Some years ago, my wife bought stock in a pharmaceutical company with a small market capitalization of less than US$1B. She wanted to make the investment decisions for herself at the time. After that we got married, she leaves all the investment decisions to me, except for this particular company. I’ve been unable to convince her to cash out while she still has something left.
To not let her expensive lesson go to waste, I will write down some observations watching this case unfold.
Background
The pharmaceutical industry is an area that truly reflects the phrase “high risk high returns”. First, medical research requires large amounts of resources. Projects usually take very long to show results and require a lot of money to realize. This is because it costs money to conduct R&D. On top of the usual R&D risks, there is this additional factor of medical testing on...