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jackweyland:VALUE
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May 03, 2007
Strategy for VALUE
The Fund is a focused value fund that aims to find companies with pristine balance sheets, strong cash flow, and great management at undervalued prices. The allocation strategy is to build a core of high quality cash flow companies with potential to outperform and allocate a smaller percentage to speculative medical value opportunities. There are opportunities that arise where a medical asset is not properly valued by the market.
An example of The Fund's successful medical speculation is Elan Corp (ELN). This stock collapsed from nearly $30 to $7 in 2005 after they pulled their drug, Tysabri, from the market because of two deaths in a clinical trial. The stock continued to decline as institutions rushed out fearing Elan was in a downward spiral as only once in the history of the FDA has a drug ever been reinstated for the same condition. In addition, multiple sclerosis was not a deadly disease and there already existed multiple treatment alternatives.
On the other hand, I saw value in these shares and wrote an article in the summer of 2005 that was published on Forbes.com. Elan was around $4. It seemed obvious to me the dynamics of previously compromised immune systems and/or combination therapy with another immunotherapy treatment and Tysabri probably didn't mix. Upon further research, I learned there was a possible specific effect of combination treatment that increased the probability that the risk of using a powerful immunotherapy drug like Tysabri could be mitigated it's called monotherapy and medical awareness of the patient's immune system prior to infusion.
In Addition to what I perceived to be an obvious way to reduce the risk of using Tysabri, there was an obvious unmet medical need as a sizable portion of this large diseased population are not served well by current therapies. So, what about the efficacy? Well, this is where the value opportunity becomes even more compelling. Tysabri is twice as effective as all other treatments on the market, with evidence of halting disease progression, less instances of neurological fatigue, and convenient monthly dosing verses daily or weekly painful dosing for competing therapies. Eventually, the huge benefits, the unmet medical need and mitigated risks forced the FDA to allow the drug back onto the market. Elan's stock eventually recovered to $18 and The Fund sold its position.
The Fund Editor believes he has a unique and valid perspective that can find these kinds of medical opportunities that ivy league financiers dismiss. This adds volatility to the fund, but has also played an important roll in the significant out performance of the Fund.
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