Drug companies large and small have renewed their interest in one specific health care sector. It’s a true form of preventative medicine — a rapidly growing field that’s already decimated countless dangerous and deadly diseases.

Now biotechs and Big Pharma are in a race against time. Their mission is clear: Rid the world of the onslaught of superbugs and diseases that could cause the next great epidemic. And they’ll use second-generation technology to create some of the world’s most powerful drug saviors.

There’s money to be made in this field — and it hasn’t gone unnoticed by some of the planet’s top investors.

George Soros’ resume is nothing short of impressive. His legendary Quantum Fund returned investors an average 42.5 percent per year for 10 years — a total of 3,365 percent gains. In 2007, he raked in a staggering $2.9 billion, making him the Street’s No.1 earner for the year…

And then there’s Warren Buffett — an investor who needs no introduction. An initial $10,000 investment in Buffett’s famous holding company Berkshire Hathaway would have been worth more than $1.2 million at the end of last year…

Sure, they’ve made their money by occasionally taking different routes. However, Soros and Buffett are “sharing” some intriguing ideas these days, according to James Altucher, managing director of Formula Capital and author of Trade Like Warren Buffett. The two moguls are putting up big bucks for health care, he says, with a concentration on vaccines…

This bit of info may go against perceptions of Buffett as the ultimate value investor. Altucher claims this is a common misconception. Rather, Buffett is what he calls a “long-term demographic investor.”

That’s why Buffett and Soros are investing in health care and biotech stocks like GlaxoSmithKlein, Johnson & Johnson and Sanofi Aventis. These companies have a lot in common — most importantly, they are the world’s most prolific developers of vaccine treatments.

I’ve found an opportunity Warren Buffett can’t get his hands on — an opportunity to get in on not one, but two emerging biotechs in a race to create the ultimate cancer vaccine.

For years, the vaccine landscape was ruled by the basics — measles, mumps and rubella. And, of course, annual flu shots for the elderly and those affected with immune disorders. The market for vaccines was relatively stagnant. In 2005, vaccines accounted for less than three percent of the global pharmaceutical industry, according to the Wharton School of business.

It just wasn’t very profitable to make cheap flu shots. And the antiquated process of incubating the inactive viruses to go into the shots is time-consuming, and the shots are easily contaminated.

Now we’re looking at a transition to a different kind of vaccine. In fact, we saw the wave of next-generation vaccines hit the development pipeline as early as three years ago. Professors at Wharton saw the transition coming:

“In the past, a lot of attention was paid to the childhood vaccines, but more and more research and development is focusing on vaccines for adolescents and young adults, or even on adult vaccines for diseases such as cancer,” Wharton health care systems professor Patricia Danzon commented more than two years ago. “The health system approach to vaccines really has to adapt to accommodate these new products.”

This quote appears very prophetic today. Just look at Merck’s recent success…

Merck’s most recent quarter, reported in May 2008, saw revenue rising to $5.8 billion, with much of its sales growth attributed to Gardasil, the company’s blockbuster cervical cancer vaccine.

Merck, along with many of the other major drug companies, is in the process of developing numerous vaccine treatments for a variety of diseases — some common, some deadly. But there is also a select group of micro caps poised to make major medical breakthroughs with their proprietary vaccine technology.

One of these companies is a biotechnology company focused on active cellular immunotherapy. Essentially, this is a method of using a patient’s own cells to stimulate the body’s immune system to attack a cancer cell as if it were a virus or bacteria.

You see, that’s the main problem with the human immune system and the current methods of cancer treatments. The immune system doesn’t fight cancer cells, because it doesn’t recognize them as a threat. And chemotherapy attacks and kills all cells, even healthy ones. Now a better treatment is in the works — one that teaches the body to target the cancer cells.

Using active cellular immunotherapy, this company has developed a vaccine that trains the immune system to recognize and eliminate prostate cancer cells. The company is also looking at tweaking the drug to fight other types of cancer, including breast, ovarian and colorectal cancers.

Clinical trials have shown that administering the treatment to patients with late-stage cancer prolongs life by about four months. These few months may not sound significant, but they’re a start. And these results are impressing leading doctors of cancer research.

Regards,
Greg Guenthner
July 23, 2008

Small-Cap Vaccines was originally featured on Whiskey and Gunpowder

Since then, banks and brokerage stocks were punished. Energy and material stocks have soared-thanks to the Fed’s inflation campaign. Fed officials have taken their ability to devalue the U.S. dollar to new heights. What collateral backs today’s dollar? Mostly mortgage securities that nobody wants — as if Treasury bond collateral weren’t bad enough.

Despite the latest “reports,” current trends still have room to run. Just consider Fannie Mae and Freddie Mac. Those shareholders could be effectively wiped out by endless equity offerings as early as next year. The mountain of debt holders and bond insurance policyholders comes first.

Now, it’s possible that the federal government could issue hundreds of billions in new Treasuries to officially guarantee Fannie’s and Freddie’s liabilities. If no one lines up to buy these bonds, the Fed could monetize them. Such a scenario could herald a return to double-digit long-term interest rates and a collapse in confidence in paper money – demanding a new monetary system. We live in interesting times. Billionaire currency speculator George Soros thinks we’ve just entered the ugly side of a “super bubble.”

I wrote about George Soros’ investing framework in the August 2007 Strategic Investment. Here’s the excerpt on Soros:

The growth of securitization has truly altered the global economy…

One negative consequence is that financial markets are starting to shape the destiny of the real economy, not the other way around. Storied currency speculator George Soros was one of the first to speak publicly about the phenomenon of markets shaping economies. He calls it the theory of “reflexivity” and described it when testifying in front of Congress in 1994:

“The generally accepted theory is that financial markets tend toward equilibrium and, on the whole, discount the future correctly. I operate using a different theory, according to which financial markets cannot possibly discount the future correctly, because they do not merely discount the future; they help to shape it.”

Here’s reflexivity at work: As a company’s stock grows more coveted by wild-eyed speculators, its cost of capital gets lower and lower as its stock skyrockets; the higher its stock price, the more capital a company can raise in a secondary stock offering by issuing a set amount of shares. So its ability to reinvest capital and grow — its future — is shaped by the whims of speculators.

A second consequence of the securitization revolution: The further a lender is separated from a borrower, the more potential there is for fraud on the part of the borrower and underestimation of risk on the part of the lender.

Now, before you dismiss Soros as a Big Government “world improver,” keep in mind that he took the right side of every major financial crisis since World War II. The man clearly understands how markets can boom and bust, especially when greed and fear overwhelm rationality.

To see how Soros views the current crisis, I picked up his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. In the first half, Soros laments that reflexivity is not taken seriously in university economics departments. In the second half, he argues that the current crisis marks the end of a decades-long expansion of U.S. dollar-based credit. Soros dubs the period from the early 1980s-2007 a “super bubble.” He makes a convincing case:

Credit conditions have been relaxed to such an extent that I wonder how they could be relaxed any further. This is certainly true as far as the U.S. consumer is concerned. Credit terms for mortgages, auto loans, and credit cards have reached their maximum extension… It may also be true for commercial credit, particularly for leveraged buyouts and commercial real estate.

Only one thing is off the mark: Soros’ prescription for more government regulation.

Nowhere in his book will you find an explanation of how the global paper money system practically guaranteed the formation of his “super bubble.” This super bubble would not have been possible under an international gold standard. The international gold standard of the late 1800s fostered a time of incredible growth and wealth creation in a stable price environment. It wasn’t perfect.

It had periodic depressions. But it was far better than what we’re looking at: Government’s inflationary policy responses to problems created by its policy of perpetual bailouts.

Don’t forget that every paper currency in history eventually fell to its intrinsic value: zero. The dollar is no different, although it has taken longer than most others. For decades, foreign governments have aggressively bought dollars, propping up their value, hoping, thus, to insure long-term economic stability. Instead, this action is heavily responsible for the runaway inflation we’re seeing all over the world.

Soros seems to believe that the real economy cannot grow unless credit is growing. This ignores the fact that credit growth does not create economic growth. It merely assists growth. Over the long term, the economy grows as the capacity to produce goods and services grows. No credit necessary.

But we must invest in the environment we face, not the one that we wish were in place. The government response to the ugly side of Soros’ reflexivity will seriously impair confidence in paper money.

Look for gold, energy, and other natural resources to keep performing. Avoid financials, real estate, and consumer discretionary stocks.

Regards,
Dan Amoss
August 5, 2008

P.S.: While the Fed works to try and stave off massive inflation for the current time period, history shows us that all fiat currencies are bound to fail. When this happens, it will be extremely difficult for our financial system to recover. This is a very serious and increasingly looming threat to our economic way of life. But that’s not even the biggest problem we’re currently facing.

Financial Market Speculation was originally featured on Whiskey and Gunpowder