All of this just makes me want to buy more ARWR!

I notice that there seem to have been 7 director sales between your posting on January 4th and January 6th. Is that unusual for Arrowhead?

kinger101

moneyfoolish said:

BrockStoker said:

There are also some interestingly suggestive patterns of insider trading which YHFMB poster "Bug" very observantly noted:

1) Chris did not sell shares as he typically does at year end.
2) CFO sells regularly, but didn't sell. Not even at all time highs.
3) Douglas Given gifted shares which he has done before but not often.
4) Chris gifted shares I have never seen him do that.
5) During mid year on the dip the CFO "Averaged in" to all of his option strikes.

All of this just makes me want to buy more ARWR!

I notice that there seem to have been 7 director sales between your posting on January 4th and January 6th. Is that unusual for Arrowhead?

It's not unusual for several directors to sell in a short period.  They're not allowed to trade shares while they have any material information which can affect share price.  For directors in particular, this usually leaves very narrow windows in which to trade.  If a large portion of your remuneration is in share options, you'll want to liquidate every now and again. 

I'm a mere employee and I offload my shares at the first opportunity.  Not a reflection on how I think my company will perform, but due to the fact (a) my strategy involves funds, not shares (b) if I did want to hold shares, it wouldn't be in my employer because I'd lose both assets and job if the worst happened.

csgohan4

This has happened with AJ bell recently with the higher ups selling their shares, caused the stock to drop a bit though. 

tom9980

moneyfoolish said:

BrockStoker said:

There are also some interestingly suggestive patterns of insider trading which YHFMB poster "Bug" very observantly noted:

1) Chris did not sell shares as he typically does at year end.
2) CFO sells regularly, but didn't sell. Not even at all time highs.
3) Douglas Given gifted shares which he has done before but not often.
4) Chris gifted shares I have never seen him do that.
5) During mid year on the dip the CFO "Averaged in" to all of his option strikes.

All of this just makes me want to buy more ARWR!

I notice that there seem to have been 7 director sales between your posting on January 4th and January 6th. Is that unusual for Arrowhead?

From what i understand they sold enough to pay taxes on shares they hold and kept the remaining they were given.

csgohan4

tom9980 said:

moneyfoolish said:

BrockStoker said:

There are also some interestingly suggestive patterns of insider trading which YHFMB poster "Bug" very observantly noted:

1) Chris did not sell shares as he typically does at year end.
2) CFO sells regularly, but didn't sell. Not even at all time highs.
3) Douglas Given gifted shares which he has done before but not often.
4) Chris gifted shares I have never seen him do that.
5) During mid year on the dip the CFO "Averaged in" to all of his option strikes.

All of this just makes me want to buy more ARWR!

I notice that there seem to have been 7 director sales between your posting on January 4th and January 6th. Is that unusual for Arrowhead?

From what i understand they sold enough to pay taxes on shares they hold and kept the remaining they were given.

It's one the reasons why their stock dropped to 57p recently when the directors sold some of their shares

BrockStoker

Like kinger, I think there is nothing untoward here, and some selling of stock is normal.  I have not done the math, but it looks to me like more shares were bought than sold (or not far off). A poster on the ARWR YF MB, Coldlander posted the following:

Michael Perry - Acquired 9,000 Sold 4,000
Mauro Ferrari - Acquired 9,000 Sold 0
James Hamilton - Acquired 50,000 Sold 38,750 Still owns 136,250
Marianne De Backer - Acquired 9,000 Sold 0
William Waddill - Acquired 9,000 Sold 3,750
Douglas Given - Acquired 9,500 Sold 4,000
Kenneth Myszkowski - Acquired 60,000 Sold 30,625 Still owns 457,043
Adeoye Olukotun - Acquired 9,000 Sold 0

Patrick O’Brien - Acquired 0 Sold 25,000 Still owns 293,375

I might be worried if the selling put a significant dent in the holdings, but as it is, management are still heavily invested, so I'm not at all worried.

But there is also something else that has me (more) excited. Our CEO has set himself performance targets/incentives to be achieved within the next 4 years:

Clinical advancement #1,#2,#3, each 20,000 shares.
Preclinical advancement #1,#2, each 10,000 shares.
Partnership #1 and #2, each 50,000 shares.
Market cap above $50B for three months, 620,000 shares.

Of course, there is no guarantee that these targets will be met, but I do not think these would have been announced if they were not realistic/achievable targets, and from what I have seen our CEO does not mess around.

My own calculations show that at a MC of $50B, the ARWR stock in my own portfolio (which does not include the 200 shares Mrs Brock holds) would be worth approximately £492K. That is still less than 1/2 way to my goal, but it's not a bad start, and roughly in line with my own estimates which are based on 100% gain every year:

year 0(Nov 19): £40K
year 1(Nov 20): £80K
year 2(Nov 21): £160K
year 3(Nov 22): £320K
year 4(Nov 23): £640K
year 5(Nov 24): £1280K

At the end of the day, all of this makes me think I can hit my target ($2000-3000 share price) in 5-10 years, if everything goes to plan. Noting is guaranteed of course, but it would take a lot of very bad results/data for me to end up with a loss, and the data we have already seen suggests (very strongly) that this is not the case.

BrockStoker

Although I do have many eggs in one basket with ARWR, I'm careful not to have all my eggs in one basket. Between my wife and myself, we hold 5 individual stocks (ARWR, RR, AMRS, ORTX, and EVFM), and Amyris (AMRS) has started to get a bit more exciting recently. After a deal with another company was recently struck, and the launch of a mini-series of investor presentations to help explain the technology, the stock was up over 200% in Mrs Brock's portfolio at one point, and even briefly overtook RR in terms of size of holding, despite RR having 2x as much initially invested. It has even overtaken ARWR in terms of profit/gain (at least in Mrs Brock's portfolio). This was a screenshot I took on Jan 6:

Here are links to those investor presentations if anyone is interested:

https://www.youtube.com/watch?v=hbAmYkX1Lus&feature=youtu.be

https://www.youtube.com/watch?v=os5CB2NN5k0&feature=youtu.be

I think one of the main reasons for my success up till now (apart from trying to find companies that actually can deliver) has been due to my strategy of buying low, and in particular of trying to find companies that have been unfairly beaten down. For example, here is the summary/chart for Amyris over 1 year:

And here for 5 years:

Note where my average share price is on both charts (on the first, the horizontal line @ 2.85 is a little under what I paid - the cursor is around the date I bought), and on the second I've added a line @ approximately $2.98 (my average share price).

Also note the increasing size of the vertical bars (volume) from left to right.

Now I'm in no way a fan of "charting" to predict future share price movements over the short term, but I do believe looking at charts over the mid-long term (in this case 1-5 years) can give hints where a stock may be headed - certainly the increasing volume from left to right I believe is usually a very bullish signal that a stock may be about to turn a corner.

That said, the main reason I'm posting these charts is to point out that the chart does not dip significantly BELOW my average buy price, and if it does dip below, it's not by very much. The stock basically has an intrinsic value, and buying for less than this value means there is a safety net of sorts which is unlikely to be breached, although of course is is possible if there is a complete disaster.

While I do generally stick to this "buy low rule", if I'm very confident in a company (eg. ARWR), and convinced that there is plenty of future value in further investment, I'm happy to break this "rule". I would rate AMRS as 6.5/10 and ARWR as 9.5/10 on my confidence scale. TSLA would be an 8.5/10 (although I do not really know the company that well) since I don't trust Musk not to screw up, although he is good at generating shareholder value, but I would never invest there, especially at the current heights.

Moving on, Orchard Therapeutics, which I hold in my unwrapped share dealing portfolio (the only stock held in this portfolio) has also suddenly come alive recently/this week:

Once again, It's a stock I bought after being unfairly (IMHO) beaten down (it tanked after another gene therapy from another company had a poor result, but investors did not realize that the tech used in the failure is very different to that that ORTX is using, so in no way does the failure hint at ORTX's chance of success, or lack of it), so I believe there is a degree of safety in holding this stock at the price I paid.

I broke my "buy low rule" with two stocks (CLVS and RETA) and got burned (slightly), less so with CLVS as I bought a few times, and averaged down my share price. The other stock which I lost on, CRIS, I followed the rule (partially at least), but chickened out at -60%. If I'd held on (or bought more) I'd be in profit now. I think I've held 25 or more stocks at one time or another now, and only the 3 mentioned above, as far as I can see (I've kept track of nearly all of them since selling) would have generated a loss up till this point. Many of the others which I've held have gone on to at least double, if not triple, so I think I've done quite well on the stock picking front. I would have carried on holding many of these stocks if it were not for ARWR, but I think ARWR is on another level.

csgohan4

As always you have done very well and not because of speculative entirely, but having a good robust research process in place. Will be looking to invest in the stock you have in future after researching as well so I can have some biotech exposure in my portfolio 

thegentleway

All your investments are in 5 stocks in one industry?! Wow that’s concentrated. Do you know the base rate for picking individual stocks? Isn’t all the wealth generated by stock market from 4% of shares? So you have a 1/25 chance of picking a stock that will do well...

BrockStoker

csgohan4 said:

As always you have done very well and not because of speculative entirely, but having a good robust research process in place. Will be looking to invest in the stock you have in future after researching as well so I can have some biotech exposure in my portfolio 

Thanks. I do believe speculation plays an important role. None of us would invest in anything if we did not "speculate" that a particular asset would increase in value. Of course, understanding what you are investing in (and why you think it's undervalued or has the potential to significantly increase in value) underpins everything.

To be completely honest, many of the stocks I bought/held, I bought without doing much DD, although that certainly not the case with ARWR. For example, I just knew I wanted stocks like Moderna and CRISPR (some of the first I bought) because their tech was so good/disruptive, and perhaps if I'd done more DD on these two in the first place I would have been put off buying. In the end I sold both for over 100% gain after I learned things about them which put me off.

So perhaps I dodged some bullets by pure luck (It's been very much a case of in at the deep end, and learn on the fly), but the fact that the majority have gone on to do well possibly suggests that DD is not the be all and end all. A good overall view of the sector/landscape (as well as understanding which tech is likely to disrupt) may somewhat make up for sub-par DD, I am thinking.

A note of caution if you do decide to take the plunge however - with so much new disruptive tech starting to feed through now, you definitely don't want to find yourself on the wrong side of it, and it is a bit of a minefield (that can only get worse). Seeing what phase II data from ARWR's cystic fibrosis therapy did to Vertex (which immediately lost $11B from it's MC) which was seen as a strong company previously has hammered that lesson home for me. So I think it's important to not risk money in things that have been traditionally "safe" (but might not be so safe any more), and to realize that with disruption all around us, things are forced to change.

The nice thing about ARWR/RNAi is that it effectively has little competition on horizon (given my firm belief that ARWR is the undisputed leader in RNAi). Other tech/companies will come through in time that will compete with RNAi and disrupt it, but looking at what has "recently" been discovered that may be capable of doing so, it's obvious that it will take decades to mature to the stage where it can be commercialized, so ARWR should have at least a decade (if not two) before anyone can realistically compete. In the mean time, some of the technology that is a bit more advanced (on a similar level to RNAi - eg gene therapy, checkpoint inhibitors) may "nibble" at ARWR's expense, but I don't really see that as a significant threat.

The other big lesson I have learned with investing in general, is (and this is true for many things, not just investing) that many things can be a double edged sword, but you can, if you are clever, turn a negative around, and use it to your advantage (eg. being on the right side of disruptive tech, or buying when everyone else is heading for the exits). In fact, I'm near enough convinced that you have to be able to do this to have the best chance of being successful.

Once again I find myself rambling, but I hope (as always) that at least someone out there will find my ramblings helpful.