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FBIOX, Fidelity's Select Biotechnology was a standout performer in the recent past but I have no idea where they stand today. Just wondering if you've also considered ETF's as a possibility. You might also look at some wide-mandated health care funds (e.g. PRHSX) to see if they may contain healthy slices of biotech holdings.
The health care sector has been hit or lots of misses for me over the years and I've settled on just one that I care to hold longer term - FSMEX.
Biotech stocks resemble a landscape filled with craters. The two ETFs that cover the sector, IBB and FBT, are hurting badly, YTD, 1yr or 3yr. FBIOX is down about 15% YTD while broader-based HC funds have not kept up with the stock market as a whole. I owned CELG until it was bought up by BMY which I kept for a while. The stock rose to nearly $70, but it now trades for about $53. At one time it was a M* 5 star pick, but it turned out to be a value trap. I feel lucky to have exited when I did. For a pure growth HC fund, BHCFX has impressed, but it’s volatile.
The biotech space is very volatile though one which I have involvement. As noted above, IBB and FBIOX are good choices which contain several well known and familiar names and with good overall portfolios. There are funds with a more clinical stage focus, such as ETNHX. I've owned that for about 6 years with good results, though it's not for the squeamish. As Mark noted, FSMEX is an excellent choice in the healthcare space. I swapped VGHCX for FSMEX last year, and frankly, should have done it years ago. That one's a Great Owl, and deservedly so.
Biotech stocks, not necessarily the technology itself, vastly outperformed the market and the healthcare indices from the GFC through 2015. Since then, it has been hard to make money consistently in the sector. I've tried, but not successfully. Cathie Wood has been burned on IONS, a stock I hope to see recover after tax-loss selling, but it's no sure thing. M* is very positive on the stock, rating it very undervalued. Same for INCY.
@Bobby: I think it's laudable to add to a fund that has been punished by fickle investors. I have a decent chunk in BHCFX, to which I've added this Fall.
The biotech CEF, HQL, has been pummeled with the assets declining to the point where the fund trades at a small discount, whereas it has traded at a usual discount of around 8%. I see this discount shrinkage as quite unusual because it is not due to increased demand for the shares.
It’s not surprising that the whole biotech sector is under pressure when one its guiding lights really screws up. The report talks of 1000 layoffs at Biogen and great disruption. There’s a link in the report to an in depth published article on the debacle in STAT.
The Times reported on Sunday that a large chunk of the contemplated increase in Medicare Part B premiums is due to the projected cost of this new drug, which according to many, does not work.
PRHSX held 29.3% of its 200 name portfolio in biotech as of 09-30-2021.
I've owned the fund for a long time, and the key to me has been to buy it and forget it. An investment in a health sector fund is definitely a long term (10+ years) prospect.
It’s not surprising that the whole biotech sector is under pressure when one its guiding lights really screws up. The report talks of 1000 layoffs at Biogen and great disruption. There’s a link in the report to an in depth published article on the debacle in STAT.
The Times reported on Sunday that a large chunk of the contemplated increase in Medicare Part B premiums is due to the projected cost of this new drug, which according to many, does not work.
To quote a old time radio broadcaster, "now, the rest of the story ..." Aside from serious questions about the drug's efficacy,
One F.D.A. adviser called the approval of the drug perhaps “the worst approval decision that the F.D.A. has made that I can remember.” A congressional inquiry later found that the F.D.A.’s process for approving Aduhelm had been “rife with irregularities” and involved “lapses in protocol,” including unusually close collaboration with Biogen.
Biogen had licensed Aduhelm from Neurimmune (Swiss). With recent revenues from the drug so small that Biogen isn't even reporting them, and with Medicare paying for the drug only in clinical trials, Biogen is about to let its license lapse.
To relate this to a current thread, Primecap (the management company) holds the largest percentage (11.05%) of Biogen, and Primecap (the fund, VPMCX) has 3.37% of its assets invested in Biogen. BIIB is down 13.59% in the past year (through Jan 30th), resulting in overall losses in the past 3, 5, and 10 years.
Perhaps the desperation to try something... anything... to help with Alzheimer's disease may have led down a blind alley with Aduhelm. Maybe a forgivable lapse on the part of the FDA.
Following msf's link below, the NY Times article notes that "The F.D.A. itself acknowledged that it was unclear if the drug was beneficial when it approved Aduhelm last June, authorizing it for people with mild Alzheimer’s-related cognitive decline."
Rare, but not unprecedented. The NYTimes article at the time said only that
The decision [was] extremely unusual for Medicare, which almost always automatically pays for drugs that the F.D.A. has approved, at least for the medical conditions designated on labels.
Here's a JAMA piece from last June discussing circumstances where Medicare might refuse coverage. It concludes with the observation that "Medicare’s ability to limit payment for therapies that may not meaningfully benefit patients with Medicare is a commonsense necessity for this crucial taxpayer-funded program." It also obliquely references the upcoming SC case Loper Bright Enterprises v. Raimondo that could limit agencies' discretion in administering statutes.
Even as a physician, I have a hard time figuring out biotech. I am personal friends with one of the Lecanemab investigators, but of course he could not share the news of it's effectiveness until it was publicly available in late 2022. With a press release 10/2022 BIIB popped 38%. Unless you knew someone and got inside information, it would have been hard to take advantage of it before the news hit.
Years ago, a urologist friend of mine, who was enrolling patients in the study of what became Viagra, told me it looked like it "really" worked, as the results, vs placebo, were pretty obvious! I am sure he bought a fair amount of Pfizer stock, although unless he sold it he may be underwater now.
The bottom line is it is very difficult for a professional biochemist or physician investigator to predict what will happen in any specific clinical trial, unless there is a striking and easily identifiable difference between treatment and placebo, as with Viagra. There have been multiple trials of mabs for Alzheimer's and probably billions of dollars spent until one was approved.
However, Biogen stock is selling below it's price when the research was released and a fraction of it's all time high in 2015.
Biogen is partners on Lecanemab which unlike adhelum, looks like it does have a significant effect on Alzheimer's, although it is modest and it is unclear how long it will last, and whether it will really reduce economic burden of Alzheimer's long term. (A completely rational approval process would have required evidence that it was cost effective, ie reduced long term costs of Alzheimer's, but the FDA laws do not require that, and the Alzheimer's lobby would have fought it tooth and nail; they called the conditional approval of adhelm "immoral" although it of course has been basically discontinued) Biogen has since dropped adhelum because it is minimally effective.
Biogen is furiously concocting new markets and new approaches.
How much of this hits the bottom line at BIIB is unclear. With new Alzheimer's tau protein blood tests available, if people with minimal forgetfulness are approved for treatment, the market may indeed be huge, but there will be a furious fight over approvals and prices etc as this has the potential to be budget breaking.
Medicare is trying to prevent store front clinics "Get you memory test here and we will fix it" by requiring registries and certifications. They may be less success with the obesity drugs and some weight loss clinics have been using them off label for years.
Probably argues for an equal weight biotech fund or just sticking to general health care funds.
Unless you knew someone and got inside information, it would have been hard to take advantage of it before the news hit.
Since 1997, it has been illegal to trade on inside information even if you have no connection to the company aside from getting the inside info.
Under the classical theory of insider trading, insiders who “tip” friends about material non-public information which may influence the company’s publicly traded stock price may be liable. Because friends do not satisfy the definition of an insider, a problem arose regarding how to prosecute these individuals. Today, a friend who receives such a tip has the same duty as the insider imputed onto them. In other words, a friend may not make a trade based upon that privileged information. Failure to abide by the duty constitutes insider trading and creates grounds for liability. The person receiving the tip, however, must have known or should have known that the information was company property to be convicted.
I used these as examples of how complex biotech investing is, as the results of double blind placebo trials are my their very nature not really known unitil the trial is over.
AS far as insider trading goes "The person receiving the tip, however, must have known or should have known that the information was company property to be convicted."
Just judging by what I remember of recent failed prosecutions for insider trading, the farther out you go from the source, the more difficult it is to convict. What exactly constitutes "company property"? Information on a merger sure; a data file about the effects of the new drug, sure. But a rumor from a participant in a drug trial who noticed dramatic improvement? Probably not.
In my examples, a doctor running the trial of the Alzheimer's medicine might see some of his patient's scans improving and thinking the medicine had a effect, but who knows how positive. Only when the placebo code is broken does anyone know the % of improvement and side effects, and therefore if it is effective. He would clearly be an insider as an agent for the company.
The Viagra example is a bit different, I think. The effects were immediate after taking the pill and the only issue was it a placebo effect, and the side effects. With a small sample size the latter would be unknowable, but you could guess at placebo effect.
I am bet a lot of urologists and their friends and family bought Pfizer stock based on these rumors. It would be difficult to prosecute them for insider trading unless they bought thousands off shares, and even then, very complex.
In your initial example, the person hypothetically tipping an outsider "of course ... could not share the news ... until it was publicly available." Regarding the tippee, "Unless [the tippee] knew someone and got inside information, it would have been hard to take advantage of it before the news hit."
With that fact pattern, the tippee here would have known that the information conveyed was inside information (the exact words in the hypothesis). But even if not, they should have figured that out.
In your later example, urologists are gleaning low grade information about the progress of a clinical trial from examining their patients. I agree that the connection of that information to the sponsor may be tenuous. Though there is the argument that the information is still confidential due to the doctor/patient relationship. See:
I disagree with the inference that the low quality of the data (small sample size, unknown whether placebo was used, unknown side effects) rendered the information immaterial. By assumption, "a lot of urologists and their friends and family" traded on this information. From a securities perspective, that would make the information material.
Finally, it's hard to disagree with the fact that most people trading on such information wouldn't be charged, let alone convicted. That still doesn't make it legal or proper.
Could biotech be like international, emerging markets, or small caps, where active management and/or single stock picks may work better than a shotgun approach or buying a wide swath (with most funds weighing them by market cap, so performance would be heavily skewed towards matching AMGNs, BIIBs, etc., similarly to how the S&P is heavily skewed to the top 10 market weight stocks)?
Also, there’s a difference between finding the next $5 to $100 pre-approval biotech stock, and investing in those that have established products and a good pipeline (AMGN, VRTX, ARGX, AXSM are some that I hold/have held).
FBIOX had a great performance track record until probably the pandemic….it had access to some privately held companies due to its size. The TRP healthcare fund was always heavily in biotech in the 2000’s-2010’s.
Maybe biotech is similar to “disruptor tech.” The science and ideas behind them are cool, but more money is lost looking for the next big things than for waiting for the science/medicine/tech to become established and for companies to starting earning revenues (or better yet, profits) from them. I got burned by the disruptor/innovation ideas by buying in mid-to-late 2021, after so many stocks (and ARK funds) skyrocketed, only to crash and burn in ‘22 (appropriately so, in most cases).
(I finally sold out of FBIOX and FSMEX in early ‘23…after holding for a year plus. And don’t follow PRHSX, TRP’s healthcare fund, anymore)
Not sure WHERE to go for active management, so maybe steer clear and buy the pharma companies who buy the promising biotech stocks for their pipelines?
I have been in PRHSX for a long time, I bought it when Kris Jenner used to run it, After he left I was not sure but now I am not disappointed. It is a good all in one healthcare fund with mix of biotech, pharma andd managed care
@Graust, great posts and so good to see you posting here. I always learned a lot from you on M* forum.
Fully agree with your notions in first post. I marveled at FBIOX in its heyday years and always considered buying it. In retrospect, glad I didn't.
I too would group biotech, international, emerging markets, and small caps as categories that demand active mgmt and would add, that are so hard to find consistently worthy funds to hold LT. That said, we recently added GSIHX for FLCG as a possible LT, core holding and are looking at two actively managed SCs as possible BUYs.
@mulder420 PRHSX was a great fund when Kris Jenner was leading it. Now, it is an above average fund. I am also in it since Kris managed it. Wish he stayed with Trow Price.
Comments
The health care sector has been hit or lots of misses for me over the years and I've settled on just one that I care to hold longer term - FSMEX.
@Bobby: I think it's laudable to add to a fund that has been punished by fickle investors. I have a decent chunk in BHCFX, to which I've added this Fall.
The biotech CEF, HQL, has been pummeled with the assets declining to the point where the fund trades at a small discount, whereas it has traded at a usual discount of around 8%. I see this discount shrinkage as quite unusual because it is not due to increased demand for the shares.
https://www.wbur.org/news/2021/12/10/biogen-aduhelm-reckoning-alzheimers-drug
It’s not surprising that the whole biotech sector is under pressure when one its guiding lights really screws up. The report talks of 1000 layoffs at Biogen and great disruption. There’s a link in the report to an in depth published article on the debacle in STAT.
The Times reported on Sunday that a large chunk of the contemplated increase in Medicare Part B premiums is due to the projected cost of this new drug, which according to many, does not work.
I've owned the fund for a long time, and the key to me has been to buy it and forget it. An investment in a health sector fund is definitely a long term (10+ years) prospect.
https://www.nytimes.com/2024/01/31/business/biogen-alzheimers-aduhelm.html
To relate this to a current thread, Primecap (the management company) holds the largest percentage (11.05%) of Biogen, and Primecap (the fund, VPMCX) has 3.37% of its assets invested in Biogen. BIIB is down 13.59% in the past year (through Jan 30th), resulting in overall losses in the past 3, 5, and 10 years.
Following msf's link below, the NY Times article notes that "The F.D.A. itself acknowledged that it was unclear if the drug was beneficial when it approved Aduhelm last June, authorizing it for people with mild Alzheimer’s-related cognitive decline."
https://stockcharts.com/h-sc/ui?s=BIIB&p=D&yr=3&mn=0&dy=0&id=p24954451375
Rare, but not unprecedented. The NYTimes article at the time said only that https://www.nytimes.com/2022/04/07/health/aduhelm-medicare-alzheimers.html
Here's a JAMA piece from last June discussing circumstances where Medicare might refuse coverage. It concludes with the observation that "Medicare’s ability to limit payment for therapies that may not meaningfully benefit patients with Medicare is a commonsense necessity for this crucial taxpayer-funded program." It also obliquely references the upcoming SC case Loper Bright Enterprises v. Raimondo that could limit agencies' discretion in administering statutes.
https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/2808074
https://www.scotusblog.com/2023/05/supreme-court-will-consider-major-case-on-power-of-federal-regulatory-agencies/
Years ago, a urologist friend of mine, who was enrolling patients in the study of what became Viagra, told me it looked like it "really" worked, as the results, vs placebo, were pretty obvious! I am sure he bought a fair amount of Pfizer stock, although unless he sold it he may be underwater now.
The bottom line is it is very difficult for a professional biochemist or physician investigator to predict what will happen in any specific clinical trial, unless there is a striking and easily identifiable difference between treatment and placebo, as with Viagra. There have been multiple trials of mabs for Alzheimer's and probably billions of dollars spent until one was approved.
However, Biogen stock is selling below it's price when the research was released and a fraction of it's all time high in 2015.
Biogen is partners on Lecanemab which unlike adhelum, looks like it does have a significant effect on Alzheimer's, although it is modest and it is unclear how long it will last, and whether it will really reduce economic burden of Alzheimer's long term. (A completely rational approval process would have required evidence that it was cost effective, ie reduced long term costs of Alzheimer's, but the FDA laws do not require that, and the Alzheimer's lobby would have fought it tooth and nail; they called the conditional approval of adhelm "immoral" although it of course has been basically discontinued) Biogen has since dropped adhelum because it is minimally effective.
Biogen is furiously concocting new markets and new approaches.
https://investors.biogen.com/news-releases/news-release-details/eisai-presents-new-leqembir-lecanemab-irmb-investigational
How much of this hits the bottom line at BIIB is unclear. With new Alzheimer's tau protein blood tests available, if people with minimal forgetfulness are approved for treatment, the market may indeed be huge, but there will be a furious fight over approvals and prices etc as this has the potential to be budget breaking.
Medicare is trying to prevent store front clinics "Get you memory test here and we will fix it" by requiring registries and certifications. They may be less success with the obesity drugs and some weight loss clinics have been using them off label for years.
Probably argues for an equal weight biotech fund or just sticking to general health care funds.
Since 1997, it has been illegal to trade on inside information even if you have no connection to the company aside from getting the inside info. https://www.law.cornell.edu/wex/insider_trading
Not that anyone here isn't a moral, upstanding investor. But we don't want to get taken by others who might not be quite so upstanding.
AS far as insider trading goes "The person receiving the tip, however, must have known or should have known that the information was company property to be convicted."
Just judging by what I remember of recent failed prosecutions for insider trading, the farther out you go from the source, the more difficult it is to convict. What exactly constitutes "company property"? Information on a merger sure; a data file about the effects of the new drug, sure. But a rumor from a participant in a drug trial who noticed dramatic improvement? Probably not.
In my examples, a doctor running the trial of the Alzheimer's medicine might see some of his patient's scans improving and thinking the medicine had a effect, but who knows how positive. Only when the placebo code is broken does anyone know the % of improvement and side effects, and therefore if it is effective. He would clearly be an insider as an agent for the company.
The Viagra example is a bit different, I think. The effects were immediate after taking the pill and the only issue was it a placebo effect, and the side effects. With a small sample size the latter would be unknowable, but you could guess at placebo effect.
I am bet a lot of urologists and their friends and family bought Pfizer stock based on these rumors. It would be difficult to prosecute them for insider trading unless they bought thousands off shares, and even then, very complex.
With that fact pattern, the tippee here would have known that the information conveyed was inside information (the exact words in the hypothesis). But even if not, they should have figured that out.
In your later example, urologists are gleaning low grade information about the progress of a clinical trial from examining their patients. I agree that the connection of that information to the sponsor may be tenuous. Though there is the argument that the information is still confidential due to the doctor/patient relationship. See:
Insider Trading in the Clinical Trial Setting (2022 preprint)
2023 version:
I disagree with the inference that the low quality of the data (small sample size, unknown whether placebo was used, unknown side effects) rendered the information immaterial. By assumption, "a lot of urologists and their friends and family" traded on this information. From a securities perspective, that would make the information material.
Finally, it's hard to disagree with the fact that most people trading on such information wouldn't be charged, let alone convicted. That still doesn't make it legal or proper.
Also, there’s a difference between finding the next $5 to $100 pre-approval biotech stock, and investing in those that have established products and a good pipeline (AMGN, VRTX, ARGX, AXSM are some that I hold/have held).
FBIOX had a great performance track record until probably the pandemic….it had access to some privately held companies due to its size. The TRP healthcare fund was always heavily in biotech in the 2000’s-2010’s.
Maybe biotech is similar to “disruptor tech.” The science and ideas behind them are cool, but more money is lost looking for the next big things than for waiting for the science/medicine/tech to become established and for companies to starting earning revenues (or better yet, profits) from them. I got burned by the disruptor/innovation ideas by buying in mid-to-late 2021, after so many stocks (and ARK funds) skyrocketed, only to crash and burn in ‘22 (appropriately so, in most cases).
Not sure WHERE to go for active management, so maybe steer clear and buy the pharma companies who buy the promising biotech stocks for their pipelines?
Fully agree with your notions in first post. I marveled at FBIOX in its heyday years and always considered buying it. In retrospect, glad I didn't.
I too would group biotech, international, emerging markets, and small caps as categories that demand active mgmt and would add, that are so hard to find consistently worthy funds to hold LT. That said, we recently added GSIHX for FLCG as a possible LT, core holding and are looking at two actively managed SCs as possible BUYs.