Biotechnology and Medical Instruments are two of the most exciting areas of the securities market; no other sector provides more volatility and potential for gains/losses. Investment strategies are prevalent in the life sciences space; the difficulty lies in distinguishing which approach is best for one's own portfolio. The age-old saying goes: "If it keeps you up at night, then it is best avoided"; sadly, this mantra has steered many astute individuals clear of emerging growth investments for multiple generations. I for one have found that peace of mind, and a refreshing slumber each night, are attainable through conviction and patience.
Whether a seasoned veteran or newcomer to biotech, one will find a constant: volatility. Employing a long-term strategy in choppy seas often requires the patience of a saint. This level of patience may only be found through conviction, a conviction built through a solid foundation of research and due diligence. So where does the fun come in? The excitement is found in discovering the next great growth companies, which have the potential to offer multiple times gains and transform your financial future! This is not a story of days past, but one of the present and future, one must simply know where to begin:
1. Establish Core Holdings:
Forget your insomnia, as our first core holding has been known to put investors to sleep for decades:
Johnson & Johnson (NYSE:JNJ)
Why do I start with JNJ? I thought we were discovering emerging growth companies, not a behemoth of the major drugs space!? A past Barron's article titled: "J&J Now the 'Best Biotech Play', says Goldman" sums up our answer through a quote from Jami Rubin:
"We believe that the market is undervaluing the growth potential and size of this business, which is arguably more compelling than many biotech companies that trade at far higher valuations. As an illustration, if JNJ were to carve out its biopharma business as a separate stand-alone entity, we believe it would be one of the most attractive and potentially highly valued, given the mix and growth of its business. What is more, JNJ is stepping into a growth phase in this division while many of the large biotech companies' growth engines are facing question marks."
Did you notice that Jami used the "g-word" twice? That's because JNJ is still a growth story... as well as a diversified/global medical powerhouse. With 51 years on consecutive dividend increases, I consider JNJ a legacy holding, to be held through retirement and beyond. Sleep soundly with JNJ.
2. Discovering Your Speculative Long-Term Growth Holdings:
There is still room for passion in investing, do not let anyone tell you otherwise! When one enters the high-octane world of biotech, gone are the days of cold "emotionless" stock picking based on technical patterns and swing trades (yawn). A true explorer will pick the bones of a small cap company, know the pipeline of products, revenue potentials, income statement/balance sheet and the childhood nickname of each c level executive. The following companies are the result of adventure and discovery:
Antares Pharma Inc. (NASDAQ:ATRS)
Current Price: $3.78 Market Cap: $476.9m
Antares is a specialty pharma company, focused on self-administered (injectable and topical gel-based) medicines. Antares is a unique story; in that I have yet to discover another company it's size (<$500m) with a pipeline that rivals the potential and depth of Antares' products, below are only five:
- OTREXUP™: combines Antares' Medi-Jet injector technology and methotrexate for the treatment of rheumatoid arthritis and psoriasis. A descriptive article on the potential of OTREXUP from SA contributor Ali Yasar: Link
- Vibex™ QST: combines Antares' Vibex injector technology and testosterone aimed to treat testosterone deficiency
- Nestragel: contraceptive in the form of a transdermal gel (In collaboration with The Population Council Inc.)
- Libigel: testosterone gel aimed to treat female sexual dysfunction (ATRS holds international licensing rights, BioSante Pharma (BPAX) holds North America) Link
- Undisclosed Pfizer Product: utilizing Antares' transdermal gel technology (rumored to be Advil Gel)
When one begins to see the whole picture, it is clear that Antares has an arsenal of potential blockbuster products, all well positioned to penetrate large markets. There has been buy-out chatter on ATRS for the past few years, with potential suitors being Pfizer (NYSE:PFE) or Teva (NASDAQ:TEVA) Article Link. Regardless of takeover speculation, Antares seems to be well positioned moving forward on their own. CEO Paul Wotton: "We are not for sale."; but upon dissection of Antares' pipeline, the share price may be... and at a deep discount.
Kips Bay Medical (NASDAQ:KIPS)
Price: $1.19 Market Cap: $31.9m
One cannot begin their discovery process of Kips Bay Medical without its founder: Manny Villafana, recipient of the 2006 Living Legend of Medicine Award from the World Society of Cardio Thoracic Surgeons. Manny is the founder of Cardiac Pacemakers and St. Jude Medical (NYSE:STJ). With Manny's influence and reputation, it is surprising that KIPS has gone virtually undiscovered; however, explorers are charting their maps as we speak.
Kips Bay's sole focus is on their eSVS MESH™, an external saphenous vein support technology used in Coronary Artery Bypass Grafting surgery (CABG or "Cabbage" for those in the field). While the description may be a mouthful, the product itself is beautifully simple. It is made of Nitinol wire mesh (Nickel/Titanium) and is easily applied over the vein; take a moment to view their short video: eSVS Animation, it is well worth your 5 min: Link
I am not a cardiothoracic surgeon, so I prefer layman's terms. Through research, I have discovered that saphenous vein grafts (SVGs) (harvested from the thigh), are thin-walled vessels intended for a low-pressure blood flow environment, the functions of the heart demand a much higher blood work load. When the vein is exposed to the high pressure of the arterial flow, there is significant stress on the thin wall of the veins. The vein responds to this injury by a thickening of its inner walls, shrinking the inner diameter of the vein, often leading to failure of the SVG. This is a serious problem, often requiring CABG patients to go back under the knife; at great risk to their health, and a significant expense to all involved. Kips Bay Medical's eSVS Mesh™ is aiming to prevent these complications and repeated operations, assisting vein function through external support.
The product sounds great, but where the excitement truly begins is in the market potential:
- An estimated 800,000+ CABG surgeries performed each year
- Common for 3-4 coronary arteries to be bypassed per surgery
- Estimated 2,000,000 eSVS MESH™ (potentially) used per year
With obesity and sedentary lifestyles effecting health quality worldwide, CABG procedures will likely be on the rise for the foreseeable future. While CABG represent the initial focus of Kips Bay's efforts, eSVS MESH™ also has the potential to be utilized in:
- Kidney Dialysis (a larger addressable market than CABG)
- Peripheral Vein Surgery
- Artificial Arteries
With a stellar management team and revolutionary device, KIPS is undoubtedly worthy of our attention.
This article has served as a very brief overview and/or introduction to three outstanding companies. I will plan on outlining ATRS and KIPS in greater detail over the coming weeks. It is essential to remember that the development of both companies will likely require patience and conviction. It is possible to find high-octane excitement and peaceful slumber through a well-constructed long-term strategy in biotechnology and medical instrument companies, these three may be a great place to start.
Disclosure: I am long JNJ, ATRS, KIPS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is intended for informational use only, and should not be construed as professional investment advice. They are my opinions only. Nothing in this article should be taken as a solicitation to purchase or sell securities.