Episode 365: A New Government Act Could Disrupt the Biotech Industry
On this week's Stansberry Investor Hour, Dan and Corey welcome their colleague John Engel to the podcast. John is the lead equity analyst on the Stansberry Innovations Report newsletter, where he finds companies that are revolutionizing their respective industries with cutting-edge technology. He also works on Prosperity Investor, a newsletter that focuses on opportunities in the health care sector.
John kicks off the show by detailing the new Biosecure Act that's currently moving through Congress. Its purpose is to limit China's access to U.S. biological information. As he explains, this legislation is going to disrupt the industry, hurt biotech companies, and possibly even bankrupt the smaller players. But, conversely, it's going to allow other contract development and management organizations to replace Chinese ones, creating massive opportunities for investors. John also shares how he got his start in the biotech field at a fermentation lab and as a molecular biologist before shifting to the world of finance...
I think there's a lot of parallels to be drawn between finance and biotech. Finance is a language. If you speak finance... you can use that to your advantage whether you're studying oil and gas companies or whether you're studying biotech companies. And science is similar. So if you practice science, you can use it to study cancer drugs. You can use it to study cardiology. There's no end to the uses.
Next, John talks about the pandemic, vaccines, and the current bear market in biotech. He mentions one big story in biotech that he believes isn't getting enough attention – bispecific antibodies. This development allows one drug to hit two targets, so patients no longer have to receive two different drugs for treatment. This leads to a conversation about gene editing, personalized medicine, and rare diseases. As John explains...
In biotech and biopharma, a lot of the low-hanging fruit has been picked. And one of the spaces that's growing a little bit more than others is rare disease – so, treating rare diseases. It's really difficult because of the economics, right? You need a certain population of people to treat for a biotech or a biopharma to go after that disease, for instance. But there are government subsidies that are being divvied out to help drive progress.
Finally, John delves into AI, Nvidia, and the "hype cycle" surrounding the technology. He points out that companies are desperate to use AI to their advantage, but for many of them, there's no use for it in their business. Plus, John discusses "advanced general intelligence," which involves systems that can reason like human beings.
Click here or on the image below to watch the video interview with John right now. For the full audio episode, click here.
(Additional past episodes are located here.)
Dan Ferris: John Engel, welcome to the show. Really glad to have you here.
John Engel: Hey, thanks so much for having me. I appreciate it.
Dan Ferris: We want to talk biotech today because, as we exchanged in an e-mail or two before this recording, you have been looking into this bill, this law called the Biosecure Act of 2024. And I went ahead and read the text of it and there's a few concerning items in here, which I'm sure you'll get to. But maybe rather than have me stumble through what I found in it, we can just have you talk about what's in there and why it might be of interest to the folks listening.
John Engel: Yeah. So, this is a new bill, by the way. This was introduced in January of this year and it's currently moving through Congress and it's an attempt to choke off China's access to biological information. And so, there's a lot of concerned people right now with China gaining access to biological information and what they might do with it. And so, they've decided to target these – specifically these Chinese CDMOs. And a CDMO is a contract development and manufacturing organization. These are organizations that essentially do some of the legwork for a small biotech company, for instance, a company that might not be able to put capital into manufacturing their own drugs, so they partner with these manufacturing organizations that they essentially either manufacture the drug or help them in the research process to deliver a drug. And this doesn't mean – in some cases these are drugs that are already approved, but in most cases for a small biotech company this is – these are drugs that are being used to conduct clinical trials.
So, what's interesting here is that if this bill passes it's going to cause a huge disruption to some of these small biotech companies, which as I'm sure you guys are aware have already gone through a lot of pain and suffering the past couple of years with the biotech industry at large being in a long-term bear market.
Dan Ferris: Yeah. We've talked about that a little bit. Some people see some opportunity there. I talked about some of the concerning items in this bill, the Biosecure Act. One of them, it's not a big surprise to me but it kind of floored me a little bit. And this one Chinese company, BGI, it says in the bill here "BGI operates the China National Gene Bank, the world's largest repository of genetic data." And a few lines above that it says "BGI operates genetic collection sites –" or fire eye laboratories, they call them, fire eye – "in over 30 countries." And then there's another one about July 2020, United States press report, "BGI collected genetic data from millions of pregnant women through prenatal tests." So, when they say "collect" do they mean steal? [Laughs]
John Engel: I would assume so. I think that's a common theme amongst companies that operate in China. And there's a lot of parallels. I mean, I'm sure we can get into it later but there's a lot of parallels with this bill and bills that have been passed with respect to chips and the CHIPS Act, so – and the chip war, as I'm sure you guys have talked about quite a bit on this podcast as well. So, this seems like an expansion of what has already been sort of – I don't know what you want to call it – a deglobalization or an onshoring of U.S. technologies.
Dan Ferris: And does the bill – all this stuff I've read here, it mostly seems – there's a lot about genetic and biotech and stuff, but is this bill just focused on biotech, then? Do I read that right? Or is it – because in the beginning they talk about this basically Chinese military industrial complex. They had a different name: military civil fusion, they called it. And that – so, that's a more general thing. But then, the bill seemed more focused on just the bio. I mean, it's called Biosecure but there's all this general stuff in there too. So… but I know how bills go, right? They put everything –
John Engel: Yeah, so I think – again –
Dan Ferris: Anyway.
John Engel: Yeah. So, I think a lot of this goes back to a law that was passed in China actually. So, this goes back to the PRC National Intelligence Law of 2017. And this is a law – again, we're talking from the perspective of China. This was a law passed to – that compels all PRC firms, firms that operate in China to support, assist, and cooperate in the People's Republic of China Intelligence Service. So, any information that these companies have, they are obligated by law to give that to the PRC, which is kind of scary. And that's why obviously we don't want U.S. biotech firms sharing our genetic information.
But when you talk about disruption I see it more as like it's going to disrupt U.S. biotech companies more than anything because of this – there's another company mentioned in that bill. It's spelled W-U-X-I. Pronounced "Wu-shee." So, WuXi AppTec and WuXi Bio. This is a very bid CDMO that countless biotech companies in the U.S. use to manufacture their products. And if this bill passes these companies are going to have to find an alternative. That's the opportunity as far as I see it. As an investor, that's the opportunity. Where are these companies going to look for a CDMO to fill their needs? And we've written about that quite a bit in the Stansberry Innovations Report.
But yeah. And again, this is going to be another big disruption because of the time it takes to set some of these deals up. There's a lot of tech transfer. It's the transfer of technical information between one entity and another that happens during these processes. And that alone can take almost two years. So, if these – if this bill passes and causes immediate disruption, it's going to take years for small biotechs to recover, if they recover at all. Potentially we might be talking about even more bankruptcies for these small players.
Corey McLaughlin: Interesting. So, you're talking about – you're looking at companies that might benefit if this goes through, kind of like the American chip makers.
John Engel: Exactly.
Corey McLaughlin: Yeah, Taiwan Semiconductor building – I think still building that plant in – out west and those sorts of things.
John Engel: Exactly.
Corey McLaughlin: So, you're looking at how does that affect American biotech companies?
John Engel: Exactly. Yeah. I mean, there's – again, there's multiple parallels between what's happening here in biotech and what's happened since 2019 with respect to semiconductors.
Dan Ferris: Wow. And you have found – let me also be clear about something. So, you've written about this in the Innovations Report. Does that mean you've found at least one stock, then, that you think will benefit from this?
John Engel: There's at least one we think is going to benefit. And there's probably more than one that will benefit from this if it goes through. In fact, I would say the tide's already turning. Most biotech companies that are working with WuXi, they understand what the stakes are. They're preparing now for this. So, it's not a matter of the bill being passed to cause a catalyst. The catalyst is already in play.
Dan Ferris: It does. Yeah.
John Engel: If that makes sense.
Dan Ferris: I mean, it's sort of like – this reminds me of our colleague Dave Lashmet's arguments about semiconductors in Taiwan. You don't wait for China to invade. You just know that they really, really want Taiwan and you'll not sure what they'll do with it if and when they get it. So, you pass these – the government passes these various bills, investors sort of realign themselves, and you don't wait for the event to happen.
So, the catalyst is in play. You've found at least one pick. And for now, it's the Biosecure Act, so we're basically focused on biotech here. It sounds like – I know you don't want to give any secret sauce or picks away because people pay a lot of money for the Innovations Report, but it just makes me wonder is the company that you found, are they far along? Are they – you know what I'm saying? It sounds to me like the Chinese really have a lock on this. And then, by law they're not going to have any more lock on it from the perspective of U.S. companies. So, it makes me wonder – the company that you found, how far along are they to replacing this massive infrastructure across the Pacific Ocean?
John Engel: Yeah. So, I would say, I mean, in general biotech and biopharma, they need diversification of their supply chains. So, these manufacturing sites are all over the world, including in China and Asia. And so, the company we are recommending has a global footprint. They've also been adding a ton of extra biomanufacturing capacity recently. They've put a ton of money into adding more capacity for other reasons. But I don't doubt that they can handle the added capacity that would be required for these smaller companies.
And there's more than one. There's probably three major players in that industry. They're pretty easy to find. I mean, again, I don't want to share research that we're already written about but you can find these companies if you go looking.
Dan Ferris: All right. So, the Biosecure Act of 2024 sounds very interesting. Let's just talk – before we move on to other ideas that you may have researched, let's just talk about you a little bit because I think you're – I'm pretty sure you're new to our listeners, John.
John Engel: Sure.
Dan Ferris: So, how did you come – I don't know the story of how you came to Stansberry. Was it through Doc Eifrig? Do I have that right? No?
John Engel: No. No. In fact, I worked first with Dave Lashmet. So – and Dave and I are still very close. We talk countless times a week. And so, I started my career in biotech. I worked for a small biotech. I worked a night shift in what's called a pilot manufacturing lab. So, again, if you're talking about CDMOs, this is the same thing that CDMOs do, which is obviously you want to invest in what you know and this is a space I know pretty well. I worked the night shift in a fermentation lab. Maybe it helps to add some context there.
So, the way biologics or certain drugs are made, they're made through fermentation. You essentially give – it might be a bacterial cell, it might be a yeast cell, it might be a hamster ovary cell. You give that cell the genetic information to make your drug and then you grow these cells in these big – what looks like a beer fermentation tank. And they grow for a certain amount of time. And then you either collect the cells or you get rid of the cells and you isolate the drug from that slurry.
So, my job was to change the parameters of our fermentation cycles and then we would use that information to scale up on a larger scale. So, you don't want to – obviously, you don't want to waste time doing that on a large scale. You want to have exactly what – the parameters you want to make the most drug you can for each fermentation run. So, that was my job for a while.
That small biotech was acquired by a larger pharma, so I got to live through an active acquisition. And then, I took a different role as a molecular biologist after I had worked in the fermentation lab. So, this job was more protein engineering work. This was actually fiddling with the molecule itself and then placing the genetic instructions into the cells to create that drug. So, I spent maybe seven years in biotech and biopharma before seeing an opportunity to potentially cross over.
In my free time I had a guy that worked a lab bench right in front of me and we would talk stocks almost all day long. We would just talk stocks. We felt like we had an advantage when we were looking at biotech companies because we speak the language of science. We thought we had an advantage over normal investors. And so, we would debate on certain companies and certain technologies. And I just thought it was super fun. I loved it. So, when I saw an opportunity to sort of bridge the gap between finance and biotech I took it. And I ended up starting here at Stansberry with Dave Lashmet.
Dan Ferris: Do you make your own beer, John?
Corey McLaughlin: Natural follow-up question.
John Engel: I do actually. Actually, I do. Well, I used to. I've got little kids now so I don't have much time to do that anymore. But –
Dan Ferris: Yeah, fermentation lab –
John Engel: Yeah, it's a fun thing to do.
Dan Ferris: – seemed a logical follow-up question. And I know –
John Engel: Sure. Sure.
Dan Ferris: – various folks have told lots of stories about the advent of fermentation and its use in biotech. It's a good story. So, besides the Biosecure situation – actually, before we get into that there was one other thing that I was wondering about. What do you study in college to come out of it and work in a biotech lab? Were you a biology major or a biotech Ph.D. or – what did you do in college to wind up there?
John Engel: Yeah. So, in college I was pre-medicine. I thought I was going to go to medical school. And when I graduated – this will date me but who cares – I graduated during the financial crisis. This was the worst time to graduate from college and it was the worst time to think about trying to go to medical school. I put myself through undergrad and I just didn't have enough time to study for the MCATs and get that process going, and I ended up taking this job with this small biotech company, which was a godsend really because it was a terrible time to be looking for a new job.
And it turned out that it worked out really well because I thought as a doctor you treat people and you get satisfaction from that but there's a lot of satisfaction in developing the products that might help somebody one day.
Dan Ferris: Right.
John Engel: But at the same time I was working on my master's too. So, I – while I was working at my large pharma company I was going to school at night working on my master's. So, I graduated with a biotechnology master's from Johns Hopkins before transitioning over here to Stansberry Research.
Dan Ferris: OK. So, what's interesting to me and where – I'm headed somewhere with this. Of course Doc Eifrig was – he was a finance guy. He was at Goldman Sachs. And then he became a doctor. He was disillusioned – he became disillusioned with finance, he became disillusioned with the medical profession, then he wound up here. You don't sound like you were as disillusioned with the biotech industry. On the contrary, to me it sounds like it just excited you in such a way and then on top of that the prospect of investing in it just excited you in such a way that you thought, "Well, I'm going to go with these guys and write about investments in this thing that excites me." It doesn't…
John Engel: Yeah. I think part of the problem was that to move ahead in – with what I was doing, it requires a Ph.D. So, it was going to require another four years of school. And I was so burned out, I was working in a lab all day long, going to school, studying science at night. I did that for three years and I was just burned out and ready to try something new. But yeah, I think it's great here. I still get to dive into all kinds of cool science. There's no limit to the things I can study from my desk here.
Dan Ferris: Right. You –
Corey McLaughlin: Yeah, that's what I was going to – that's what just came to my mind. That's one of the things I've learned reading Dave's work too, just the edge that you have just through understanding how these drugs and the patents work. And you come at it from, like you said, a different angle with more of the – you were in the lab. So, do you still find that you feel like you have that edge, that you understand – because I don't see a lot of the work that you do really anywhere else. So, I mean, do you feel – it's kind of like a self-serving question, but do you still – that excites you, the way – you think most people don't understand the way you're – the way biotech development works?
John Engel: Yeah. I mean, I definitely – I learned a ton obviously being – by doing it myself. But I think there's a lot of parallels to be drawn between finance and biotech. Finance is a language. If you speak finance, you speak finance and you can use that to your advantage, whether you're studying oil and gas companies or whether you're studying biotech companies. And science is similar. So, if you practice science you can use it to study cancer drugs. You can use it to study cardiology. It's really – there's no end to the uses you can put it to in medicine and health care.
Dan Ferris: All right, John. I promised listeners – I do want to talk more about investing in biotech with John. But while I have him here I can't resist some other stuff. So, it's been kind of strange. The last – certainly since 2020, since the pandemic, I feel like science sort of is in the news. People are still talking about the vaccine and the pandemic and whether any of it was right. We got Fauci on the – testifying in front of Congress recently. It makes me wonder – and I wind up – I'm not a trained scientist. I have a music degree. And we did have a serious trained science, a guy named Dave Collum on the show recently, and he has a whole set of views about these things that are pretty radical. I wondered how did you – how do you assess that period, – his period, it's kind of still going on – in American history. When you've watched all this stuff go by, do you have any big takeaways from it as a scientist?
John Engel: As far as the pandemic goes? Yeah, I mean, I – it scares me. I think that was a test more than anything to show that perhaps we need to be more prepared for things like that to happen in the future. I think we need to be more careful about – there's a –
Dan Ferris: It is. It is.
John Engel: It's a controversial topic, I think, I mean, when you're talking about whether this was lab-derived or derived from an animal somewhere in the south of China. I don't know if I have a clear answer on that, to be honest. I know that preparation is probably the best solution for the problem. And developing more tools – I mean, I am a strong proponent of vaccines. I don't know if your guest was a proponent of vaccines or not. I am a strong proponent of vaccines. I think they're very useful. I think they save lives. I think that – in saying that, I think that there is a case-by-case scenario for whether they are useful or not. And the science should tell you whether they are or not. So, they should be studied before they're used on people.
Dan Ferris: All right. Sure. I'm just curious –i
John Engel: Is that a fair answer?
Dan Ferris: I ask – I have to ask every actual trained scientist about this just so I can look myself in the mirror. It's like – since I'm not one myself.
John Engel: Yes. I mean, I get vaccinated. My kids get vaccinated. I think vaccines are very important to modern medicine. There's no doubt about that in my mind.
Dan Ferris: OK. There are a lot of them nowadays. I didn't – I had no idea. I got two or three of them when I was a kid but now there's, like, 50. Or somebody said 72 the other day. I was like "Whoa!" Before kids – before people become adults. It just – I don't know anything about it but it sounds like a lot. I mean, it's a lot, isn't it?
John Engel: Yeah, that does sound like a lot. I don't know if I've – I don't know if I've gotten maybe more than five myself.
Dan Ferris: Yeah. But I went to the CDC website and they have this whole protocol and there's a few dozen shots on there. So – but anyway, let's not get into that because – I just had to satisfy myself because, like I said, I get a trained scientist in front of me and I've got to check some boxes.
So –
John Engel: Yeah. No, I hear you.
Dan Ferris: – what else – this Biosecure thing sounds really interesting. I've got to go – as soon as we finish this I'm going to go read that issue of Innovations to find out what the ticker symbol is and what that company is and what they do. Is there any other – that sounds really huge, by the way. That sounds like a huge deployment. Is there anything else going on in the world of biotech that's that big, I mean, besides maybe – if it's Ozempic, fine. If it's weight-loss drugs, fine. We can talk about that. But is there anything else?
John Engel: Yeah. No, we don't have to talk about the weight-loss drugs but I think that is one of the bigger things going on right now, is obviously the weight-loss drugs. Dave Lashmet of course has been all over that story since, what, 2018 or 2019, I can't remember. And he's done really great work on that. We've collaborated to some extent on some work in that area with – shameless plug with Doc Eifrig's Prosperity Investor, which I help out on as well.
But yeah, what else is going on in biotech? I think biotech – again, it's been a bear market for biotech. It worries me to see, again, this Biosecure Act could cause another issue for the industry. It's recovered slightly since last year, I suppose. But I don't know if people quite understand what's at risk here with this Biosecure Act and how that's going to throw a wrench into the system.
But yeah, I mean, outside of biotech – so, I also write for Stansberry Innovations Report of course and we cover lots of topics in that newsletter. We talk about cybersecurity. We talk about defense. We cover health care and biotech of course. We look at e-commerce. So, we've got our hands in quite a few pots and sandboxes. And we try to diversify across a couple of those different areas of the market.
Dan Ferris: OK. So, it sounds like the answer is – besides this Biosecure thing, which sounds huge, and Ozempic and weight-loss drugs, which by all accounts is an enormous development, there's nothing else that's earth-shatteringly big right now. Is that fair to day?
John Engel: There's – yeah, I think that's fair to say. I mean, there are smaller developments. There's new – we've written about something called bispecific antibodies. I think that's a big story that's – so, a lot of diseases are treated with two drugs right now and they're created a way to basically hit two targets with one drug. So, that's kind of an interesting story. I think there was a – I don't know off the top of my head what company it was but there was a big acquisition that happened either today or yesterday that was involved with a bispecific antibody drug. What else is there?
Yeah, I think – again, I think it's going to be interesting to see what happens with biotech. They've – again, they've been battered and beaten up. There's been a lot of bankruptcies and layoffs. And I think it's going to stall progress for a little bit.
Dan Ferris: Wait a minute. Wait a minute. You just said something that I'm still stuck on processing. Did you say two targets with one drug?
John Engel: Two targets with one drug.
Dan Ferris: Is that – what does that mean?
John Engel: So, an antibody has two active ends essentially. You can think of it like a peace sign. So, one active end, two active ends. And there's multiple targets. In cancer, for instance, you might target one cancer target on the surface of a cancer cell but it might work even better if you target a second – what's called an antigen on a cancer cell. So, by combining the two you don't have to give somebody one – two different drugs at two different doses. You put it into one drug. It's more efficient that way, I suppose. Does that make sense?
Dan Ferris: Wow, that's pretty cool.
John Engel: Yeah.
Dan Ferris: As much as it can to a person like me.
Corey McLaughlin: John knows his stuff here. He knows more than us.
Dan Ferris: But I – yeah, I understand the basic idea that if you have cancer you've got different things going on, let's just say, and you're going to be on more than one drug. But this could be just – you could consolidate two of those into one with this technology. That's – I mean, that sounds pretty cool. It sounds like – like you say, it sounds like an efficiency-making move rather than kind of a revolution in improvement.
John Engel: Yeah. Yeah.
Corey McLaughlin: I've got a couple things for you here. I know you've written about gene editing in the past. Where are we with that? That – just the name of it, I think, scares a lot of people. When you call it "gene editing," like, "Whoa. No." But to me, that seems like it's sort of just under the surface of health care developments and still going – just to a layperson. Where are we with kind of developments there?
John Engel: Yeah. So, I mean, that to me is the path forward in medicine, is selling gene therapy. And what's involved in that space is gene editing. So, if you – we can backtrack a little bit to my experience in biotech. So, when I worked in biopharma I essentially was a genetic engineer. I would cut and paste DNA into living cells to create a product that was used as a therapeutic or whatever it might be. So, it's a tool. And again, it goes back to efficiency. What used to take me probably a month of work in the lab with something like CRISPR, that can be done in a day or two. So, think about that. It just increases the amount of work that can be done in that space.
I think what you're referring to is stem cell gene editing, creating designer babies. And sure, that might be – that's a scary thought for me as well, and I think there have been a couple of cases of that having been done, and guess where that happened?
Dan Ferris: China.
John Engel: China. But that's not something I would particularly worry about here. And I think that these tools at the end of the day are going to be really helpful to drive progress in what will become a very big industry for selling gene therapy.
Corey McLaughlin: And are there any diseases or areas that maybe are where a lot of science is being focused right now that the general public might not be aware of? I mean, obviously everybody talks about cancer and we know that. But are there any other, I don't know, kind of major diseases that in your mind we might be closer than people might think to not necessarily cures but advanced therapies and whatnot?
Dan Ferris: Yeah. So, let me think how to answer that question. I think in biotech and biopharma a lot of the low-hanging fruit has been picked. And probably one of the spaces that's growing a little bit more than others is rare disease – so, treating rare diseases, which is – it's really difficult because of the economics. You need a certain population of people to treat for a biotech or a biopharma to go after that disease, for instance. But there are government subsidies that are being divvied out to help drive progress. And there's other areas of the regulatory environment that help push some of these drugs through faster to make it cheaper for the sponsor to do that work.
So, rare diseases, I think, is kind of a somewhat big area. Cancer is always going to be a big area because it's such a complex disease to treat and it requires a lot of shots on goal. Most cancers – there's a lot of different types of cancers to treat, so there won't be one all-encompassing cure for cancer in my opinion. I think it'll be a lot of individualized treatments.
But yeah, I think if I had to put my finger on it, maybe individualized medicine or personalized medicine might be sort of the path forward for next-gen medicines. And a lot of that comes from genetic information. So, gene sequencing has gotten cheaper and it's easier to get that information.
Corey McLaughlin: Interesting.
John Engel: Which is probably why we're trying to protect that information from people like China.
Dan Ferris: OK. So – that's right. That's right. So, again, like a total nonscientific person here, do all diseases – do genes basically get us at all diseases? Is everything genetic in its origins or influenceable or curable or treatable or affectable some way by genes?
John Engel: Not everything.
Dan Ferris: By editing genes?
John Engel: Yeah. So, I mean, you've got infectious diseases. So, bacteria or viruses can cause diseases. There is a genetic component there. But yeah, I mean, if you're thinking about how medicine has evolved – I think that's a great question, Dan, by the way. I think if you're thinking broadly about how medicine has evolved over time, we've gone from treating symptoms – like you have a headache, you take aspirin – maybe you have cancer, take aspirin. – it'll at least make you feel a little bit better but it's not going to make you live any better – to learning how these diseases progress and trying to hit them with maybe something that can reverse the disease.
But – I wouldn't know the statistic off the top of my head, but many, many diseases, over thousands and thousands of diseases are genetically driven. And so, if you can fix that genetic component somehow with a cell or gene therapy, then you can potentially cure that disease, which is sort of the path forward for the industry. And there's a lot of debate on how to do that economically. It might cost a million dollars for one of these new treatments. In some cases it does. Some of these new gene therapies are very expensive. But the tradeoff is that you live longer and you don't have to take $80,000 worth of medicine every year for eight years. You take one medicine and you're done.
Dan Ferris: Nice. I like the sound of that as a guy who has health insurance and is getting older and all that stuff. But I want to be clear, though, I want to try to learn more about this while you're here. So, are we talking about – do genes get broken or are they flawed? Are they messed up and they have to get fixed? Or are we just saying that by going to the gene and manipulating it somehow we get at the disease?
John Engel: Yes. Both are correct. So, cancer, for instance is – over your lifetime mistakes in your genes are incorporated into that cell. So, cancer is a problem where a mistake turns a gene on or turns a gene off that causes them – the cells to grow wildly. So, if you can turn that gene off, which is what some cancer therapies try to do, you can stop the cancer from growing. Chemotherapy, for instance, stops cancers from growing by basically killing cells that are growing really fast like a cancer. That's why you lose your hair when you take a chemotherapy.
But in some cases you might have a hereditary disease, like sickle cell disease, for instance, which is one of the first shots on goal that some of these gene therapy companies are going after. And they've gone in and they've provided what is a fixed gene that reverses some of the ailments of the disease, which is really pretty cool.
Dan Ferris: A repaired gene, a fixed gene.
John Engel: A repaired gene, a gene that doesn't have the mistakes that that person might have in their genome.
Dan Ferris: Boy, the more you explain all this the more you can understand people's concerns about playing God.
John Engel: Yes.
Dan Ferris: I mean, our genetic code, that's like – that's the essence of who we are.
John Engel: It is. It's our software.
Dan Ferris: That determines why Dan is Dan and John is John. Yeah.
John Engel: Exactly. Yep.
Dan Ferris: It's scary. It makes me wonder – I saw – well, for example, I saw – what is that film – No Time to Die, the last James Bond film with Daniel Craig. And at one point in that movie – did you see it, by any chance?
John Engel: I didn't.
Dan Ferris: OK. So, at one point in the movie there's a whole room full of all of these villains in this villainous organization called Spectre, and James Bond is in the room too. And they all think that they're going to release this gas from the ceiling and that it has genetic information that's just going to kill James Bond. But the scientist in charge of it decided he hated Spectre more than he hated James Bond, so he got rid of the James Bond thing and replaced it and all of the Spectre people died and James Bond was just sitting there watching everybody die all around him.
And that – obviously that scene is embedded in my brain. There are organizations that have my genetic material. Presumably, any time you go to the hospital they can get your genetic material. So, probably everybody's got everybody's genetic material. And it's scary to think about what they can do with it. Is this stuff a fantasy? Am I being too paranoid? Am I at least 20 years ahead of my time or do these things exist in some form?
John Engel: Well, I mean, yeah, what you're talking about is bioterrorism. It's a real thing. I think that's a part of the national security concern that's driving things like the Biosecure Act, if we're bringing it full circle.
Dan Ferris: Yeah. But targeted in that way. Targeted like that? I mean –?
John Engel: Well, like targeting you specifically?
Dan Ferris: Or a group or an ethnic group or something. Anything.
John Engel: Sure. I think that's – I mean, I don't know of any examples personally. But I think that's theoretically possible for sure.
Dan Ferris: Right. Scientifically, there's not – it's in a movie but scientifically it's certainly plausible at least.
John Engel: Plausible for sure. Yeah.
Dan Ferris: Wow. OK. I just wanted to know if I was – because I have weird nightmares about this stuff sometimes. So, I – and a nightmare is this fantastical thing that happens when you go to sleep but it's real too in terms of –
Corey McLaughlin: Well, yeah, a lot of science fiction – some science fiction from movies and books have turned out to be true in many cases, so that's – I don't think you're too far off there.
Dan Ferris: OK. So, these things can exist and it's OK to be scared. Let's – since I've gotten to the point of terrorizing the listener why don't we just leave biotech behind? You did mention that you're – that you cover other technologies in other publications. Do you have a really compelling one for us that's pretty current?
John Engel: Yeah. So, we've been looking – I mean, it's going to terrorize your listeners some more but we –
Dan Ferris: OK, that's fine.
John Engel: We have been writing about –
Dan Ferris: That's where we are.
John Engel: We have been writing about cybersecurity quite a bit, which I think is quite an important industry to look at. We've been looking at AI. I was figuring you were going to get me on and we were going to talk AI for three hours, which I'm glad we didn't. But also another topic that is very highly covered right now. I know, Corey, you write about it quite a bit. Dan, I'm sure that even though you're a value guy you probably write about it as well.
Dan Ferris: Yeah. I mean, there are certain things you can't stay away from. We've wound up – in Extreme Value we've discussed cybersecurity a couple of times. We've never discussed AI yet. We've just – I feel like AI is in – it's sort of like – it's 1999 or early 2000 or something, you know what I'm saying, and I can wait for – I can wait. I don't have to jump in and feel like I'm in a big hurry to take advantage of some hot trend. That's just not how I work as an investor.
John Engel: Absolutely. Well, let me ask – yeah, let me ask you a question, Dan, because I think it's important today particularly. I think Nvidia just crossed the $3 trillion mark, market cap?
Dan Ferris: Yeah.
John Engel: What's – do you have a take on Nvidia? What do you think about Nvidia?
Dan Ferris: Well, look, obviously – I mean, they invented the freaking GPU. And they've – if you just – you can just read their 10K and you'll learn a little bit about it. And they've – that was really cool because, hey, video games, graphics. But now we're in another world with it. And AI does seem – generative AI does seem very useful to an extent. I think all the paranoia about replacing humans, maybe I'm just not smart enough to figure it out. I can see at a kiosk at McDonald's or something. I don't need a person. I can just punch in the large fries, double cheeseburger, whatever. So, I can see that. But what I did is I went to – I think it was ChatGPT and I asked it if it knew who I was. And it said, "Yes." And it described me as basically a newsletter writer. And then I said, "Can you write an investment recommendation in the style of Dan Ferris?" And it wrote up this whole thing about an investment in renewable energy.
John Engel: Wow.
Dan Ferris: I mean, if you follow me on Twitter, you know what I think of solar technology for large-scale uses. It's an abomination. It's ridiculous. It's the least efficient thing. The highest efficiency, highest tech solar cells are at the bottom end of the fossil fuel generation plants. And so, for large scale you're using this horribly inefficient thing and then you're going to lose more on transport. You lose energy when you transport it over those wires for miles and miles. So, you're going to start with the least amount you can generate and then you're going to lose so much – it's ridiculous, right?
So, this thing acted like I didn't – I thought the opposite of that. And I thought, "Well, I'm not afraid for my job yet." However, apparently – what I've learned is that you can train it. So, I could enter 10 newsletters that I've written and then ask it the same question. And then, it'll start reflecting more about who I am. But we all know – we've all seen that it can generate and does frequently generate absolute garbage. So, I don't – I'm not afraid of it in the way that many people are. And I feel like when people get this worked up about something they go way too far way too fast.
But who knows? In 10 years if the world is a different place, the way the world was a different place in 2010 versus – or 2009 versus 1999 because of the internet, hey, that won't surprise me one bit.
As far as Nvidia specifically, I mean, capitalism works. And anybody who's doing what they're doing is a target. So, they'd better enjoy it while they can because they are a target and everyone else everywhere is going to scramble to create similar products. Maybe it takes years to do it but they will do it in the same way everyone did it to Tesla. I realize that was probably a less complicated technology that's been around – electric cars have been around for 100 years. The GPU was invented in, what, 1999 or something?
John Engel: Yeah.
Dan Ferris: So, yeah. A little different. But the same dynamic as a business. So, enjoy your 70X or 100 times earnings valuation and your $3 trillion market cap and all of that –
John Engel: That' what I was waiting for.
Dan Ferris: – while it lasts.
John Engel: I think it's trading at 60X earnings right now. $3 trillion company trading at 60X earnings. To me, that's crazy.
Dan Ferris: Right. So, it is insane, isn't it? What's it going to do? Double? Is the business going to double in size from here? And then it'll still be worth 60X? I mean, I just – I don't see how this works out.
John Engel: It's incredible.
Dan Ferris: And we know that in the early stages when companies are smaller they can trade at crazy multiples. I just read the story of Scott Fearon, a short seller, who whiffed on Starbucks and Costco, even though he lived in the Pacific Northwest, he had the companies right in his backyard, and they were small cap companies – or smaller companies at the time. And he whiffed. He just didn't buy either one of them even though they were right there and he knew quite a bit about them because they were too expensive and he was a GARP investor – growth at a reasonable price.
So, I don't know – I don't think we're in danger of making that mistake anymore with Nvidia. We're way past that. So –
John Engel: Yeah. Although, I've been tracking Nvidia with of course Dave Lashmet. When I first started he was talking about Nvidia. This was 2015. And my God, I mean, look at what the stock has done since then. It's incredible. And back then I thought the same thing. You've got a – this is a $50 billion company trading at 100X earnings. That's crazy. I would never touched it. And you would have missed out on one of the biggest runs we've seen in this century probably.
Dan Ferris: Yeah, you missed – what is that, like a 15 or 20 bagger or something –
John Engel: Yeah. It's insane.
Dan Ferris: – just in share price. So, yeah. Look, I didn't get that multibagger either. So, Dave did. Dave got quite a big piece of it actually. Good for him. And I'll admit that all day long. But I – and in general, in the marketplace in general, you can't expect to – that's not a strategy. It's not a strategy to by $3 trillion companies trading at 60X earnings, right?
John Engel: No.
Dan Ferris: It's just not. So, why would you be able to do it with one and expect to just pinpoint the one time you could ever do that? You wouldn't. So, yeah, that's how I feel about Nvidia. It's a – what they've done is absolutely unequivocally amazing. Their success has turned them into a target for competition in the same way that it generally does in other industries. And I think that's what'll happen to it.
And of course, the other thing that could happen is that AI just kind of doesn't become the phenomenon that it is purported to be on its way to becoming. All this excitement is about the future, isn't it? It's not about the present.
John Engel: Yeah. Yeah, and I mean, you could talk about regulation as well. I mean, we've already cut quite a bit of its business that – it sells advanced chips to China – well, it did sell advanced graphics cards to China until 2022 and then the U.S. government said no more. So, I think regulation might slow the growth train for Nvidia here in the future at some point.
Dan Ferris: It could. But my experience with those things is that the government targets such things when they're – that's the confirmation that it's an absolutely phenomenal business. I mean, the government – if the government couldn't absolutely obliterate tobacco companies, you know what I'm saying, what's it going to do to any software or in this case hardware provider that's the only one really doing what they're doing at the moment? And those chips, they'll make their way to China somehow.
John Engel: Oh, they will. Yeah, that's fair. That's fair.
Dan Ferris: Right? So, yeah. But do you see – how do you feel? Do you think when you look at – when somebody brings up AI at the cocktail party, do you want to just push back or do you want to say, "Oh, no, it's interesting in this way, and this way, and this particular way"? Is there a particular way in which AI is interesting to you?
John Engel: Yeah. I mean, I think about it a couple different ways. And again, I'm a biotech guy, so I study these things as best I can but I'm not – I don't write code. I've never written code. I don't know – I know enough about the industry to make projections. But I think that there's a lot of businesses out there right now that are caught up in this hype cycle, that they're desperate. They desperately want to figure out how they can use AI to their advantage. And that's where a lot of the growth from Nvidia, I think, is coming from. But I think just as quickly a lot of these businesses are going to realize that there is really no – there's no use case for it. We're searching for something that might not exist. It might not help us at all. So, I think we'll see a lot of volatility within companies that are trying to position for AI.
But then, on the flip side, I listen to quite a bit of podcasts and listen to experts that have talked about these things. They just hosted the GPU conference that Nvidia puts on in Silicon Valley a couple of months ago, and I listened to some of the guys that developed this latest iteration of these large language models that they left Google to develop this thing. And I listened to them talk and they're concerned too. So, I don't know. I mean, I think there's malicious use cases for AI and I think there's other beneficial use cases for it as well. So, it's going to be interesting to see how these things play out and – I am concerned of course. I think that – I think this is a big moment in history for technology. It's this big wave of things that could happen because of AI. And I think that we haven't really reached the end. We're going to continue working on this stuff.
And one of the terms that scares me the most is this idea of advanced general intelligence that's systems that can problem solve and have logic. They can reason like a human being. That kind of scares me a little bit, if I'm being honest.
Dan Ferris: Right. All right, John. Thanks for letting us pick your brain and just sort of go anywhere. This was like the Ask Me Anything session with you.
John Engel: Yeah, it's been fun.
Dan Ferris: And I appreciate it. Yeah. But I do have one more question. It's my final question. It's the identical question for every guest no matter what the topic. If it's a nonfinance topic, same final question. OK? And by all means, if you have already said the answer and you just want to repeat it, that's fine too. It's cool. But the question is pretty simple. And if you need time, we can edit, so you can just sit there and think if you need to. But the question is pretty simple. It is: If you could leave our listener with a single thought today, what would you like to leave them with?
John Engel: I've made a lot of hard turns along the way in my career. I've gone to biotech to finance and sort of bridged the gap. And I've – those are very different activities. Very different career paths. So, I would say something like this to your listeners: Sometimes the most intriguing insights aren't derived from new facts but from new perspectives on what you already know. So, I think as an investor it's really important to keep an open mind and to always continue exploring
Announcer: Opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stansberry Research, its parent company, or affiliates.