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The Life Sciences Report: You are known to a lot of readers as an energy investor, and biotech will be viewed as new for you. What attracted you to biotech?
Jim Letourneau: Biotech is not really new for me. It's just something I haven't talked about before.
I have two mottos for investing. The first is "there's always a bull market in something." The second is "anything for a buck." In 2012 it was easier to make money in small-cap biotech companies than it was in any other sector. I like new technologies in general, and some biotech companies have solid, proven technologies with a lot of upside. From a simpler perspective, there were only 114 life science companies listed on Canadian exchanges as of Oct. 31, 2012, compared to 1,672 in mining and 398 in energy. Biotech is a smaller space. It hasn't been overpromoted, and most analysts would probably agree that the mining and energy sectors have reached a state of dysfunctional excess. I'm pretty excited about biotech.
TLSR: What about other types of cancers, such as lung cancer?
JL: I've been following a medical device company called Verisante Technology Inc. (VRS:TSX.V). Its main platform is identifying skin cancer. Skin cancer is fairly difficult for even well-trained dermatologists to visually detect. They can see moles that look suspicious, but that doesn't tell them whether they're cancerous or not. Conclusive diagnoses require biopsies. Verisante has a technology that uses Raman spectroscopy to get compositional data that indicates whether a mole is cancerous or not. Other technologies use pattern recognitions from millions of images of moles. Such methods don't utilize compositional data and, consequently, don't work very well.
"Investors have a pretty good shot with biotech companies."
While Verisante has a long road to commercialization, I think dermatologists will be open to using this tool because it's a fast and efficient way to screen. The exciting part is that Verisante's technology doesn't just work on skin cancer. Strong data from a 2011 pilot study and a 2012 follow-up have led to the company working on applications for regulatory approval. Overall, Verisante's platform is very compelling. The technology behind the Verisante Core for lung cancer detection was also named a top 10 cancer breakthrough of 2011 by the Canadian Cancer Society.
TLSR: It is well established that quick and accurate detection of any cancerous lesion is advantageous. The earlier the detection, the better the chances for effective treatment.
JL: Yes. Also, if the cost is lower, patients and doctors are going to be more open to tests leading to earlier diagnoses. There are a lot of positives. What I'm learning over time is how long it takes for great ideas to become commercialized.
TLSR: Still, approval of diagnostic technologies is much quicker than full-fledged development of drugs.
JL: That's true. Investors are normally quite impatient. I'm quite impatient myself as a general rule. You've only got so much time in a year, and at the end of the year you want to be farther ahead than you were at the beginning. In Canadian biotech, share prices can be all over the place depending on the general market, the mood of investors and whether expectations were realistic or not. Sometimes investors get a really nice opportunity, where the share price has been beaten down and nothing has gone wrong with the science. Companies sometimes simply fall out of favor with the market, and these can be picked up for pretty good prices. That's my favorite time to buy companies—when everybody hates them but there is nothing fundamentally wrong with the science or technology.
TLSR: Would you consider your strategies to be contrarian compared to the overall mood of the market?
JL: More and more every year. If there's a company that I've followed for a long time and really understand, I get intrigued when I see the price get lower. I was not like that in the past. If I have a big position, sometimes I still get nervous. But, yes, I would say I'm more contrarian than I used to be.