For developments in AIDS, he cites Vaxgen and Progenics as two companies he likes. For more general biotech investing, he suggests established names such as Amgen and Genentech. Then, depending on risk, an investor might try some companies with products but still no profits, and for a really long shot, companies with no approved products yet.
He made these comments in a chat presented Aug. 2 by BusinessWeek Online on America Online. He was replying to questions from the audience and from David Shook and Jack Dierdorff of BW Online. Edited excerpts from the chat follow. A complete transcript of this chat is available from BW Online on AOL, keyword: BW Talk.
Q: The biotech sector is more crowded than it has ever been. Can you give us your formula for picking biotech stocks? Besides products, what kinds of things do you like to see in a biotech/drug-discovery company?
A: Maturity of products, a strong pipeline, good management, as judged by how they execute -- and will they have enough money that will last them until they can get a product to market?
Q: What is your opinion on Amgen (AMGN
), Human Genome Sciences (HGSI
), and Medarex (MEDX
A: Amgen, which is a bellwether of the biotech sector, is being looked at as a more mature pharmaceutical company because it's fully integrated, and I like the fact that it has developed a good pipeline of new products. On Human Genome Sciences, I'm impressed that they're making an effort to go from a gene-discovery company to a drug developer. Medarex has an excellent technology platform that facilitates the development of antibody-based therapeutics, and the area of antibody-based therapeutics is growing.
Q: How will the House's ban on cloning affect stem-cell research?
A: I think the House ban on cloning will force everyone in the stem-cell space to seek alternate sources of stem cells -- some exist -- though the ban may affect the outcome of some of these research projects.
Q:What do you think of Genentech (DNA
A:I think Genentech is a good company, but it's not as exciting as some of the younger, smaller companies.
Q: Ira, among those smaller companies, can you name a few with promising technologies and talk about why you like them?
A: I like Genta (GNTA
). I like Progenics Pharmaceuticals (PGNX
). For an earlier-stage company, Telik (TELK
). And I like XOMA, which has a partnership with Genentech. All of these companies fit the criteria I listed earlier: exciting products, management that's executing, and a likelihood to get continued funding.
Q: What are some of those exciting products?
A: Progenics, for instance, has exciting HIV programs. Genta has equally exciting anticancer programs. And Telik has an excellent discovery engine that is starting to push products into the clinic. XOMA has exciting products, particularly to treat immune-based disorders.
Q: A question on the intellectual-property front: Which companies have what looks like the most valuable suite of gene patents that may pay off several years down the road?
A: Genaissance (GNSC
) -- just that one.
Q: What is it you like about their technology and patent portfolio?
A: What I like about their technology is that it basically gives you the facts of life. They're using population genomics to help define the safety and efficacy of new molecules, and it may facilitate new uses for old drugs. And I believe they're building a minefield -- i.e., many effective patents around their technologies and discoveries, and I believe that it would be difficult for a competitor to cross that minefield.
Q: Would you recommend Celera Genomics (CRA
) as a long-term investment?
A: It really depends upon how you define long-term. Celera has generated a huge amount of "content," but I have yet to see products. And going back to my original thesis, I like to see products and a product pipeline in companies for a long-term hold.
Q: What do you think of Ligand Pharmaceuticals (LGND
A: They have some promising products that are well-advanced in the clinic and address large markets, such as TSE424, which they have partnered with Wyeth-Ayerst [a division of American Home Products], the leader in hormone-replacement therapy. TSE424 is being studied as a treatment for osteoporosis.
Q: What is your opinion on Immunex (IMNX
A: I think Enbrel is a great product, and, hopefully, they will use the money earned from that product wisely in developing future compounds -- and I love Seattle.
Q: What do you see in Corvas Intl. (CVAS
A: The management of Corvas has done an outstanding job in getting the company's products into the clinics and has done an excellent job in their partnerships. They just hit their first speed bump for NAPC2 [an anticoagulant], and I believe that at worst they may only have to do an additional Phase II study for that molecule and maybe with a little bit of luck move into Phase III.
Q: Ira, can you recommend a good rule of thumb or formula for diversification in the biotech and drug sector for a personal portfolio?
A: You should hold some proven performers like Genentech and Amgen and balance it with some of the smaller, maturing companies that are developing revenue but haven't yet reached profitability. And those two positions can be counterbalanced with some smaller, more speculative names.
Q: If you were to invest, say, 20% of your money in biotech and drugs, how would you allocate that portion among big pharma, biotechs, generics, etc.?
A: It would really depend on your risk profile for that money. You can play it safe and spread it across tried-and-true names like Pfizer (PFE
), Merck (MRK
), Genentech, and Amgen. Or you can take some exposure to those names and follow the formula that I gave earlier by taking some exposure to names that have some revenue but not yet significant earnings. And if you are a real risk-taker, have exposure to names that still have some real risk -- i.e., no product yet approved.
Q: With the AIDS epidemic becoming an international nightmare, what biotechs will emerge with vaccines or treatments?
A: Vaxgen (VXGN
) is furthest along in clinical trials for their vaccines. Progenics is another name I like in the anti-HIV space.
Q: Can you rattle off four or five of the technologies in this industry that you like the best? You seem to like AIDS vaccines. What else is on top of your list?
A: Humanization of monoclonal antibodies, or the ability to produce human antibodies. I also like drug-targeting technologies -- in other words, the ability to direct a molecule to the appropriate cell.
Q: Finally, any last words of advice?
A: Look at maturity of products -- how smoothly have they gone through the clinical testing process? Has management been executing their business plan in a clear and timely fashion, and how has management responded to speed bumps and roadblocks, and has the company been successful in raising capital, and have they been careful in how they spend that capital? And last but not least, do you truly believe that the company will have enough money to get their product over the finish line, or will they have access to that capital?