A CIO overseeing $230 million explains how he's gaming the biotech industry by investing with minimal risk - and shares his 2 favorite stocks in the space
- Gerry Frigon, founder and chief investment officer at Taylor Frigon Capital Management, has found a way to play in the high-risk, high-reward biotechnology arena through a creative approach.
- He looks for companies that either enable or provide platforms to crucial business functions of biotechnology firms.
- Frigon shares two recent portfolio additions that encompasses this exact theme.
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Age-old investing folklore says that risk and return are inextricably linked. If you want a higher return, you have to take more risk. An investor can't have one without the other.
But Gerry Frigon, the founder and chief investment officer of the $230 million Taylor Frigon Capital Management, doesn't adhere to that school of thought - and he's found a way to play high-growth trends with less traditional risk exposure.
"It's difficult to fill a complete portfolio with nothing but that kind of stuff," he said in an exclusive interview with Business Insider. "It's not everyday that you come across something that has attributes to it that are tied to a particular narrative that's important - but doesn't have the same level of risk because it's an enabler."
That last bit is important - and it's a key theme of Frigon's investment thesis surrounding the biotechnology space. An area of the market that's known for the extreme risks that come hand-in-hand with drug approvals and testing.
Frigon's goal is simple: Gain exposure to a high-growth industry or sector with less-risk - and do so by leveraging companies (investments) that either enable or provide a useful platform to the high-growth firms bearing the risk. In doing so, he'll have access to massive upside potential with less downside exposure.
Frigon thinks of it like this: "In the gold rush, it was the people that were selling the tools to the gold miners - or were selling meat to the gold miners so they could eat - that were making money. It wasn't necessarily the gold miners themselves."
Under that umbrella of thought, Frigon was kind enough to share real-time anecdotes of this exact strategy within his portfolio.
Cryoport (CYRX)
"This is typical of the type of company that we like a lot where it may be that it's tied to something - like a big trend like biotechnology - but it's not actually having to worry about getting drugs approved on their own," he said.
The reason Frigon finds Cryoport to be such an attractive play simple: They provide biotechnology firms with a service that's integral to the way their business functions. They're an enabler.
"What they actually do is they move the substances around from one place to the other," he said. "It's essentially a logistics company, but it's very adept at moving these substances that have to be kept at ridiculously cold temperatures to get them from point A to point B."
He continued: "In the process of [drug] trials, there's a lot movement of these things that has to happen."
Frigon says that the traditional logistics companies - FedEx and UPS - aren't interested in this type of responsibility, and that allows Cryoport to carve out a niche.
"Here's a really simple way of playing in the biotechnology arena without having to be taking on the risks of getting a drug approved," he said.
Compugen (CGEN)
"They are actually in phase 1 trials with a drug of their own, but the only reason they're doing that is to prove the concept of their platform which is meant to aid in the discovery of drugs," he said. "It's basically using - they call it 'in silico' drug discovery - which is essentially another way of saying artificial intelligence as a means to be able to help discover drugs."
Frigon says that pharmaceuticals have traditionally been found using a "shotgun approach," meaning that companies would test a wide swath of different elements and substances for effectiveness. Trial and error.
But he says Compugen is different. They employ a more "rifled approach," meaning they use decades of data, computer models, and historical evidence to point these biotechnology firms in a more-targeted and refined direction. It's the difference between casting a wide net and zeroing-in.
"What that concept is bringing to the table is a much less-expensive, more-efficient way of finding drugs," he said. "It's a platform technology that ultimately can aid in drug discovery."
Compugen's platform is what makes the investment opportunity so enticing to Frigon. Indirectly, he's able to gain access to a high-growth area while taking less-traditional risks.