My No. 1 Investment Idea for 2018
2017 was a bang-up year for investors.
Just a partial list of assets that posted positive returns last year would include the Dow, the Nasdaq, the S&P 500, the Russell 2000, most international and emerging market stock indexes, U.S. home prices, the euro, the yen, the pound, the Swiss franc, the Chinese yuan, the Indian rupee, the Mexican peso, the Canadian dollar, virtually every cybercurrency, gold, silver, platinum, copper, cotton, wheat, crude oil, gasoline, high-grade bonds, high-yield bonds, municipal bonds, Treasury Inflation-Protected Securities (TIPS), and real estate investment trusts.
(In short, if you didn’t make money in 2017, you really ought to consider turning your portfolio over to somebody else.)
2017 is history now, of course. And 2018 - like the beginning of every year - is a blank slate.
Yet we investors have to choose where to place our bets and - just as importantly - how big to make them.
For my money, one of the most promising sectors this year is small cap and midcap biotechs.
Why? Partly because Big Pharma is seeing a wave of highly profitable drugs come off patent. That means it urgently needs to refill its pipelines - and one of the best ways to do that is to acquire smaller competitors with promising new therapies.
Partly, too, because the FDA recently announced plans to allow quick approval of cancer drugs if they show early and “outsized” survival benefits for patients, even in smaller studies.
And partly because the pace of new discoveries in the biotech industry is nothing short of astonishing. Consider, for example:
- The Food and Drug Administration approved more than 140 original applications for drugs and biologics in 2017.
- For the first time in 22 years, it approved a new medication for Lou Gehrig’s disease, Radicava.
- The FDA also approved Ocrevus, the first drug for people with aggressive multiple sclerosis.
- In preliminary research, scientists used spinal injections of an experimental drug to lower the levels of toxic proteins in the brains of patients with Huntington’s, a deadly inherited neurological condition.
- A new class of drugs is in development that would not only treat but prevent migraine headaches, a huge relief for the more than 35 million Americans who suffer from them.
- There have been enormous breakthroughs with CAR-T drugs that treat cancer using a patient’s own re-engineered immune cells. These treatments often lead to sustained remissions.
- Leukemia and lymphoma patients also got new hope from the first U.S. approvals of gene therapy to treat those diseases.
- New gene therapies for hemophilia are still in the testing phase, but results are so promising that the prestigious New England Journal of Medicine ran an editorial with the headline “A Cure for Hemophilia within Reach.” (Notice the absence of a question mark.)
- An approval granted by the FDA last year allows 23andMe customers to use DNA samples to learn about their potential risks for everything from Parkinson’s to late-onset Alzheimer’s.
- In 2018, the FDA is expected to approve new, less toxic treatments for breast cancer. (These drugs are already available for ovarian cancer.)
- And early this year, we should see a potential cholesterol breakthrough. Clinical trials are expected to show that Praluent - a drug made by Sanofi and Regeneron Pharmaceuticals - dramatically lowers LDL, or bad cholesterol levels, when statins can’t do the job.
Expect dozens of exciting health stories in 2018. We are likely to see breakthroughs in the treatment of neurological diseases, HIV, retinal dystrophy and several cancers.
You don’t want to just celebrate the scientific achievements, however. As an investor, you should share in the profits of these exciting new developments.
And the best way to do that is with a careful selection of small cap and midcap biotechs - the kind I’ll be talking more about here in the weeks ahead...
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