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Get ready for the Biotech Revolution
London weather is schizophrenic.
The mornings always greeted me with a torrential downpour. By mid-morning, the sun was out and the sky was a deep blue. Not a cloud could be seen. Beautiful.
But that changed by the evening, with a massive thunderstorm.
Now I know why Brits never smile.
A close English friend of mine told me that the one thing he loved about Americans was their attitude. It's always a "the sun will come out tomorrow" outlook.
Hmmm.
Perpetually optimistic, are we Americans? Could just be the Zoloft. In any event, it's obvious he doesn't read American investment newsletters. Because when it comes to predictions, there's no difference between today's monolithic horde of investment newsletter editors and Thomas Hobbes. As they see it, the world is teetering on the tightrope of Armageddon.
In fact, many argue we're already there. We're just too giddy with irrational exuberance to see it.
Nasty, brutish and short
It amazes me that out of the hundreds of investment newsletters and market gurus, hardly any are talking about genomics or the Human Genome Project.
I guess I'm lucky. I still view the world with the enthusiastic eye of a young man. Senility (or a 25-year bear market in my favorite commodity) hasn't ravaged my mind, like many of my older colleagues. Reading their market commentaries, they sound like men completely uncomfortable with technological progress.
Lead or leave
If you've been with me since the beginning, you know I love biotechnology stocks. That's because biotechs offer many advantages to an investor who's willing to listen and understand.
For one, biotechs may be the only sector left that's trading at truly inefficient prices. That's because the technology supporting biotechs is esoteric.
Most fund managers and analysts don't know the first thing about monoclonal antibodies or gene therapy.
Not that they should.
But to an analyst who takes the time to do the research, biotech stocks can offer substantial gains.
MedImmune, for instance, a biotech company that markets Synagis, a monoclonal antibody against RSV, has given Taipan a 120% return in less than a year.
But had you invested in MEDI five years ago, you'd be up more than 12,300%! US$10,000 in 1995 would be worth US$1.2 million today.
Heck, Millennium Pharmaceuticals, my favorite genomics play of the year, is up over 800% in the past 12 months.
But 99% of today's investors aren't invested in these stocks
With so much of the market out of these stocks, the stock price of say, an Aviron, doesn't reflect the true value and future growth of Aviron's superior nasal spray technologies.
 So you and I can get in while the price is just a fraction of what it will be in five years. That's all right with me.
Because the only way the valuation becomes efficient is when the big growth funds begin acquiring large positions in Millennium, MedImmune, and Gilead Sciences.
And guess who is going to sell shares of these companies to Janus and Fidelity? That's right, you and me.
In fact, if you're currently in biotechs, you've had a phenomenal year so far. Take a look at a comparison chart of the NASDAQ Biotechnology index versus the broader indices.
On a trailing-twelve-month basis, the NASDAQ Biotechnology Index is up more than 100%, killing the Dow Industrials and the S&P 500. Biotechnology stocks have doubled in the past year. The closest index is the NASDAQ Composite, which is trailing the Biotechnology Index by about 16 percentage points. In fact, even the mighty Internet stocks pale in comparison to the biotechs.
Take a look at a 6-month comparison chart of the NASDAQ Biotech Index versus the Internets.
It's no contest.
Now take a look at this chart, which breaks down YTD Biotech returns according to market cap.
| Biotech Performance Per Tier: |
| MCAP > US$1 billion |
39.70% |
| US$1 billion - US$500 million |
51.00% |
| US$500 million - US$250 million |
6.90% |
| US$250 million - US$100 million |
24.20% |
| MCAP < US$100 million |
41.10% |
The second-tier group -- stocks which began the year trading at a market cap between $1 billion and $500 million -- have outperformed, by a fairly wide margin, the rest of the pack.
This is the tier group which contains Millennium, Gilead Sciences, Human Genome Sciences, Affymetrix, and IDEC Pharmaceuticals, all major players in genomics and gene therapy.
The reason this group has performed so remarkably this year is that there's been a validation of genomics as a viable tool for treating diseases.
And that validation has given birth to a brand new bull market in biotech stocks. Believe me when I say that the Human Genome Project will change the world. You can mark my words on that one.
Please read on...
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