BET ON THE ADULTS IN THE ROOM

If we imagine corporations as if they were people on a natural life cycle, then most of the biotechs named above would be like toddlers or even infants; filled with vast potential, but still unproven. Another way to go is to invest in, “the Big Five.” These are the originators of biotechnology who have beaten long odds and matured into “teenagers” (the Big Five are typically 10-20 years old as of the writing of this book…). Much like human teenagers you may know, they could very much resemble adults, but they still have a lot of growing to do. That restless and painful process of growth is what could generate outsized returns for years to come. In 2015, these “Big Five” biotechnology stocks generated 83% of the profits for the entire NASDAQ Biotechnology Index:

-Gilead ($17,000,000,000 profit)
-Amgen ($6,000,000,000 profit)
-Shire ($4,000,000,000 profit)
-Celgene ($3,000,000 profit)
-Mylan (1,800,000,000 profit)

These companies have also generated world beating returns over the last ten years

-Gilead (369%)
-Amgen (132%)
-Shire (181%)
-Celgene (331%)
-Mylan (73%)

Along the way to becoming established corporate forces with solid, sustainable profits and noteworthy long term stock market returns, these companies have relentlessly pursued technological advances and cures (cures, not just treatments) that have saved thousands of lives. Although they have taken on many of the characteristics of the sluggish Big Pharma beasts that they were born to rival, they may still benefit from a scrappy “outsider” culture, just the way that now dominant Nasdaq royalty such as Google and Amazon still encourage their executives to dream big and push boundaries.

Now that the “big five” have thousands of employees and deep pockets, it might be reasonable to ask, “is all the growth behind them?” Well, consider these metrics. Pfizer, the granddaddy of all Big Pharmas, has current market capitalization of $198 Billion. (this means that if you were to attempt to buy all of Pfizer corporation for your own personal ownership, you would need to somehow come up with more than $198,000,000,000.) Gilead, the most profitable of the “Big Five” biotechs, only has a market capitalization of $89 Billion. So, if Gilead is well managed and has some luck, it’s not impossible to imagine this “teenager” doubling or tripling over the next 10 years to rival Pfizer.