Way back in 2002/2003, one very senior analyst (who will remain unnamed) was very impressive but just outside of what we could afford to pay in compensation. When asked about best ideas, he made a compelling and high-conviction case for Nektar (NKTR), which at the time was trading for around $18. He insisted it would be $30+ inside a year.
Another very different analyst named Richard Yeh was quite young and inexperienced. But he was smart and hard-working. As was typical for less-experienced analysts, he was asked to do some research work and present his findings. We asked him to research Nektar and to look into the whole Exubera idea and process to see how it might play out.
Over a very nice dinner at Aqua in San Francisco, we talked about what he had learned. Not knowing the answers himself, he managed to track down the scientists who had pioneered much of the fundamental research ideas regarding the process in general and some of these molecular pathways in particular.
Although the precise details have faded a little, one thing was clear: in the opinion of the most expert of the experts, it wouldn’t work. After listening to the science behind it, this was pretty convincing. At least enough to avoid investing in Nektar.
Since 2003, NKTR traded between $15 and $20 and sometimes made a run towards $25. Starting in 2007, the stock marched down from $15 to the current $6 as the reality of a non-working Exubera penetrated the market:
It’s not an area we know enough about to have shorted the name, but now that the wheels have come off it’s a vivid reminder of Richard’s spade work and that capital-preserving dinner.
~ Kris Tuttle for Research 2.0