Investing in biotech stocks - My experience so far

adindas

BrockStoker said:

Why is it that growth stocks suffer in high interest rate environments?

Is it (at least partly) because a fast growing company needs to borrow to sustain growth, so in a high interest rate environment they are unable to borrow to the same extent without paying through the nose?

If that is indeed the case, then there is another reason to be bullish on Amyris in the near-mid term, because a few months back they raised money ($400m in convertible senior notes) that should see then through the next few years. At the time investors did not like this of course, and the share price plunged (partly due to this and partly due to the earnings miss), but it actually seems to have been a very shrewd move by Melo since the dilution is limited by capped calls, and unlike other companies, Amyris does not have to borrow at a high rate now.

Any way I look at it, the recent share price crash is not justified. Supply chain issues (which caused the earning miss) seem to be the main gripe with investors here, and they should melt away over the coming weeks/months. Markets for the most part only seem interested in the short term - that seems fairly obvious in this case - strongly suggesting that there's money to be made in the long term, at least for those with strong stomachs.

This is just my personal opinion

Interest rate High then more money will be flowing to Bond Market or money rotation to a sector in stock market that will benefit from high IR environment. Why would the people want to take more risk if there is a safer option?

The exception is for high growth stock with zero debt A few high growth stocks have zero debt. But even they have zero debt they will still not immune to the sentiment that investor prefer a safer option. The sector that will benefit from high interest rate is Banks, Consumer discretionary, healthcare.There is an article from Investopedia to explain this. I have not looked into AMRS but in general the stock with high debt, very little revenue will suffer in high interest environment as the cost of borrowing will be high.

https://www.investopedia.com/articles/investing/052814/these-sectors-benefit-rising-interest-rates.asp

If you see these 4 WS analysis prediction of AMRS is Average PT   $22.00 with Low PT $15.00 and High PT $15.00 there is a potential of 340.88% so a lot of upside and all of them recommend buy. Based on 4 Wes analysts . So it might be ok for long term holding. It is only that this PT is not recent e.g., the latest one is 11/9/2021 so it has not accommodated the recent news from FED.

https://www.marketbeat.com/stocks/NASDAQ/AMRS/price-target/

The ralationship between high IR and high growth stocks in general, based on this WS analyst is that the increase by 1% in the interest correlate to about 10+ down in Nasdaq QQQ (e.g growth stocks). Whether the figure of 10% is right or not I do not know. But people could definitely see that there is a corelation between the two.

https://www.youtube.com/watch?v=P70nJvMN6xY

Voyager2002

BrockStoker said:

Why is it that growth stocks suffer in high interest rate environments?

The textbook answer is that future earnings are subjected to a higher discount rate when one calculates their present value, so that the amount that an investor would pay today for something that will be worth a million dollars in ten years time is reduced when interest rates increase.This would make a great deal of sense if one is talking about trading a bond with a known maturity date and value, but seems absurd when the future value is so uncertain (as is the case with equity in the likes of AMRS). I suspect that these rules about interest rates are programmed into trading algorithms or even the spreadsheets that guide human traders -- or maybe it is simply that movements in the bond market have knock-on effects on equities.

BrockStoker

Adindas, and Voyager, thank you both for your replies.

I guess the stocks will be having to fight against the flow somewhat then, at least until the market perceives them as "safe/er" stocks due to regular revenues being earned, which is my hope for AMRS (and the others I hold).

As you say Voyager, it seems insane that the market would completely ignore a stock like AMRS which can potentially outgrow the safer investments like bonds many times over. The two should not really be interchangeable, but I guess it's a case of (at least in the case of "sophisticated" investors with large pots) investors having assets in many risk categories - lets say for sake of argument, ranging from 1(low risk eg. cash)-5(high risk eg small cap biotech), and rather than the money going from 5 directly to 1, money from 5 gets pushed into 4, money from 4 goes to 3, and so on.

The algos certainly have not been our friend (apart from the fact they can help to create opportunities), but algos should be updated once EPS becomes positive, or in the case of ARWR, moving from clinical to late stage biotech as well as positive EPS (very close now), and that should help smooth out volatility a bit. It's probably not great for ARWR that it's tied strongly to funds like IBB, but strong news (like good P3 data) should break that link effectively, if/when it comes.

I'm no economist, but I suspect/hope that this is temporary, and should not last too long. Just long enough till the pandemic baggage is sorted out - hopefully 1-2 years or less, but I think we also should be prepared for worse. As always, the largest danger is that there is one or more unforeseen events that take the markets by surprise. Id suggest it's more important than ever to keep some dry powder, and to be patient/wait for the best opportunities.

So there could well be more pain for those already invested in growth stocks, but for those who can stay focused on the long term, it should be a great opportunity to pick up stocks dirt cheap.

Are you guys contemplating relocating any assets, or already have done, in order to reposition for the current climate?

I'm not planning on doing anything, apart from buying, despite already being up to my eyeballs in growth stocks. I do have one value fund (Schroder Recovery - which has been shooting up recently while all else in my fund/stock portfolios has been taking a dive) that makes up perhaps 6-7% of my main fund portfolio thankfully.

My main "problem" is that I currently have around £400K sitting around in bank accounts, which was waiting for us to find a house (looking to buy for about £350-400K), but we still have to sell the old house before we can buy, so at least £300K needs to be invested ASAP (I may look at something like Investec for some of it) or risk being ravaged by inflation. I've earmarked £40K to go into S&S ISAs in April on top of the £16K I moved to my GIA in the last week, of which there is more than half left.

So I'm ready for whatever. I think half the battle will be to "not shoot till I see the white of their eyes". I still want at least another 11K of AMRS so it could get interesting.

BrockStoker

Interesting to hear what the CEO of Novartis has to say regarding the future of the industry. My Take: RNAi is at the very least certainly in the running for the next big thing, and while he isn't saying any particular next gen tech is sure to take the prize, he does appear to talk more about RNAi in a favourable light than anything else, suggesting to me that it's the RNAi tech he's favoring. I suppose it could be that he's playing his cards close to his chest rather than being genuinely unsure.

Also, in case anyone missed it, and especially if there is anyone new to biotech reading this, this Fool article may be worth highlighting for it's almost good coverage that MIGHT have been had they not missed out pointing out that Arrowhead also has a NASH program which stands a fair chance of wiping out virtually everything else. It was great that they pointed out Arrowhead's large and rich pipeline, but in those terms, the two other biotechs listed are not even in the same league, and by not pointing out that Arrowhead has a NASH program they actually end up giving a misleading picture. Just shows how important it is to know what you own.

On the other hand, "Fool mentality" is a significant part of the market, and if they all rush in, pushing up the share price, that isn't necessarily a bad thing - some might even start to take an interest in WHY Arrowhead is special, and end up over-weighting ARWR in their portfolios. The other takeaway IMHO is that at least general market participants think that the up-coming catalysts for Arrowhead in 2022 have a good chance of significantly moving the share price - it's not just us.

adindas

BrockStoker said:

Adindas, and Voyager, thank you both for your replies.

I guess the stocks will be having to fight against the flow somewhat then, at least until the market perceives them as "safe/er" stocks due to regular revenues being earned, which is my hope for AMRS (and the others I hold).

As you say Voyager, it seems insane that the market would completely ignore a stock like AMRS which can potentially outgrow the safer investments like bonds many times over. The two should not really be interchangeable, but I guess it's a case of (at least in the case of "sophisticated" investors with large pots) investors having assets in many risk categories - lets say for sake of argument, ranging from 1(low risk eg. cash)-5(high risk eg small cap biotech), and rather than the money going from 5 directly to 1, money from 5 gets pushed into 4, money from 4 goes to 3, and so on.

The algos certainly have not been our friend (apart from the fact they can help to create opportunities), but algos should be updated once EPS becomes positive, or in the case of ARWR, moving from clinical to late stage biotech as well as positive EPS (very close now), and that should help smooth out volatility a bit. It's probably not great for ARWR that it's tied strongly to funds like IBB, but strong news (like good P3 data) should break that link effectively, if/when it comes.

I'm no economist, but I suspect/hope that this is temporary, and should not last too long. Just long enough till the pandemic baggage is sorted out - hopefully 1-2 years or less, but I think we also should be prepared for worse. As always, the largest danger is that there is one or more unforeseen events that take the markets by surprise. Id suggest it's more important than ever to keep some dry powder, and to be patient/wait for the best opportunities.

So there could well be more pain for those already invested in growth stocks, but for those who can stay focused on the long term, it should be a great opportunity to pick up stocks dirt cheap.

Are you guys contemplating relocating any assets, or already have done, in order to reposition for the current climate?

I'm not planning on doing anything, apart from buying, despite already being up to my eyeballs in growth stocks. I do have one value fund (Schroder Recovery - which has been shooting up recently while all else in my fund/stock portfolios has been taking a dive) that makes up perhaps 6-7% of my main fund portfolio thankfully.

My main "problem" is that I currently have around £400K sitting around in bank accounts, which was waiting for us to find a house (looking to buy for about £350-400K), but we still have to sell the old house before we can buy, so at least £300K needs to be invested ASAP (I may look at something like Investec for some of it) or risk being ravaged by inflation. I've earmarked £40K to go into S&S ISAs in April on top of the £16K I moved to my GIA in the last week, of which there is more than half left.

So I'm ready for whatever. I think half the battle will be to "not shoot till I see the white of their eyes". I still want at least another 11K of AMRS so it could get interesting.

There is hearsay in investing “Do not fight the FED"

For that reason, even the mega caps, good tech stocks growth-oriented stocks such as GOOG, FB, AMZN, MSFT, NVDA, AMD, Netflix etc are falling significantly every time the news regarding inflation and interest rise are renewed or come to light in the news again. In this climate it is important to watch everytime Jerome Powell or Lael Brainard make a press conference or giving testemomy in front of the congress.

Also remember about the mass psychology. Some people are investing by just following the crowd without doing their own DDs. When they see their stocks are falling dramatically 30%+ (say) they start panicking and doing pancic selling without further investigation why the price of the stocks they own are falling and whether it is a fundamental chnage or just the sentiment, whether  there is a very good chance to recover again.

moneyfoolish

adindas said:

BrockStoker said:

Adindas, and Voyager, thank you both for your replies.

I guess the stocks will be having to fight against the flow somewhat then, at least until the market perceives them as "safe/er" stocks due to regular revenues being earned, which is my hope for AMRS (and the others I hold).

As you say Voyager, it seems insane that the market would completely ignore a stock like AMRS which can potentially outgrow the safer investments like bonds many times over. The two should not really be interchangeable, but I guess it's a case of (at least in the case of "sophisticated" investors with large pots) investors having assets in many risk categories - lets say for sake of argument, ranging from 1(low risk eg. cash)-5(high risk eg small cap biotech), and rather than the money going from 5 directly to 1, money from 5 gets pushed into 4, money from 4 goes to 3, and so on.

The algos certainly have not been our friend (apart from the fact they can help to create opportunities), but algos should be updated once EPS becomes positive, or in the case of ARWR, moving from clinical to late stage biotech as well as positive EPS (very close now), and that should help smooth out volatility a bit. It's probably not great for ARWR that it's tied strongly to funds like IBB, but strong news (like good P3 data) should break that link effectively, if/when it comes.

I'm no economist, but I suspect/hope that this is temporary, and should not last too long. Just long enough till the pandemic baggage is sorted out - hopefully 1-2 years or less, but I think we also should be prepared for worse. As always, the largest danger is that there is one or more unforeseen events that take the markets by surprise. Id suggest it's more important than ever to keep some dry powder, and to be patient/wait for the best opportunities.

So there could well be more pain for those already invested in growth stocks, but for those who can stay focused on the long term, it should be a great opportunity to pick up stocks dirt cheap.

Are you guys contemplating relocating any assets, or already have done, in order to reposition for the current climate?

I'm not planning on doing anything, apart from buying, despite already being up to my eyeballs in growth stocks. I do have one value fund (Schroder Recovery - which has been shooting up recently while all else in my fund/stock portfolios has been taking a dive) that makes up perhaps 6-7% of my main fund portfolio thankfully.

My main "problem" is that I currently have around £400K sitting around in bank accounts, which was waiting for us to find a house (looking to buy for about £350-400K), but we still have to sell the old house before we can buy, so at least £300K needs to be invested ASAP (I may look at something like Investec for some of it) or risk being ravaged by inflation. I've earmarked £40K to go into S&S ISAs in April on top of the £16K I moved to my GIA in the last week, of which there is more than half left.

So I'm ready for whatever. I think half the battle will be to "not shoot till I see the white of their eyes". I still want at least another 11K of AMRS so it could get interesting.

There is hearsay in investing “Do not fight the FED"

For that reason, even the mega caps, good tech stocks growth-oriented stocks such as GOOG, FB, AMZN, MSFT, NVDA, AMD, Netflix etc are falling significantly every time the news regarding inflation and interest rise are renewed or come to light in the news again. In this climate it is important to watch everytime Jerome Powell or Lael Brainard make a press conference or giving testemomy in front of the congress.

Also remember about the mass psychology. Some people are investing by just following the crowd without doing their own DDs. When they see their stocks are falling dramatically 30%+ (say) they start panicking and doing pancic selling without further investigation why the price of the stocks they own are falling and whether it is a fundamental chnage or just the sentiment, whether  there is a very good chance to recover again.

Lots of inyeresting posts since I last contributed but I have to say that I agree with this particular one.

My investment is very small compared to the likes of BrockStoker but in 10 months it has halved and, at the moment, I can't see anything but another huge fall when I look at the current realisation that inflation is not going to be as short term as was expected and, consequently, interest rates will have to be raised in the US and Europe probably more times than was previously thought.

If you add in the (hopefully lessening) Covid 19 and the serious prospect of a Russian attack on Ukraine then the market as a whole could be savaged irrespective of the quality of the companies. Plus, the fact that high growth companies will probably be hit more than any others I would say the prospects are bleak.

My only decision, which I will have to make quickly, will be whether to sell my current holdings completely (at 50% of their original value) and re-invest in the same companies at a much lower level when the economic outlook looks more favourable or just to forget about them for a few years.

The problem I have is that I'm confident that whatever decision I make will be the wrong one!!!!

BrockStoker

Moneyfoolish, I feel for you. Unfortunately it's likely be the case that the market will go up as soon as you sell - that's usually the way it seems to work. It's emotions that cause the trouble, and I guess not everyone can detach themselves in the way necessary for making the fully detached decisions necessary to be successful when it comes to individual stocks.

Whatever you decide, I wish you the best of luck, and hope this experience hasn't burnt you too much. And thank you also for contributing to this thread. If nothing else, your experience can serve as a warning to others that things can go wrong with these risky investments.

moneyfoolish

BrockStoker said:

Moneyfoolish, I feel for you. Unfortunately it's likely be the case that the market will go up as soon as you sell - that's usually the way it seems to work. It's emotions that cause the trouble, and I guess not everyone can detach themselves in the way necessary for making the fully detached decisions necessary to be successful when it comes to individual stocks.

Whatever you decide, I wish you the best of luck, and hope this experience hasn't burnt you too much. And thank you also for contributing to this thread. If nothing else, your experience can serve as a warning to others that things can go wrong with these risky investments.

It certainly works that way with me, BS. In fact, I could make more money hiring myself out as a reverse indicator for share prices as it is amazing how when I sell the price almost immediately goes up and when I buy it almost immediately goes down! You could say that I am a perfect example of the "buy high","sell low" system which is not one to follow!!!!

However, whatever I decide to do, I will be continuing to follow this thread and I certainly agree with you that at some stage Arrowhead will certainly take off. It's pipeline indicates that it has so many opportunities that the chance of at least one being successful is very high. Whether at my age (77!) I will live long enough to see it happen is another matter!!!

In fact, the only reason I decided to buy any of these biotech stocks was to increase the amount of money I could leave for my children when I pop off as I have more than enough savings and pensions to keep me going in comfort for the rest of my days.

If I do sell Arrowhead and Amyris it will be only because of the fears in my previous post and if the Russia/Ukraine situation calms down and the market has adjusted for interest rises I will be looking to buy these stocks back again, hopefully, at lower prices than I sold!

ferreroreeses

Very insightful post, if you don't mind disclosing, what have your average returns been each year?

BrockStoker

moneyfoolish said:

BrockStoker said:

Moneyfoolish, I feel for you. Unfortunately it's likely be the case that the market will go up as soon as you sell - that's usually the way it seems to work. It's emotions that cause the trouble, and I guess not everyone can detach themselves in the way necessary for making the fully detached decisions necessary to be successful when it comes to individual stocks.

Whatever you decide, I wish you the best of luck, and hope this experience hasn't burnt you too much. And thank you also for contributing to this thread. If nothing else, your experience can serve as a warning to others that things can go wrong with these risky investments.

It certainly works that way with me, BS. In fact, I could make more money hiring myself out as a reverse indicator for share prices as it is amazing how when I sell the price almost immediately goes up and when I buy it almost immediately goes down! You could say that I am a perfect example of the "buy high","sell low" system which is not one to follow!!!!

However, whatever I decide to do, I will be continuing to follow this thread and I certainly agree with you that at some stage Arrowhead will certainly take off. It's pipeline indicates that it has so many opportunities that the chance of at least one being successful is very high. Whether at my age (77!) I will live long enough to see it happen is another matter!!!

In fact, the only reason I decided to buy any of these biotech stocks was to increase the amount of money I could leave for my children when I pop off as I have more than enough savings and pensions to keep me going in comfort for the rest of my days.

If I do sell Arrowhead and Amyris it will be only because of the fears in my previous post and if the Russia/Ukraine situation calms down and the market has adjusted for interest rises I will be looking to buy these stocks back again, hopefully, at lower prices than I sold!

Moneyfoolish,

I'm also hoping I can leave something significant for the grandkids in the form of ARWR and AMRS shares (or at least their proceeds which will eventually be converted into safer assets). It will need careful monitoring over the years, and keeping an eye out for future disruptive companies/tech that might represent competition - things are changing very fast now, but with due diligence it should be possible to spot significant threats. ARWR and AMRS have the advantage at the moment, and with a good head start in their respective markets, they should be solid over the next five years at least.

If there is another lesson to be learned from all of this, it's that markets are very unpredictable in the short term, and trying to second guess how they (and share prices) will react is often futile. While I think there's a strong possibility that the next few months could get grim, keep in mind these stocks are already beaten down, and this may be the bottom or at least no far off it. Personally, I'm just continuing to buy on and dips with AMRS - I'll grab another 1 or 2K if the price dips below ~$4.40, then I'll have to wait till April before I get another chance to buy. From a long term point of view, current prices are still very attractive, even though there might be further dips in the short to mid-term.

I think if you really want to get back in, look at what the chart is saying, the progress made since previous lows, and the many catalysts ahead. No harm in having a plan, and a target price to get in at. Of course I may well be wrong (again), and there will be a better opportunity, hence why I'm hedging my bets by ensuring I don't go all in now (I couldn't anyway).

Good luck with which ever path you choose.