The Warren Buffetts Next Door by Matthew Schifrin

Author:Matthew Schifrin
Language: eng
Format: mobi, epub
Publisher: John Wiley & Sons, Ltd.
Published: 2010-09-29T20:00:00+00:00

“They had an unforeseen delay in movement of their testosterone product,” says Weyland. “It’s very illogical because the product is approved everywhere else except here, and the thing [coughing] that they’re concerned about never occurred in the clinical trials.”

Confident that Indevus’s balance sheet was solid and convinced that the setback was temporary, he purchased more than 700,000 shares of Indevus for his Marketocracy account during July, August, and September of 2008. His prices ranged from $1.87 to $1.96. He also purchased the stock for his real-life brokerage account as well.

Several months later in early 2009 Endo Pharmaceuticals, apparently agreeing with Weyland’s analysis, decided to acquire Indevus for $370 million or $4.50 per share, including a bonus of $3 per share if Indevus met certain milestones. Weyland made a tidy profit as he sold his shares at prices ranging from $2.87 to $5.81. He now owns Endo and is fully expecting Indevus’s testosterone booster Nebido (now known as Aveed) to become a blockbuster.

Besides urology, Weyland says he focuses on finding the stocks of companies making the “best” drugs for treating Alzheimer’s, diabetes, cancer, and multiple sclerosis. He also buys stocks that specialize in drug delivery and immunology.

When he does make a purchase, he is mindful of the volume in his target companies. “I like to seek entry points when sellers have dried up and signs of accumulation are starting,” says Weyland who points out that it can take a decade to get through the FDA’s approval process. “Hiccups,” he says, are not uncommon.

In narrowing down his search for winning stocks Weyland pays special attention to the cash each of his companies has versus their burn rate. This is especially critical for smaller biotechs that raise cash via initial public offerings and spend the money on research and development. Weyland looks for a cash cushion that will give his companies enough time to get FDA approval and a product to market.

For example, one stock that Weyland bought on weakness after it suffered a delay is Pain Therapeutics (NASDAQ: PTIE). It is developing a gel form of the opiate pain remedy OxyContin called Remoxy. The key with Remoxy is that can’t be abused by recreational users and addicts.

In mid-2008 its New Drug Application (NDA) was accepted by the FDA and given a Priority Review. Six months later the FDA issued a Complete Response Letter to Pain Therapeutics and its partner King Pharmaceuticals (NYSE: KG). The letter meant Remoxy would not be approved in its present form.

Pain’s stock plummeted from a high of about $10 in mid-2008 to under $4 by early 2009. The sharp drop alerted Weyland to the stock, which he put on his watch list in part because it had a strong cash position. “If you did your research you would have seen that Pain is actually a very conservative company. It had more than $170 million in cash, and they were only burning cash at about $4 million a quarter. Its market cap was about $200 million,” says Weyland.

Pain and

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