WEALTH Stop being a “recession addict”. It doesn’t matter whether we are in one or whether we are in a bear market. These concepts have no real meaning and yet are debated endlessly in newspapers, on television, by economists, by bloggers and other pundits. As I’ve mentioned, during the past six out of 11 recessions the market rose.
So forget about concepts that are meaningless for trading and completely impossible to determine one way or another. They are good for cocktail parties but meaningless for everyone else. Let’s focus on something that we can be 100 per cent sure of. One hundred per cent is hard to accept, because we know that there are only two things you can bet on with certainty: death and taxes. I’m going to focus on death since this week taxes might be a touchy subject for many people.
There are many angles on death. But let’s stay positive: one consistent trend we’ve seen over the past 500 years is that when a disease has no known cure, it’s usually a safe bet that a lot of money is going to be spent finding one and, more often than not, a cure will be found.
Polio is a great example. There was no known cure when Franklin Roosevelt had it. Now, thanks to Jonas Salk, there are essentially no new incidences of polio in the developed world. Smallpox is another example. And even the work on Aids has paid off so that while there is still no cure, the lifespan of patients with the disease is much longer (much to the consternation of the investors who bet on the sure thing of Aids-related deaths).
A safe bet over the next several years is to wager on a basket of “no known cure” stocks: companies that are all working on cures for diseases in $10bn-plus markets. It’s good to include some speculative stocks – companies that are close to cures and have no other revenues so finding a cure would create a tenfold increase in the company’s stock price – as well as companies with solid balance sheets, revenues, and profits in other arenas of their business.
The one way we can increase average lifespans is to cure Alzheimer’s disease. It is the third biggest killer after heart disease and cancer but almost completely ignored by government spending (less than $1bn spent on research in spite of more than $100bn a year in lost productivity).
A speculative play here is Myriad Genetics . The company does not make money and probably won’t until it completes the Food and Drug Administration trials of its Alzheimer’s treatment. Myriad is engaged in phase three clinical trials for the Alzheimer’s drug Flurizan, after phase two demonstrated that the drug was relatively safe. Flurizan works by reducing levels of a toxic peptide, amyloid beta 42, which kills neurons and creates the plaque found in the brains of Alzheimer’s patients. In non-clinical studies, the drug appears to reduce the levels of this peptide.
With a market cap of $1.7bn, Myriad does have some revenues while working on this treatment. Specifically, it sells diagnostic tools to help patients determine the presence of breast, ovarian and other forms of cancer. With $180m of cash in the bank and a burn of only $17m, Myriad appears to have enough cash to see it through phase three trials. If these pay off, it could start to make a dent in the $100bn Alzheimer’s market.
Wyeth is a much larger pharmaceutical company and is also working on a drug for Alzheimer’s: AAB-001, co-developed with Elan, which is in phase two trials. Wyeth has $22bn in revenues and sells drugs and medicines for every possible disease known to mankind. The company also trades for only 11 times earnings.
As Warren Buffett often says: “If a company is going to be here 20 years from now, then it’s probably a good buy right now.” With $6bn in cash flow, $13bn of cash in the bank, and 10 per cent average annual growth over the past five years, this company is probably here to stay. And if it can succeed in the FDA trials for AAB-001, the market potential will ensure that an investment with Wyeth succeeds.
Although I’m focusing on stocks, it’s also worth noting that research has shown a “Mediterranean diet” (fruits, vegetables, fish, olive oil) has been known to postpone the onset of Alzheimer’s.
Also, leisure activities such as chess and crossword puzzles have been known to delay the disease. Doing my own small part to help people live longer, I created an investment crossword puzzle at: http://tinyurl.com/5l62r3. Enjoy!
