Editor’s Note: Today’s Wealth Daily focuses on a topic I’ve been writing about a lot in recent issues: the biotech sector. I recently had lunch with a CEO of a small — yet promising — biotech company, over which we chatted about the intensive process his company undergoes just to attempt to bring a drug to market. Find out what I learned below.
Today’s issue also features Wealth Daily Editor Christian DeHaemer’s piece on India and Mongolia gold. Chris is planning a trip soon to Asia to report on gold from this part of the world. Stay tuned for more news from his travels.
— Steve
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Aside from a few failed characters in the auto industry and banking, it goes without saying that the average CEO is a pretty sharp business person.
Like most entrepreneurs, these overachievers see and do things that most people simply cannot fathom. They take risks, they work hard, and they drive their visions down roads that, in many cases, have not yet been paved — without sure answers.
Where it all ends, they can never be sure; but win or lose, they are ready to find out. That is why they make the big bucks.
The average biotech CEO is something of an even bigger outlier. Armed with a Ph.D. and advanced degrees from institutions like MIT, these guys are geniuses on top of being sharp-witted executives.
As a result, they’re not just concerned with new business models, but with advancing medicine and curing disease — like cancer and AIDS.
Unfortunately, for all of their brain power, delivering a life-saving drug to the public is one of the toughest tasks out there. . . as is finding the market’s top biotech stocks.
Uncovering Top Biotech Stocks
In fact, it’s just as one of these super-smart guys told me two weeks ago, as he patiently explained a promising new therapy to me over lunch. . .
"Steve," he said, "if all of these new drugs worked the same way in people that they do in mice, we would all be rich."
The reality is it takes an average of 12 years and over $350 million to get a new drug from the laboratory onto the pharmacy shelf. And of, say, 5,000 cures discovered in the pre-clinical stage, only about five will make it through the entire FDA approval process.
Therefore, companies have to cover not only the cost of successful development of a single drug, but of many drugs that never even make it to market.
Even still, the research-based portion of the industry currently invests some $12.6 billion a year in new drug development. That is a figure that historically doubles every five years, since developing blockbuster drugs is a risk/reward game.
The Biotech Roadmap
The gatekeeper in this case is the U.S. Food and Drug Administration (FDA), charged with making sure that drugs and biologics are safe and effective before they become available to consumers.
The process begins with the pre-clinical phase in which researchers identify and refine compounds that can be tested in animals and living tissue. Roughly three and a half years later, qualified candidates emerge and are granted Investigational New Drug (IND) status.
Once the FDA gives the green light, the "investigative" drug will then enter three phases of clinical trials:
- Phase 1 uses 20-80 healthy volunteers to establish a drug’s safety and profile. (timeframe: about 1 year)
- Phase 2 employs 100-300 patient volunteers to assess the drug’s effectiveness. (about 2 years)
- Phase 3 involves 1000-3000 patients in clinics and hospitals who are monitored carefully to determine effectiveness and identify adverse reactions. (about 3 years)
The company then submits an application (usually about 100,000 pages), to the FDA for approval — a process that can take up to two and a half years. Once approved, the drug becomes available for physicians to prescribe.
Before hitting the shelves, each and every drug must clear every single hurdle, which makes investing in biotech stocks highly speculative in every sense of the word. . . no matter how promising a company may look on paper.
After all, as my friend the biotech CEO told me, curing a mouse is one thing. . . curing a human being is something else entirely. As a result, the share price of these companies moves accordingly, making these stocks highly volatile.
Even still, since 80% of growth for the 10 biggest drug makers came from the blockbuster drugs that debuted in 1990s, the "next great cure" is always on the top of the list for big pharmaceutical companies.
As a result, investors in the right companies stand to make the biggest gains.
That’s because all of these big companies know that it will likely take three or four $300 million – $500 million drugs to replace the revenues they will lose when their blockbuster drugs go generic. What’s more, many of them simply don’t have the R&D capacity anymore to keep their pipelines full.
That’s why tiny biotech research companies can be bought out in an instant these days, since they currently contribute 67% of all drugs currently in clinical trials.
Of the 320 currently publicly-traded biotech companies, a full 41% have market caps below $100 million. For investors, that means there are serious gains to be had when one of these super-smart CEOs delivers on his or her promises. . .
And despite the lengthy, involved, and expensive process behind pharmaceutical companies’ making drugs available to those who need them most. . . they continue their research and work. In fact, we’ve just published a report about the company that might finally hand us a cure for cancer.
Biotech guys aren’t your average CEOs — and neither are their companies, or the dreams they are chasing.
Your bargain-hunting analyst,
Steve Christ, Investment Director
The Wealth Advisory
Mongolian Gold Rush Could Make Your Fortune
— Christian DeHaemer
The price of gold hit an all-time high yesterday with the announcement that India has recently bought 6.7 billion dollars worth of the heavy metal from the International Monetary Fund (IMF). As I write this, gold is a few dollars short of $1,100 an ounce.
Now, $6.7 billion is equal to a month’s worth of U.S. military operations in Iraq, and doesn’t even come close to any of the bailout packages awarded to U.S. financial institutions. . . but it was enough to purchase half of the total amount the IMF is selling this year. And $6.7bil is more than pocket change for India. . .
According to Yahoo Finance:
The sale to India was nearly half the 403.3 tonnes of gold that the IMF has targeted for sale over the coming years. . . The Washington-based IMF, which currently holds 3,217 tonnes of gold, is the third-largest official holder of the precious metal after the United States and Germany. India is the world’s biggest consumer of gold, importing between 700 and 800 tonnes of the metal every year or 20 percent of global demand.
India’s Initiative: A Bellwether for Government Gold Buying?
The amount of money that India’s central bank spent on gold is not as significant as the fact that they bought gold at all.
For the past fifteen years, major governments like France, Russia, and Germany have been selling gold on the open market. This has obviously had a bearish effect on the price of gold.
This year, not only are none of the major holders of gold selling the metal, but up-and-coming countries like India and China are buying it. China recently reported that it was doubling its gold reserves to 1,054 tonnes.
Both of these countries are selling U.S. Dollars and buying hard assets. They simply believe that the dollar will continue to fall. The fact that the Fed announced today that they would hold the Fed Rate to 0.25% for the foreseeable future backs their argument.
Last week, I told you about a "double top" in the Russell 2000 and that you should buy puts on the corresponding iShare (NYSE: IWM). Those puts surged 59% the next day.
Today I’d like to take a look at the ten-year gold chart. . .
Pent-up Energy in Gold
I’ve circled patterns on the ten-year gold chart above. These patterns are called "coiled springs." The thinking is this: markets tend to go from trading for long periods of time in tight ranges. This is interrupted by massive breakouts. Sideways markets build energy like a weight on a coiled spring; when the weight is removed, the spring leaps forward.
The chart shows that after each sideways period (lasting roughly two years), the price of gold jumped an amount equal to that which it went sideways. This would suggest that this rally is going to push gold to $1,450 to $1500 an ounce.
And that’s just for starters. . . I personally believe that the next liquidity-fueled bubble market will be in gold and other hard assets.
One of the most obvious ways to play this surge in gold prices is to buy junior gold miners — and I’ve been recommending those all year, to my readers’ good fortune.
Go Down Stream
Another way to play the new gold boom is to buy companies that help miners mine the yellow metal.
You may not be aware of it, but there is a new gold mine in Mongolia. In fact, it is the world’s largest — a mine bigger than the state of Ohio!
The spending on this mine will double the GDP of Mongolia. That’s right — double. . . which means Mongolia will become to Central Asian minerals what Dubai is to Middle Eastern oil.
This boom all stems from a recent government corporate tax cut from a draconian 68% to a more modest 30% of profits.
And this is just the first deal. Mongolia is rich in mineral wealth. The floodgates have been thrown open.
This coming gold rush in Mongolia will flood the country with cash. Early investors will literally make their fortunes.
That’s why I’m getting on a 26-hour flight this coming Monday — and braving the cold (the high on Sunday was 13°F), to find out the best way to play it. I’ve arranged to meet with the largest broker in Ulaanbaator and some well-connected ministers and politicians.
Believe me. . . my date book is stuffed with tours and meetings. I will be doing my due diligence with my boots on the ground. Look for my report in your inbox on January 1, 2010.
Stay tuned for more next week,
Christian DeHaemer
Editor, Wealth Daily
(and soon-to-be-launched Crisis and Opportunity)
