by Marc Lichtenfeld, Chief Income Strategist, The Oxford Club
Wednesday, August 14, 2013: Issue #2099
A Note from the Editorial Director: If you haven’t already, it’s time to sit up and take notice of the eye-popping gains Marc Lichtenfeld has been delivering to subscribers of his Healthcare Profits Alert trading service. We’ve been honking his horn here at Investment U for a good six weeks now – but after Monday, we realized we needed to do something more.
If you’re one of Marc’s subscribers, you already know what I’m talking about. And if you’re not, you might prefer that I not tell you… but I must.
On Monday, Marc closed out a 775% gain in the options of NPS Pharmaceuticals (Nasdaq: NPSP). (Nope, we’re not missing a decimal point.) And that was just the latest triple-digit winner. Last month, he cashed in a 330% gain by selling half of his calls position on another of his great selections. And shares (not options) of two of his picks are up more than 240% and 138% since he recommended them in November and March, respectively.
What gives? That’s what I wanted to know. So I persuaded Marc to set aside his regular Investment U column this week to help us understand just what’s going on here. He agreed to spend a few minutes one on one with me.
The result follows.
Your track record in Healthcare Profits Alert is amazing. Where do you get your ideas from?
ML: They can come from anywhere, really. Medical trade journals, conferences, sources in medicine or on Wall Street, a newspaper article. There are so many incredible advances in healthcare today so finding a great story isn’t the hard part. Figuring out if it will make a great investment is where the work comes in.
What’s your process? How do you separate the great stories from the great investments?
ML: The first part is to try to understand the market. You could have a great drug or device, but if no one is going to buy it, then it doesn’t really matter. And don’t think that just because a market is small that it can’t be profitable. Many companies have started focusing on rare diseases because even though a market might only be 1,000 patients, a company can charge hundreds of thousands of dollars per year for the medicine. BioMarin (Nasdaq: BMRN) has been very successful with this strategy.
I try to figure out what the potential market is for a drug or device. And I look at what competitive products are already in the marketplace, or that could be approved before or soon after the one I’m studying. Will there be any problems getting insurance and Medicare reimbursement? Things like that.
I also study the effectiveness and safety of the product. Safety is paramount. You can have a great new biotech drug, but if there are safety concerns, approval is anything but guaranteed. And even if it does make it to market, the company may have a hard time convincing doctors to prescribe it.
Do you do this work on your own?
ML: I have a great research team at The Oxford Club that helps me track down data. And I talk to my contacts on Wall Street all the time. These people are wildly successful biotech investors. What I like about them is how cynical they are. I can’t tell you how many land mines they’ve helped me avoid over the years.
On the other hand, when they’re bullish on a company, I know there’s a very good reason for it.
I also talk with management teams, face to face when possible. I visit companies and sit down with executives. It helps to look someone in the eye when they’re presenting their story.
What have you learned from your mistakes?
ML: One of the reasons I try to get to know management is because I’ve been burned in the past. I wrote about that experience last week. The market, but especially biotech, is filled with people who are desperate for you to buy what they’re selling. When I review all of the information, it’s helpful to include how I feel about management.
For example, I’ve always believed that the CEO of ImmunoGen (Nasdaq: IMGN) is a pretty earnest guy. In all of my discussions with him, he never hyped his company or products. In fact, quite the opposite. While he was optimistic, he was also very clear about the investment risks. That suggested to me that he had nothing to hide. And over the years, ImmunoGen has delivered for shareholders and patients.
What else should we know about your process?
ML: It sounds cliché but there really is no substitute for hard work. Although the gains sometimes come suddenly, often my process started years earlier.
For example, I’ve been talking to the management of one of my picks for four years, even though I made the recommendation only nine months ago.
Also, investors should know that the biotech space has risk. Not every position is going to work out. Sometimes, a drug just doesn’t work in clinical trials and there’s nothing in the previous data to suggest that will happen. But I try to go over every detail that I can in order to maximize the chance that I’m making the right recommendation.
Andrew Snyder with Marc Lichtenfeld
P.S. Back in May, Marc introduced a small group of Oxford Club Members to the CEO of a small biotech company during a Club financial tour to Israel – one that he’s been following for years.
And last Monday, this company signed a lucrative agreement with one of the world’s largest pharmaceutical firms. Marc thinks this deal is just the beginning for this company…
“One thing to keep in mind about this deal, while it is potentially very lucrative, it also validates the company’s technology and predictive approach,” Marc said. ”It should signal many more deals to come. This could very well be the beginning of a revolution in how drugs are discovered.”
He told us he thinks this $8.70 stock could shoot as high as $30 over the next year – a gain of almost 250%.
To learn more about this tiny biotech company and how it’s revolutionizing the way new drugs are discovered, click here.Three Triple-Digit Gains Last Month,