The globe-trotting editor and publisher of The Midas Letter has decided to give his metal investments a breather, looking for new prospects in the life sciences space. In this interview with The Life Sciences Report, James West points to low-hanging biofruit ripe for the picking.
The Life Sciences Report: James, what financial fundamentals have caused you to diversify your portfolio into the life sciences?
James West: The fundamentals impacting the resource industry are decidedly poor in terms of profitable investment opportunities. But the improving valuations in the life sciences sector relative to the resources sector, as evidenced by several takeovers in progress, are catalyzing a renewed interest in biotech. Biotech investing requires more focus and study than investing in mining, however. It is more complicated and tougher to understand.
TLSR: Let’s spend a minute on metal resource investing. How do you assess that situation in terms of the next couple of years?
JW: The prospects for exploration in metals, in my opinion, are not going to improve dramatically in the next two years. The best representative gauge of what has happened in global metals exploration is the Standard & Poor’s/Toronto Stock Exchange Venture (TSX.V) Index, which has lost 55% of its value since September 2011 highs. Gold has been depressed since its $1,924 per ounce ($1,924/oz) high in September 2011. It has been range-bound between $1,190/oz and $1,380/oz. And the continued absence of response from gold to geopolitical events is disillusioning investors.
Also, despite the fact that we have supply shortages in copper, zinc and other metal commodities, there is a question of whether or not the Chinese economy can grow sufficiently to carry the demand that has propped up the industry since 2008. The China question is undermining demand for investment in resource exploration and base metals, and the global supply/demand metrics do not look good.
The TSX.V is a benchmark index for junior exploration in resources of all types and it is dismal, trading sideways for the last six months with minor feints to the upside. Mining companies are missing filing deadlines and falling off the board. The bad news is that the economic fundamentals are undermining the prospects for junior exploration going forward. And they are not set to change dramatically during the next 24 months. In contrast, the life sciences are a bright spot.
TLSR: What is going on in the life sciences sector that draws you to it?
JW: Because there is less investment for gold exploration, and because the energy exploration stage in Canada and the U.S. is maturing, there is a growing demand for early-stage life sciences companies listed on the TSX.V. The transition of resource investor cash to life sciences and technology is creating more opportunity there for investors.
There are some big takeovers in the space. Valeant Pharmaceuticals International Inc. (VRX:NYSE; VRX:TSX) is trying to take over Allergan Inc. (AGN:NYSE) in a cash and stock deal worth $47 billion ($47B), and Pfizer Inc. (PFE:NYSE) was forced to abort its attempted takeover of English drugmaker AstraZeneca Plc (AZN:NYSE), as its $118B bid was insufficient to entice shareholders of Astra.