Banner image: Ben Colson, an associate scientist at Biogen Idec’s Tumor Biology lab in San Diego works on a cancer cell signaling project. Photo by Tim Ingersoll

Buying Into Biotech
Biotech’s big in La Jolla. You might have guessed it if you’ve ever lost your way after a game of golf at Torrey Pines. Driving directions read something like: "Science Center Drive," "Hopkins Road," and the ultra-classic, "Road to the Cure."

Makes sense. San Diego’s booming life science community is home to some 500 companies, over half of which are perched up on the mesa and spill into Sorrento Valley. Players range from emerging biopharmaceutical companies like ActivX, to blue-chip stalwarts like Pfizer (PFE), Johnson & Johnson (JNJ), and Biogen Idec (BIIB).

"Biotech in La Jolla is the most densely concentrated in the country," says Joe Panetta, president of Biocom, SoCal’s premier life science industry association. "Literally, people can walk across the parking lot from company to company, research institute to research institute, to collaborate with each other.

It creates an environment where a lot of things happen as a result of the synergy." This makes for a hotbed of innovation and expertise.

John Kozarich, PhD, president of ActivX and former VP of Merck Research Laboratories, agrees. "It’s a really interesting mix of academia, biotech, and 'Big Pharma'...there’s a lot of cross-fertilization between those different groups. The people at Scripps and Salk are generating a lot of interesting research ideas and concepts to generate new companies."

Corporations are catching on to the creative vibe, and money flows through the region like Temecula wine. Since 2000, Pfizer’s poured $2 billion into R&D at its 33-acre research campus — more than $6 million a week. Even with that outlay of cash, investors anticipate a healthy return. U.S. health care spending is expected to double by 2016 to a whopping $4.1 trillion per year. The current annual economic impact for the San Diego region alone is $8.5 billion.

Hot stuff is happening here. "The future of medicine is in biotech," says Carmen Medina, a biologics and biotechnology regulatory expert for Tunnell Consulting. "Now that we’ve mapped the human gene, we can really target cystic fibrosis, diabetes, and even, to a large extent, obesity."

Regional research efforts focus on the big boogie monsters of our day. In 2007 Pfizer decided to center its oncology efforts at the La Jolla location. Sutent, a recently approved stomach cancer drug, was developed at that facility. Symlin and Byetta, two of the first new therapeutics to treat diabetes in decades, were both developed in La Jolla by Amylin (AMLN). There’s also a push in the direction of designer drugs, personalized care, and targeted therapy. "You don’t prescribe one size fits all," Medina says, "You design for the individual." Instead of attacking the whole body, new treatments can target the tumor. Or, as she puts it, "Let’s not kill the patient while killing the cancer."

This industry breathes cash, so opportunities for local investment abound. "We have about 40 biotech companies that you can buy stock in on the NASDAQ market," Panetta says. "Biotech has actually evolved to the point where investors can have confidence in companies turning out commercial products. More than 50 percent of the drugs that are in development in pharmaceutical companies have come out of partnerships with biotechnology companies."

For the thrill seeker, there’s plenty of room to get in on the ground floor. "We have hundreds of companies that are still private," Panetta says, "but the challenge with biotech is that it takes a long time for them to get a product to the marketplace where it’s actually generating revenue."

Like most investing, if the rewards are high, the risk is even higher. "People who invest in this have to understand there are going to be big wins, and there are going to be big losses. You’ve got to have a strong constitution," Kozarich says.

If you’re an entrepreneur who’s interested in being an early stage investor, but maybe flunked biology, he recommends leveraging the experience of a good venture fund that focuses in biotech. "They place a lot of bets and hope to hit a few. At the end of the day, you figure out the hits and misses, and you’re going to come out ahead."

La Jolla has a gaggle to choose from: Enterprise Venture Partners, Windamere Venture Partners, and Avalon Ventures — just to name a few.

On the other hand, if you were the kid spending lunch money on lab equipment, you might consider "Angel Investing" — providing seed money to help innovative startups get off the ground. Check your bank balance first. Kozarich says it works best with people who have enough money so that "if you lose a million bucks it isn’t going to kill you."

It’s not all about the money though, as Panetta points out. "It’s pretty risky, but the returns are there in the incredibly beneficial products that the biotech companies create. These are revolutionary kinds of drugs — they’re not simply a better antacid." — Paul Stuart
Financial Wisdom:
Psyching Out The Market
Imagine you’re going out to dinner and you are deciding between two restaurants. One has a half hour wait, while the other restaurant right next to it is empty. Most people will decide to put their name on the former’s waiting list out of concern that the crowd must know something about the empty restaurant.

The challenge of any investor is to find the quality empty restaurant before the rest of the crowd rushes in. The goal, in other words, is to find great buys when the crowd hates them, and sell when the crowd buys them. This means taking a risk.

The Joy Of Anticipation
Dopamine, a neurological chemical often released after risks pay off, offers rewards, but it doesn’t always reward the best investor behavior. Nowadays it can trick people into gambling on the lottery or investing large sums into penny stocks in hopes of finding a fortune builder.

Researcher Jason Zweig, a senior writer for Money magazine, has interviewed a number of neurophysiologists and the consensus is that the human brain loves longshots. The less likely or predictable the external goal, the more dopamine floods the brain to provide a sense of comfort and wellbeing.

There’s evidence to suggest that thousands of investors get a dopamine high every day just sitting down in front of their computers, buying and selling stocks, and anticipating the profit it will bring. Unfortunately, this soft euphoria can be addictive, even though it isn’t productive.

We seek and anticipate gains when the market is doing well, and panic when it is doing poorly. Using MRI scans, neuroscientists have been able to see what occurs in the fight or flight region of the human brain — an area of the brain known as the amygdala. These scientists conduct experiments where people are confronted with the prospect of a major loss or gain. A potential gain has a decent effect on the amygdala, but nearly as strong an effect as a potential loss. At the prospect of loss, the amygdala lights up like a firefly.

As a result, market panics and rapid declines occur far more frequently than raging bull markets, because thousands, if not millions, of people are responding to the lightning fast warning system in their brains. Clearly, dumping all of your stocks just because the Dow is dropping can be extremely costly.

Going Against The Crowd
To get back to my restaurant analogy, once you make a determination about your risk taking abilities, you can then choose to join the crowd at the busy restaurant, or head on over to the empty one. It’s the same with stocks.

Consider this: Years ago, when the Japanese stock and real estate bubbles were at their height, a common belief among analysts was that nobody was in danger if we crossed on a red light together. It was painfully obvious that stocks and real estate were overvalued, but because the crowd continued herding into these investments — spurred on by the anticipation of profits — banks, lenders, and everyone else just assumed these overvalued investments would safely rise.

We know now that didn’t happen. The prices got so out of hand for Japanese real estate that in Tokyo, one of the most crowded areas in the world, real estate values today are roughly half of what they were 15 years ago.

Regardless of where the market is headed, crowds overprice or underprice stocks, bonds, and properties all the time because they listen to their emotions, and that leaves opportunities for the investor who can learn to take advantage of these mistakes.

Some of the greatest investors, including many self-made billionaires, admit that they like to have an uncomfortable feeling in the pit of their stomach when they make the first purchase of something that’s extremely undervalued. Instead of a comforting release of dopamine, these investors look for the butterflies that tell them they are truly going against the crowd.
— Gabriel Wisdom, host of Financial Wisdom on the Business Talk Radio Network (www.gabrielwisdom.com)

 


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