No Bubble Here: Profiting From Idiocy

Dear Reviewer,

Lately, investors have a Trumpesque obsession with China. They are gnashing their teeth about oil prices. They are wetting their pants over a slowing global economy.

I understand why selling stocks in many sectors that will bear the impact from these threats might seem to be a good idea.

But biotech? The idea that these macro factors will impact biotech must include the thinking that people aren’t going to buy any more health care when they get sick.

Nothing could be more stupid.

“Honey, China devalued again and gas just hit a buck fifty down at the convenience store. Let’s cancel the vacation and the new car, and please tell my doctor I won’t be taking any more meds to control my chronic leukemia…”

Said no one ever. And I don’t mean the vacation or the Porsche, either.

The overall fears are real, of course. Legitimate, too. But maybe someone will be able to explain to me how low oil prices damage a biotechnology innovator’s odds of sailing through a pivotal trial with flying colors.

Or how Chinese worries will cause an FDA New Drug Application to be rejected.

Or even how a full-blown recession will affect the quickly ramping revenues that come with a lifesaving new therapy as people break down the doors to get it.

And even if the dreaded “R” word comes to be, it will not beat demographics. The boomers are starting to get old. Back to back, we lost two music icons from that generation recently. David Bowie earlier this month, followed by Eagles guitarist Glenn Frey.

Both of these superstars were born during the early beginning of the postwar baby boom. It is the leading edge of a gray wave that is landing on the entire developed world.

Let’s face it: Health care spending isn’t going anywhere. People are getting older. Older people get sick more often. They face life-threatening diseases more often. And they are desperate for cures.

Let’s face it: Health care spending isn’t going anywhere.

A developed world needs new pharmaceuticals, biologics and medical devices that can help save costs and extend healthy life span.

This is not just in the abstract economic sense. It’s you and me. Just like anyone else, older people want to be healthy and alive. That’s especially true of the feel-good boomers. If history is any guide, what the boomers want, they get. The therapies being developed now won’t go away. They will still be around for when your friendly Gen X biotech analyst needs them.

My point is this: The world as we know it would have to come to an end for any of these economic factors to affect the long-term prospects for biotech.

And while the herd runs for the exits, the smart money is looking around and snapping up valuable biotech at fire-sale prices.

“Sure,” you might say, “but look at how much biotech has risen in the past five years. It is in a BUBBLE!”

Is it? Last week, a Forbes article by Jake King drew my attention. It looks at the long-running trend for biotech stocks by examining a logarithmic chart of the NYSE Arca Biotech Index going all the way back to 1992. This chart goes back to when biotech was still in its infancy.

Over the past 24 years, biotech has, on average, doubled every four4 years or so. This makes sense. As a brand-new industry, biotech has grown incredibly over the past 2½ decades.

But in reality, we are just barely scratching the surface of what we can — and will — do with biotech. This market is still far from being mature. Every day, new discoveries are being made that build upon older ones.

A big recent one is CRISPR technology — a new way to edit genes in any form of life with DNA. That’s not just bacteria, earthworms or maize, by the way. That’s humans, too. With CRISPR, we might be able to delete or rewrite bad genes in our own bodies.

Imagine writing in a gene to correct for mutations in cancer cells. Or genetic diseases. Or even just genes that increase your risk of something awful happening by the time you’re 60.

Or even imagine editing a set of genes that slows or arrests aging… the world will never be the same. Congressional term limits will come in really handy if that happens.

The CRISPR field is red-hot, and there will be Nobel Prizes forthcoming at some point for the discoverers who are given credit. A recent paper about the history of CRISPR’s discovery at Cell titled “The Heroes of CRISPR” has sparked a food fight over who is named as part of the discovery process and who is not. There is also fierce debate over CRISPR IP rights. That’s because many expect the future value of CRISPR as it becomes commercialized to sit somewhere in a range between astronomical and incalculable.

The CRISPR field is red-hot

So biotech isn’t dead, and now is no time to panic. Now is the time for us to keep our eyes open for well-researched buys in promising biotechs that are getting ready to jump from zero to hero, earning smart traders like you fat fast profits.

And the beauty of 2016’s stampede is that we can now get into these plays for cheaper than before.

To a bright future,

Ray Blanco