Biotech Tweet of the Week: Investing in Moldy Pizza

Investing in something that might not work is O.K. as shareholders of Aeterna Zentaris, Keryx Biopharmaceuticals, and MannKind can attest.

May 19, 2014 at 5:22PM

Our tweet of the week comes from Luke Timmerman, quoting Oleg Nodelman, founder and managing director of EcoR1 Capital, a value-oriented health-care investment fund. During a panel at Allicense, Nodelman commented that you can invest in a moldy piece of pizza if it's biologically active and has a 10% chance of working; it's just a question of valuation.

While investing in something that is likely to fail may seem counterintuitive, it's OK to make the investment as long as the potential upside justifies the risk. If a clinical trial only has a 1-in-10 chance of success, but the company will be valued 20 times higher if the trial is successful, that's actually a good investment. Investors just have to adjust the size of their investment appropriately, because there's a good chance the investment could be worthless after the binary event.

In the current market, with everything valued so high relative to where it was a year ago, it's hard to find these kinds of opportunities. But historically you can find examples like Aeterna Zentaris and Keryx Biopharmaceuticals (NASDAQ:KERX) that had a colorectal cancer drug, perifosine, in a phase 3 trial based on a subset of the phase 2 data. The chances for success were unknown, but both companies were priced low enough that they seemed worthy of an investment.

As senior biotech specialist Brian Orelli and health-care analyst David Williamson discuss in the following video, the best investors were able to buy the companies' moldy pizza when it was cheap and then sell it after the shares appreciated before the data was released.

Another example, MannKind (NASDAQ:MNKD), was obviously a good investment when it was left for dead under $2 a couple of years ago. Even if investors missed selling at the highs last August after the latest phase 3 data was released, they're still sitting on a 300% or more gain over just two years.

Based on his "don't lose money" rule, Warren Buffett would hate this strategy
Admittedly, investing in companies with low probabilities of monster returns isn't for everyone. If Warren Buffett's strategy is more your speed, check out our exclusive, brand-new Motley Fool report details one of Buffett's recent purchases that already has over 50% market share. Just click here to discover more about this industry-leading stock, and join Buffett in his quest for a veritable landslide of profits!

Brian OrelliDavid Williamson, and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers