Lessons in Biotech Investing... From a Game of Monopoly
Editor's note: To win in biotech, find the inventions that cover the most territory...
Stansberry Venture Technology editor Dave Lashmet says most biotech investors look for companies that control what a drug does and how a drug is made. And while those aspects are important, according to Dave, most people leave out an even bigger consideration...
He says there's a third way these companies can beat out the competition. It's a special type of patent that most investors forget about... and it can allow biotech innovators to "win the game."
That's one of Dave's top biotech lessons, which we're sharing in this weekend's Masters Series. In today's essay, originally from the November 14, 2017 Digest, Dave explains why biotech is like the board game Monopoly... details the "windfall" patent that can change everything for biotech companies... and reveals how he uses this idea to find opportunities with hundreds-of-percent upside potential...
Lessons in Biotech Investing... From a Game of Monopoly
Any successful biotech investor needs to understand the board game Monopoly...
To win a game of Monopoly, you buy properties and collect rent when other players land on them.
The most valuable high-rent districts in the game are Park Place and Boardwalk. As a kid, owning both properties gave you a big edge in your quest to win. It was just a matter of time before someone landed on them and had to pay you the big bucks.
Real-world investing might not seem like this classic game. But in the biotech sector, these same rules apply.
That's because of patents...
I know, it sounds dull. But you need to know a key lesson about patents to succeed in biotech investing... because if you're able to catch just one wild success in this sector, it could change your life.
Biotech isn't like the 10,000 smartphone patents that Apple (AAPL), Google parent Alphabet (GOOGL), and Samsung all fight about. In biotech, only two patents usually matter...
The first is known as the "method" patent. This is what a drug does or how it's used.
The second is the "chemistry" patent. This is how a drug is made.
With just these two patents, you have a monopoly. Thanks to patent law, no one else can make that drug. Instead, if another company wants to compete, it has to use different chemistry.
And that's where most investors leave it – they look for a company that owns a patent or two on the drug it's developing.
This is a major mistake that many biotech investors make... They're forgetting a third patent – the patent for a drug's target in the body.
These discovery, or "landscape," patents cover larger territory. We're talking "win the game" windfalls... when your rivals land on Park Place, then Boardwalk.
The perfect case of a landscape patent is in the new class of "immune therapies" for fighting cancer...
Cancer immunotherapy works by awakening your immune system to a cancerous tumor.
Normally, your body seeks out damaged cells. Then it either eats them or instructs them to commit suicide.
So an established tumor must have some way to "hide" from your immune system's surveillance. For example, some tumors hide by pretending to be a fetus using protein receptors known as "PD-1." Here's how I explained this in an April 2015 special report...
PD stands for "programmed death." When your immune system encounters PD-1, it knows that is healthy tissue and it should not attack. Fetuses are covered in PD-1. It's nature's way of making sure mom's immune system doesn't attack the "foreign" baby cells.
Cancerous cells make lots of PD-1 signaling proteins. They essentially use PD-1 to disguise their tumors as fetal tissue to keep the immune system at bay.
Here's why focusing on patents is so important in this case...
All of this was figured out in Japan and published in a top U.S. medical journal in 2001. It was foundational. Meanwhile at Harvard, scientists found a new potential drug target via the Human Genome Project.
To help figure out this new drug target, the Harvard researchers asked experts from Japan who knew about this same target, PD-1. In fact, the Japanese team cured cancer in mice using a specialized antibody against PD-1's counterpart.
So the Americans and the Japanese wrote a second paper together... And then Harvard claimed all the credit by applying for a patent. The U.S. Patent Office, none the wiser, issued the patent to Harvard.
Next, Harvard licensed this landscape patent on PD-1 and its uses to a dozen different Big Pharma firms. But they ran into one big problem...
Nothing can stop the claims of the inventors from Japan.
They filed their invention first. (It's almost like they didn't trust Harvard...) And go figure – their patent led to a multibillion-dollar windfall.
That's why our lesson today is so important... If you want to win in biotech investing, you'll need to have a monopoly on the landscape.
Drug giant Bristol-Myers Squibb (BMY) owns Japan's "landscape" patent on PD-1 globally. It owns the target. And in recent years, it has gone to court – successfully – to defend its monopoly.
However, this is only one of the traits we look for in our Stansberry Venture Technology recommendations... Plus, as a rule, we're not interested in Big Pharma companies like Bristol-Myers Squibb.
We look for small-cap biotech stocks with the potential to surge 100%... 200%... or even 500%.
Now, we don't have a crystal ball. We don't know if any of these ideas will pan out in later clinical trials. But by buying the landscape patents, we control against any future trespassers in markets that generate billions of dollars in revenue per quarter – just like in the game of Monopoly.
And when these companies have positive trial results or receive approval, we stand to make 100%, 200%, or much more as investment gains.
Back in the June 12 Masters Series, I revealed how you can gain an informational edge in the biotech sector... and use it to predict the biggest winners.
This is my second secret of biotech investing... To win, you'll need to have a monopoly on the landscape.
My thanks to Monopoly's creator – Parker Brothers – for teaching me this core tenet of biotech investing back when I was 10.
Good investing,
Dave Lashmet
Editor's note: In Stansberry Venture Technology, Dave uses his two decades of experience to identify innovative small-cap opportunities with massive potential. And he recently found another groundbreaking investment idea...
It's an early-stage company that could offer the solution to a rampant global financial and technological crisis... and Dave believes it's on the verge of a $1 trillion windfall.
On Tuesday, August 24, at 9 a.m. Eastern time, Dave is hosting an urgent broadcast detailing this critical story... including the dramatic new turn it's about to take. Plus, he'll explain why investing in this company is like buying "the smallest house in the best neighborhood." Click here to get started.