My keyboard here at Fool HQ has a special Publish to Web key. Touch it -- like I did when I wrapped my last column -- and any number of things can happen, but here's one you can count on:
Up pops that tiny yellow envelope on the lower right-hand corner of your screen: You've got mail. Blast!
True story (except the part about the special key; I made that up).
Why you're here
We'll swing back to that little yellow envelope in a bit, but first, welcome to part two in our new reality series -- a little experiment I like to call (just somewhat arbitrarily) Daddy's Car. Briefly, our endgoals are twofold:
(1) To transform a relatively modest pile of Daddy's money into a relatively brash one.
(2) To ascertain once and for all whether ordinary investors can make money using the advice published in investment newsletters.
Check out "Daddy's No. 1 Stock Pick" for more on just who this Daddy is and what it all means. But come back here when you're finished! Or, better still, jump in with me headfirst now, and we can go with the flow.
Can you stomach biotech?
Fact: You can make lots of money in biotech.
Confession: I've endured my share of biotech booms and busts.
I've owned Genzyme (NASDAQ:GENZ) for years. My affair with Genta (NASDAQ:GNTA) is less loving. I had a major holding snapped up for cash by Chiron (NASDAQ:CHIR) and actually made money on ImClone, though that experience shows clearly on my face.
All this is to say that I don't lead Daddy to the biotech water lightly. But this is important: Daddy made clear that he wants to be aggressive with this portion of his portfolio. And second, what's just right for Daddy might be just wrong for you! Now, let's roll.
This week we're going to buy some Protein Design Labs (NASDAQ:PDLI), a company that licenses a stable of patented technologies, while it fosters its own pipeline of promising drug candidates. Our guide today is Charly Travers, lead biotech analyst for David Gardner's Motley Fool Rule Breakers aggressive-growth newsletter service.
Of mice and men
What Charly says: Protein Design Labs is the leader in antibody humanization technology -- in lay terms, that's the development of proteins from mice for use in fighting disease in humans. Because it holds key patents on methods by which these proteins -- called monoclonal antibodies -- are developed, Protein Design Labs is paid royalties on drugs created using its patents.
That's a sweet deal. Really sweet when you consider that the drugs covered by these patents read like a Who's Who of Blockbusters, from Genentech's (NYSE:DNA) Avastin and Herceptin to MedImmune's (NASDAQ:MEDI) Synagis and Elan's (NYSE:ELN) Tysabri. (Easy for you to say.)
In 2004, management expects royalty revenues to approach $70 million, a significant jump over 2003. Charlie, my biotech Rule Breaker, expects this figure to more than double over the next few years, but here's the kicker: Though some of the best-selling antibody drugs on the market use its patents, Protein Design may be sitting on a blockbuster of its own.
Wanna break some rules?
Protein Design Labs' Nuvion is a novel treatment for a pernicious intestinal disorder. The compound is in late-stage trials and results have been encouraging. Of course, there is always a risk that the drug fails in its quest for FDA approval. Fail, and we've got trouble. Succeed, and we may have a blockbuster.
So which is it? This is where I turn to Charly, who pegs the odds 80% to 90% in favor.
Nice odds, but realize they're just one man's opinion. Given the complexities of the approval process, this lack of visibility goes a long way toward explaining the risks and rewards of biotech investing -- even in cases like this where licensing revenues provide a cushion.
Realize, too, that Charly's attempt to value Protein Design Labs based on his informed expectations for future earnings from a not-yet-approved drug makes him a bit of a Rule Breaker. It's also why I will be tracking Charly's work closely in print and online at Rule Breaker Central.
Now where were we?
Ah yes, that little yellow envelope. Bobby A. is a serious investor. His emails are always polite and reasoned, but he's a skeptic. Bobby wonders whether you or I can really achieve the results reported in the scorecards of our Motley Fool newsletters in real time.
You may be wondering the same thing. Unfortunately, the answer is almost always that depends. Bobby is correct in that since most newsletters lock in their buy prices at the time the picks "go live," there is no guarantee that investors can get in at precisely these prices.
This is not to say, of course, that a subscriber can't earn those same returns or better. Often, the stocks highlighted in investment newsletters drift lower at some point after they are recommended. You just never know. Whether you hold out for your price or get in right away is a personal choice.
You be the judge
To determine whether you can profit from investment newsletters is why we are here. Last week, we bought Daddy a small restaurant chain with real earnings. This week, it's a drug developer that may be sitting on a blockbuster. Both have their risks and neither is for every investor. We'll keep you posted.
As a biotech hound, Rule Breakers grants me access to pros like David Gardner and Charly Travers and thousands of others -- not just in biotech, but in nanotech, early-adopter gadgets, and elsewhere. I spend a lot of time writing; those extra eyes and ears are a comfort to me. As is David Gardner's ridiculous track record.
If you think Rule Breakers might also be right for you, but don't want to go out on a limb, you're in luck. David Gardner is offering a free 30-day trial. Click here if you'd like to take him up on it.
Paul Elliott reads newsletters compulsively and owns Genzyme, Genta, and ImClone. The Motley Fool has a disclosure policy.
