Friday, July 18, 2008

Insights from a Top Five Star Fund Manager on Drug Pipelines (Part III)

Recently, Larry and I met with an interesting person, Ken Kam. Ken manages the Masters 100 Fund (MOFQX) and is a Morningstar Five Star fund manager. He has been regularly beating the S&P 500 Composite Stock Price index. Ken believes that his approach to investments using virtual portfolios to derive real investment decisions will be the wave of the future. Ken’s approach can be checked out at Earlier in his career, he had managed a technology and healthcare fund and had also run a medical devices company. During our meeting, we learned about his current holdings and what he thinks about the future of the pharmaceutical industry. This is the third and final of three blogs based on that interview.

This is my third and final blog based on a meeting that Larry and I had with Ken Kam, the fund manager of the Marketocracy’s Masters 100 Fund (MOFQX). In my two earlier blogs, I reviewed Ken’s thinking on the current and future prospects for Elan Corporation PLC. When Ken began talking about the future of Elan, he was touching on some of the current issues in the drug industry. That’s when Larry and I started to ask him questions about the industry in general and its future prospects.

Ken said that the industry will respond as in the past but that it can’t shortcut research. The old hit or miss approach to drug research is dead. More specifics will be required. Ken says that Genomics will drive much change and that new drugs will have a Genomics element. Large drug companies will have to find early stage drug research and then purchase it.

When looking to make future investment decisions, Ken says that he considers two stages. First, the beginning when the drug is unknown and it’s not known yet whether it will work. It’s tough to invest until the clinical trials are done. Next, once the trials are successful, it’s the basic blocking and tackling to run the business that counts. He cites Amgen as an example of a company that had been here with its drug Epogen but had to bring in a partner that had a sales force with preexisting relationships with doctors. Ken says that it’s hard to get into doctors’ offices with only one product. But, it can be done as Amgen and Genentech have demonstrated.

Ken thinks that Elan may get there. Also, Ken notes that manufacturing drugs is tough, there aren’t that many people who know how to do it, and even the big players get it wrong once in a while. Start-up’s only have scientists and this second stage is equally as important as the first. Hot IPO markets sometimes let start up’s fund these activities. Other times, it’s the big companies that provide the funding. Ken thinks that we’re in these later times right now. Also, what the business model looks like becomes a factor in making an investment decision. Outsourcing services and support to gain a cost advantage become important considerations.

Both Larry and I enjoyed our meeting with Ken Kam and we would like to take this opportunity to thank him and his team for arranging this opportunity for us.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

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