Klarman’s Biotech Bent

Has star value manager Seth Klarman found the secret to investing successfully in the growth-crazed biotech industry? Andrew Feinberg says the answer is a “qualified yes.”

“Klarman was prescient in recognizing that the genomics revolution would supercharge the biotech industry, radically improving the odds of creating successful new drugs,” Feinberg writes in his Kiplinger column. “As young biotech firms developed exciting new compounds, larger companies would fight over them, eventually offering billions of dollars for companies that did not yet even have drugs on the market.”

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Feinberg says that Klarman has taken some key steps to reduce risk in what can be a very volatile industry.
“Klarman often reduces risk by picking stocks that give him several ways to win,” he says, using as an example Forward Pharma, a Danish firm with a drug for treating multiple sclerosis. He lays out four different ways Forward could become a winner, which include buyout possibilities as well as the chance it receives royalties from Biogen, with whom it is involved in a patent battle.

“Has Klarman really found the secret for making biotech investing safe?” Feinberg asks. “The answer is a qualified yes. Just own a portfolio of companies with proven technology and multiple ways to win.”