What I learned in my first 90 days investing in Biotech Stocks
Posted on December 17, 2019 by Medtech[y] Staff
I’m the founder of Medtechy, the place for the latest biotechnology & medical device company intel, and career opportunities in medical sales.
Medtechy has evolved from a forum site, with over 500 anonymous biotech and medical device company message boards, to now focusing on the news that drives those industries, along with the ability for employees and investors to interact on those same company forums.
The goal is for investors to get information from employees and investors sharing their expertise on the industry and companies they follow, proving an intersection of knowledge sharing for the healthcare industry, specifically the biotech and medical device industries.
I’ve always had an interest in investing, buying my first stock at age 16 with a Charles Schwab account that I setup on my own. The company was Manor Care, as this was before the wide use of the internet, I would call each day and get the closing price so I wouldn’t have to wait to find out the next day in the newspaper.
How times have changed.
Having a background working in the Medical Device industry, I have been able to bring a unique skill set and understanding of the FDA process and opportunities in surgery, specifically robotic surgery. This has led me to utilize this knowledge to investing in medical device companies who’ve brought exciting technology to the market, such as Nevro and Intuitive Surgical. While these are two of the better performing stocks in the medical device industry in the last several years, the industry as a whole is actually a lot less exciting than the surgical procedures those companies are creating and supporting. The returns and interest in the overall industry are kind of bland.
So what did I do? I caught the biotech stock bug.
While I have an overall understanding of the FDA and the healthcare industry, Biotech is an entirely different animal. Like, a whole new species. The potential returns trump the medical device industry. On the contrary, the potential losses in Biotech stocks are also greater as well.
In order to get my feet wet, I decided to take my first 90 days investing in Biotech stocks and document the process for others who are interested in the industry.
I am no expert and have so much to learn about the science, the FDA process, studies, terminology, the list goes on. In the first 90 days, I’ve actually been lucky and had some great success but that wasn’t without several nerve racking moments and intra-day losses that could have been realized if I had a weak stomach.
I’ve used so many different trading platforms in the past, but I never felt like the mobile experience was what it could be. I had heard about Robinhood and decided to give it a chance and have been very pleased with the experience.
One of the hits on Robinhood is its interface as it almost makes the user feel like they are playing a video game. It truly is that easy to use which means it could be that easy to lose money if you aren’t focused, realizing you are using real money.
Robinhood was recently caught up in a story where traders from the Reddit community, Wallstreetbets, found a glitch that allowed users to trade options with unlimited dollars with no risk.
Point is, the app is great and I’ve been able to get the prices I want. However, it is worth reviewing some of the other trading platforms now that many brokerages are offering free trading like Robinhood does.
My First Biotech Stock
Knowing what I know now, after 90 days investing in biotech stocks, I picked the best stock for a newbie to get their feet wet in Biotech. The company is Amarin and they make Vascepa, otherwise known as Icosapent ethyl, which is a type of omega-3 fatty acid, a fat found in fish oil. Vascepa, approved to help lower triglycerides for those with severe hypertriglyceridemia has been in the process of trying to get approved for an expanded label to help lower cardiac risks.
The company is going for the expanded indication based on a study called REDUCE-IT, which showed that patients taking Vascepa to control their lipid levels saw a 30% risk reduction in total major adverse cardiovascular events compared to those taking a placebo.
Why was it the best first biotech stock to invest in? For one, it is an easy drug to understand. Trust me, most of the drugs are not easy to understand. They take more in depth knowledge and work to get a comfort level with the science behind the drug. The science is what makes or breaks the drug and company you are investing in so you better do your due diligence in understanding.
While Vascepa isn't fish oil, it is close enough to understand that a patient will understand it when a doctor discusses it with them. Additionally, there are a lot of Vascepa TV commercials running lately and the concept behind the drug is easy for patients to relate to and understand.
Finding a company with a drug that makes sense eases the burden in understanding the science for a newbie. Now that’s not to say it there hasn’t been risk involved as there were many catalysts that could literally cut a stock in half or increase the price by 100%.
These are called binary events and we will get to them shortly. They are plentiful in biotech investing.
With Amarin, I opened up my first position at an average price of $14.66, and have continued to add over the last four months, bringing my overall position to 7806 shares with an average cost of $16.19. With the most challenging stomach churning events likely past me, I’m happy that the current price closed today at $21.38.
That success didn’t come without stress and the potential for significant losses. Back to binary events.
From a learning perspective, the great thing about opening up my Amarin position at the time I did, was to see and go through a number of binary events and catalysts that can make or break a biotech stock.
The FDA had called an AdCom (Advisory Committee) meeting, which was scheduled for November 14.
What’s an AdCom Meeting?
According to the FDA website, advisory committees (AdCom) provide the FDA with independent advice from outside experts on issues related to human and veterinary drugs, vaccines and other biological products, medical devices, and food.
To many, an AdCom meeting is the most important day of a product’s life cycle as the FDA generally follows the advice of those who vote in the AdCom meeting.
Once the committee votes, the FDA typically has 30 days to make their decision based on the recommendation at AdCom.
In the case of Amarin’s Vascepa, the AdCom committee voted 16-0 for an expanded label with varying degrees of confidence of what that label should look like. Again, that’s up to the FDA to decide. The AdCom committee just provides a recommendation.
What’s also important to understand are that these meetings are meant to be a debate, most of the time discussing the worst case scenarios and debating issues that may not even be valid, all to ensure every base is covered before the vote takes place.
This can be a very stressful time for investors as you really don’t get a sense of how the meeting will go, as one minute you think the company is doomed and the next you think the vote will without question be positive.
One thing to note is that a company’s stock is halted during AdCom meetings which makes the stress for an investor even worse as they can’t sell if the meeting looks like it is going poorly.
I also had an experience with another AdCom meeting but I’m saving that for another post. The company is Agile Therapeutics and they are still waiting on a final decision from the FDA, which is expected by the end of February 2020. Their story is not all that unique in Biotech. If you are looking to learn more about the company and their history, here is an article we wrote earlier this year.
In the case of Amarin, the AdCom vote was 16-0 and the FDA had until December 28, 2019 to make their final decision on whether they would expand their label to include an indication to reduce cardiac risks.
The month leading up to the decision was stressful and exciting as the expectation was that the FDA would expand the label, which is great, but that could mean a number of things. Will it be broad enough where investors are happy as more patients have access to the drug? Or will the label be too narrow, thus upsetting investors enough where the stock reacts negatively?
On December 13, 2019, which happened to be a Friday, news broke that Amarin’s stock was halted pending news. On the StockTwits AMRN board, all mayhem broke loose. Was it a buyout, did the FDA make their decision, was it good, was it bad?
Those are a few of the tamer posts on the forum. Either way, this Friday the 13th was going to make or break most of us. Some in the StockTwits community have been waiting 10 years for this decision. I was a mess, pacing back and forth at my WeWork office, looking like a crazy person. Forget the fact that I only owned the stock for 4 months, I felt knots in my stomach for the first time in years.
Typically stocks are halted for an hour or two until the news is announced. Seeing the stock was halted at approximately 12:06 central time, worst case we should be back up and running by 2p.m. Fast forward a couple of hours and no news. Nothing. Stock still halted. You can imagine people started thinking the worst.
Eventually the news hit that the FDA approved Vascepa to reduce cardiac risk. The market was closed at this point but they did end up lifting the halt in after-hours trading which was fun to watch. The stock had a nice increase in after-hours trading but ended up giving it all back and then some on Monday and Tuesday.
That’s another learning point: selling the news. Who would have expected that a company’s stock would take a ~15% hit after getting the approval that so many people had been waiting on for years?
I’m quickly learning that anything can happen with biotech stocks. I have the stomach for it but there’s no question the movement gets you questioning your thesis.
While I’m up 30% on Amarin since August, I will be holding this position long-term as I truly believe this is a life changing drug for so many people. The fact is, I’d be hard pressed to name a better buyout candidate for a big pharma company to acquire very early in 2020. It could come as early as the JPMorgan healthcare conference in January.
While I’ve focused on one company’s stock in my first 90 days of biotech investing, it’s fair to say I’ve caught the bug. I’ve been adding to my Amarin position and currently have 10k shares of their stock. I also hold a sizable position in Agile Therapeutics (Nasdaq:AGRX) and VBI Vaccines (Nasdaq:VBIV), both of which are expecting an exciting beginning to 2020.
I’ve embraced the StockTwits community to learn and ask questions which helps point me in the right direction to work on my own due diligence. I’ve also learned enough in my years of investing to follow the smart money, which in biotech investing means Perceptive Advisors and Baker Brothers Advisors who are both very successful biotech investing funds. I plan on writing a separate post in the near future about their history, some of their investments and what they’ve meant to the biotech and life sciences industries.
I’m hooked on biotech investing and it works very well with Medtechy and the companies so many of our visitors discuss everyday on our anonymous forums. I know there will be bumps along the way and you need to learn when to cut your losses and balance that with holding strong to your thesis.