March 2018 Amp Up

Q1 was a tale of 2 halves for AMP and the biotech sector more generally: The first half of the quarter started well for AMP with solid positive returns in January and February, especially with portfolio holdings like NKTR. However, March was a tough month for us with a number of our binary picks missing and the overall biotech sector providing a headwind. Fortunately, we kept a pretty high cash position in March. Overall our return for the quarter for our hypothetical Amp fund was down about 1%, compared to the biotech extended trading fund (ETF) IBB, which was down around 0.03%. This is in stark contrast to our gain of 51% in 2017 vs. IBB's 21% gain.

We were reminded of valuable lessons in March:

  1. Biotech is not for conservative investors;

  • You should adjust the portion of your portfolio in biotech according to your risk level;

  • For biotech companies with an important catalyst event for its only clinical asset, even with our 100% biopharma portfolio we like to stay below 2.5% of the portfolio;

  1. No matter how much diligence one does on a biotech catalyst, there is a lot of uncertainty;

  • A great example of this was Edge - they passed the futility checkpoint for a clinical trial in December and then they failed an overwhelming efficacy checkpoint 3 months later because the drug was futile;

  1. Winning in these small/mid biotechs is like batting in baseball - you can miss most of them, but a few big hits go a long way to success;

  • A great example of this is Nektar - 1 yr return 455%; That makes up for quite a few misses;

  • That's why we try to have at least 10 companies in our portfolio that have catalysts within the upcoming 12 months that we feel have a good risk/reward.

We are pleased to see biotech picking up again in recent days. We feel that the biotech sector is set up for an outstanding rest of 2018 because prices have gotten more attractive and large pharma/biotech are flush with cash and they need pipeline assets. This should drive M&A for the rest of the year, which should create a macro tailwind driving up prices of many clinical stage small biotech companies and provide some nice gains for acquired companies. However, we don't bet on a possible acquisition for an individual company because they are too difficult to predict in terms of timing. However, with a portfolio of biotech companies with promising assets, there is a reasonable chance that at least one company in the Amp portfolio gets acquired this year as long as a healthy pace of M&A continues in biotech.

At Amp we are excited about the upcoming key cancer meetings and the many catalysts set to report in Q2. In March we started or increased our positions in companies with upcoming cancer catalysts such as DVAX, ARQL, and SPPI. We have been doing a lot of diligence on the upcoming readouts in cancer and continue to add more names to our list. Check out our updated catalyst calendar for Q2 2018 to see the catalysts that we are watching closely.