Getting to Know Biotech

               Biotech stocks have not just been off to an incredibly start to 2014, but also showed impressive returns over the course of 2013. The iShares Nasdaq Biotechnology (IBB) index doubled the returns of the Nasdaq Composite (IXIC) over the past year, gaining 66.73% and 33.24%, respectively. In fact, two of the top performing biotech companies, Gilead Sciences (GILD) and Biogen Idec (BIIB), have YTD growth of over 20%. Despite this incredible growth, many people are still in the dark about the biotech industry and what it has to offer that justifies the recent increased investment.

                Biotechs are, in a sense, a type of pharmaceutical company. While both produce drugs, biotech produces medicines, called biologics, that are often 200 to 1,000 times the size of normal pharmaceutical drugs (also called “small molecule” drugs) and are far more structurally complex due to the fact that they are derived from living cells. Biologics are created in living organisms by genetically engineering DNA and then modified to ensure the cell is as effective as it can be before being purified and manufactured.

                Due to the complexity of creating biologics, R&D costs for biotechs are very high. There are benefits to this complexity as well though. Unlike regular small molecule drugs, it is impossible to make an identical generic biologic, as the living molecules from which the medicine is derived will have slight differences based on their characteristics, environment, and provided nutrients. Instead, biologics can only be imitated through the production of biosimilars. The minor differences exhibited by biosimilars may, however, create differences in the safety and effectiveness of the medicine. For this reason, biosimilars have only recently gained approval guidelines by the FDA as a part of the healthcare reform bill. Even so, the approval process for biosimilars is stringent, requiring it to be “interchangeable” with the original biologic. Additionally, the patent protection through data exclusivity is 12 years for biologics, compared to only 5 years for other pharmaceuticals.

                Biotech stock’s risk is higher than standard pharmaceutical companies’ due to the high costs of R&D and the sensitivity to clinical trials and other regulatory obstacles. However, if a biotech company is able to create a “blockbuster” biologic, the pay-off is guaranteed exclusivity for at least 12 years, typically longer, as biosimilars take longer to develop than generics. Even biotech companies devoted to creating biosimilars have much to gain as their pricing points are anticipated to be between 70% and 80% of the original biologic, compared to generics that sell for 30% of the original drug’s price. Some biosimilars will try to out-do the originator and become biosuperiors. These have the potential to demand premiums on top of the originator’s price.

                Investors decided that the possible success of the biotech industry is worth the risk it carries, and so far their decision has paid off. Currently in the US, no biosimilars have been approved but many have been accepted into the approval pipeline and other countries have had biosimilars approved through their own regulatory guidelines. It may still be early to tell what the full effect of these pseudo-generics will be, but for now investors seem to be content with the length of biologic’s exclusivity and their replication difficulty. 

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Superfreakonomics – A Review

University of Chicago social economist Steven Levitt and New York Times journalist Stephen Dubner have teamed up once again to create Superfreakonomics, the sequel to best-seller Freakonomics. The pair start off the book with “An Explanatory Note”, admitting that in Freakonomics they lied; the book actually did have a theme which was “People respond to incentives.” After revealing their previous lie, they go on to write their book according to this theme as well. Some of the topics that the duo explore include the commonalities between street prostitutes and department-store Santas, the effectiveness of car seats, the link between TV and crime rate increases, and doctors’ hand hygiene.

            Steven and Stephen are back to their usual antics in Superfreakonomics, linking two seemingly unrelated subjects together in a manner equal parts analytical and creative. After investigating street prostitution in Chicago with the help of Sudhir Venkatash, who had researched the occupation thoroughly, the two noticed that during the Fourth of July holiday period, demand was for prostitutes was at its highest. As prostitutes are businesspeople too, during this time they raise prices by about 30 percent and work overtime. Dubner and Levitt also observe that this increase in demand and price, as economic principles dictate, results in an increase in supply. The authors compare these temporary prostitutes to department-store Santas as “they both take advantage of short-term job opportunities brought about by holiday spikes in demand” (pg. 43).

            In Chapter 4, the authors recount the fatal mystery of a condition called puerperal fever, which was to blame for the deaths of many mothers and their children in the 1800s. For a while the cause of this condition was unknown and data showed that the death rate for women during childbirth was higher in the doctor’s ward compared to the midwives’ ward. This statistic seemed perplexing considering doctors were more educated than the midwives. Ignatz Semmelweis, distraught by the overwhelming death rate, sought the cause of the fever and stumbled upon it one day when a professor died after having a student’s knife slip and cut his finger during an autopsy. The professor suffered similar symptoms as the mothers and Semmelweis realized the cause was the “cadaverous particles” that had been transferred to his vascular system. The women were dying because back at this time, doctors performed autopsies immediately after a patient died and often didn’t cleanse their hands sufficiently before continuing on their rounds. Due to this, the doctors were unknowingly spreading these “cadaverous particles” to the mothers and causing them to get puerperal fever. In order to remedy this problem, Semmelweis ordered all staff members to disinfect their hands in a chlorinated wash after performing autopsies and the result was that the death rate plummeted from nearly 10 percent to below 1 percent. This story illustrates another sub-theme of the book, which is that solutions are often cheap and simple.

            In order to further exemplify this sub-theme, Dubner and Levitt explore the effectiveness of the child car seat compared to the basic seat belt. Their research, a mix of primary and secondary data, showed that for preventing serious injuries the seat belt performed just as well as a child safety seat. While the child seat did provide greater prevention of minor injuries, the authors pose another idea – designing seat belts, a solution that already works, to fit children in the first place. Their proposition represents a solution that is much simpler, and possibly cheaper, than the one that people have chosen, a costly and clunky car seat.

            Dubner and Levitt’s final major topic in the book is global warming and the proposed geoengineering solutions. First, they decry the media’s coverage of the issue as over exaggeration. The reason being for this is that while it is true that the average temperature has risen, it is not even close to the magnitude that should cause concern. The media has cast carbon dioxide as the main villain in global warming but in fact, according to Lowell Wood, this emphasis is misplaced, as the major greenhouse gas is water vapor. Unfortunately, current climate models don’t have a method by which to handle water vapor so the blame falls on carbon dioxide as it can be accounted for. Not only does research show that carbon dioxide may not have been a contributing factor to recent warming, but it may have even helped in global cooling of the atmosphere by dimming the sun. This research is part of the basis for what the scientists at Intellectual Ventures, an invention company, propose as a solution to the problem. Their idea is to create a long hose, supported by a series of pumps and balloons, which will pump liquefied sulfur dioxide into the stratosphere, essentially imitating the effects of large volcanoes such as Mt. Pinatubo. According to these scientists, only an increase of 0.05 percent of current sulfur emissions would be needed to produce a globe-changing effect.  While to some this solution may sound wacky, it appeals to others as both cheap and simple.

            Overall, Superfreakonomics is an entertaining read that gives a unique perspective on a variety of topics. Personally, I thought the original was better as it felt like the authors abandoned the quirky synergy of economic analysis and journalism in the second half of Superfreakonomics. Instead it felt like just a journalistic report of the findings of Intellectual Ventures’ research on global warming. Apart from that, Dubner and Levitt have once again published an entertaining book.

Freakonomics – A Business Student’s Review

The New York Times Bestseller, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (from now on referred to as simply Freakonomics), is the brain-child of esteemed University of Chicago economist, Stephen D. Levitt, and the national bestselling author and New York Times writer, Stephen J. Dubner.  Levitt had a number of economic questions that other economists hadn’t thought to ask. What do Schoolteachers and Sumo Wrestlers have in common? Why do drug dealers still live with their moms? What makes a perfect parent? With the help of Dubner, Levitt explored these questions and brought his conclusions to the non-economically-inclined public.

Freakonomics is different than the usual book in the fact that, even by the authors’ own admissions, it has no central theme. The book is segmented into chapters based upon the different question and topic being addressed. Despite the odd lack of unity, Freakonomics flows smoothly from one topic to the next. One would think that the economic questions of Levitt (who holds a Bachelor’s from Harvard and a PhD from MIT) would be beyond the scope of a less-educated mind but Dubner does an excellent job of making the studies and concepts of Levitt both easy to understand and enjoyable to read.

Freakonomics is not only enlightening because of the answers to questions but also because of the facts found on the path to the answer. For example, it was fascinating that the salary range for professional sumo wrestlers is so varied, going from $170,000 per year in the upper echelon to $15,000 per year in the lower one. It’s no wonder then that sumo wrestlers often will throw a match for their peer when they’re one win away from the payment cutoff. The entire Ku Klux Klan section was intriguing as well. Imagining such a racist and hateful group using everyday words with the quasi-prefix Kl in their lingo seems laughable. The “Mr. Ayak” and “Mr. Akai” exchange seems silly as well, demeaning the organization to the level of a childish club. Ironically, as Levitt’s findings indicated, it was this “fraternity” aspect of the KKK that made it appealing, more so than the racist message at the group’s core.  

One of the most surprising facts was the discovery of how many people were willing to put themselves at risk in order to rise through the ranks of the Chicago drug-dealing organization, especially considering the incredibly low wage for “foot-soldiers”. It just goes to show the desperation of those below the poverty line are forced into. The difference in the profitability for “foot-soldiers” and the “Board of Directors” is startling, but as seen in the case of J.T., the risks often outweigh the reward. Regardless, the business attracted numerous people as evidenced by the “rank-and-file” members who were paying for the chance to be given a shot at dealing.

The most well-known discovery of Levitt’s is the cause for the drop in crime during the 1990s. In the previous years, crime had become widespread throughout the U.S. but mainly violent crime. Fear of crime became a common theme in the media and there was no end in sight but then suddenly the crime rate just dropped off. Everyone had ideas on the cause behind the sudden decline ranging from innovation in policing strategies to aging of the population. According to Levitt’s analysis, none of these were the true cause. In reality, Levitt linked the reason behind the drop to the legalization of abortion by the Roe vs. Wade case of 1973. He looked beyond the short-term changes to figure out that the legalization of abortion resulted in less unwanted children that would be prone to grow up to a life of crime.

The collaboration between Levitt and Dubner was a smart one and is definitely one of the reasons that it reached the New York Times Bestseller list. The combination of Levitt’s knowledge with Dubner’s writing know-how made for a synergy that brought economics to the people. For that reason, the book made me even more interested in the subject of economics than I had been previously. Even though the pair claim that they did not have a single unifying theme for the book, they definitely brought to life the idea that if morality is how the world should be, economics and the effect of incentives represents the way that the world actually works. 

Career Fair – One Freshman’s Perspective

On September 11th, I donned my new suit for the first time. Why you might ask? Well the answer is for the Villanova Fall Career Fair of course! Unfortunately I had gotten a terrible cold the day before but recognizing the importance of attending the Career Fair, I pushed myself to go anyway. So mid-afternoon on that day, I put on my suit and tie and headed on down to the Pavillion.

When I first entered the Pavillion, I was welcomed by members of the Career Services staff who scanned my Wildcard and within seconds were handing me a nametag indicating that I was a freshman in the School of Business. Then, a woman stuffed some informational packets into a canvas VSB bag which she handed to me before sending on my way. From there I went to have my picture taken by more Career Service staff members. The picture was taken using my phone and was meant to be used for my LinkedIn profile but unfortunately it wasn’t the greatest photo considering my ailment. Finally, I began my trek through the sea of recruiters that littered the Pavillion floor.

The first company table which I made my way to was Deloitte, as they were listed among the “Freshmen-Friendly” companies. I wasn’t really sure how the process worked when I arrived there as there were more interested students than representatives from Deloitte, but after waiting awkwardly with the other students I finally was able to introduce myself to one of the women from the company. I told her my name, my year, and my major while I shook her hand and upon hearing that I was a freshman, I was passed off to another representative. At this point, I was able to ask about the opportunities that were available within Deloitte for freshman. I was informed that there were a few various opportunities but the majority were for sophomores and juniors. She did however, have me enter my information into a database so that I would receive emails about any opportunities pertaining to freshman. After doing so, I thanked her and moved on to my next company.

Deloitte was the only company on the “Freshmen-Friendly” list that I had any interest in, but there were a couple other companies at the fair that I wanted to talk to as well. My goal is to get a job in investment banking at a bulge-bracket bank so I had to talk to the people from Morgan Stanley and J.P Morgan. First, I went to the Morgan Stanley booth and talked to a representative there. To my disappointment, I learned that the only on-campus recruiting Morgan Stanley does at Villanova is for their Operations department. However, the woman I talked to did tell me that I could still apply online for positions and internships in other departments such as investment banking. I had less luck at the J.P. Morgan booth as the representative I talked to told me that their internships are restricted to sophomores and juniors. I also asked about what attributes they looked for in their applicants but was only given the generic response about a strong GPA, participation in extracurriculars, and leadership potential.

By this point, I was feeling a bit fatigued from my cold and decided that I had done enough for the day. The most important thing that I learned from the career fair was that I will definitely need to work on networking if I want to get a job at Goldman Sachs or even an investment banking job at J.P. Morgan or Morgan Stanley. I am happy that I attended the career fair though as it was a good introduction to the professional realm. As a freshman, the career fair isn’t as important as in later years so it was nice to be able to practice networking. In my opinion, Villanova has done an excellent job in getting companies to come to their career fair.