Biotechnology Investing - If it were easy, everyone would

What makes biotech investment is very difficult that 90 percent of companies have no income. Therefore, standard financial analysis (EPS, growth rates, etc.) is irrelevant. If you want to keep the player a few dozen or so profitable, you need to do more "close the numbers." And as companies become profitable to tell their stories better than sliced bread may be qualified, regardless deceiving investors.

This short piece offers severalWarning signs to avoid wasting time in "Never Gonna Happen", so you can spend more time on the following: '. It gotta chance "

First, look for more data points of congruence. No single attribute (for example, large market opportunity) is to guide the investment. Not a red flag (eg, nepotism) should be a deal killer. Each company is different than any other and requires a thorough investigation very specific. You can start with a generic checklist as a starting point for crude oil. ThisPeople, for example, firm age, the accumulated deficit and the capital was badder than all three. A management team that has the top for 15 years and put the boat in circles is probably among investors for a ride. It is said that if something seems a duck and quacks like a duck, it's a hoax until proven otherwise. Through understanding, you can lose an occasional nugget excavators or ten, but it also buys less and your Fool's GoldPortfolio will receive much less often rejected.

Secondly, spend time with research in the history of the company. In general their websites will provide an archive of press releases (PRS). Pay particular attention to the projections (preliminary clinical trials, research a corporate partner, announced the clinical results). You can view the amount of boiler plate text is to be surprised at any PR. More importantly, tracing the company projections, it is easy to see if the company hits its lines of constant time orif you only offer over-promise and under. Re looking for consistency of behavior.

Many investors, professional and are not entitled to most of their investment decisions on the basis of trust in management. More than a capitalist or a venture fund manager told me "..., management, administration. " You may have heard that can drive a very successful management of mediocre art, but poor management is more likely to fail even with the latest aha Doodad. Maybe.But let me temper that a little 'mantra. The with-con in the game is short for confidence. If you're lucky, meet with management, ask a few questions that you know the answer. One source of such issue is the company 10-K annual report form filed with the SEC. For example, in the middle of the 90 years I have learned from a 10-K, a biotech company based in Florida to conduct a clinical study in Florida (and only in Florida) without FDA approval. In an interview, Ithe boss asked why all of its sites of investigation were in Florida. Clearly shocked, the CEO has not been answered. His response helped to calibrate each response that followed. He was very confident of its future success. E 'was ten years after our conversation that the company failed.

should Here are three other red flags that urge caution.

The most common is nepotism a liability, if only because it is a bit 'less than a bona fide professional-oriented information society. And if you3 reveal a preponderance 1) students from the same university, 2) or siblings of the same fraternity or sorority) recruitment patterns, the bias suggests a fool, but routine to be hesitant.

Be careful if there are two classes of common stock. Often the founders, members of the family or a few early investors voting rights of the super-class (for example, 10 votes per share) to be during the rest of us can only buy shares of regular voting (one vote per share). This family-run farms oftenThis approach to control. Problems arise when family problems are not aligned with the interests of investors. The counting of votes, because they are what counts when important decisions to make.

comprising thousands of biotech companies in the last 30 years, finding a catchy name of the information has always been a challenge. There are only so many Greek gods and goddesses to choose from. Clearly, the prefix and suffix nova gene causes them toCourse. Early-stage companies are often identified by a name or two to go before he is down. But for other companies, a name change may say more. Just as people change their name if firm 1) to marry, 2) getting a divorce, or 3) they are hiding from their past. Based on Shakespeare, "What we call a rose (or Stinkweed) / By any other word would smell as sweet (or smell)." Some changes are innocuous name, for example, that a business model changed, the others are reallyCover for an inglorious past.

These are just some of the warning signs that I have collected over the past 30 years. For over 12 years I was a researcher in a major agricultural biotechnology companies, large pharmaceutical companies and small biotech companies. I was a venture capitalist for three years (sixteen of public investment has lost 15 or acquired) and became an independent Buyside analyst since 1995. I have heard many stories.

I am a big fan of Penn State footballCoach Joe Paterno. [Full Disclosure: I obtained my PhD at Penn State ... Go Lions!). One of the most important strategies is the coach has always maintained a strong defense. If the first rule of investing is "do not lose money, 'then the strategy will provide investors with more biotech goods. See, that was not so difficult after all.

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