#003: Are Billionaire Jim Mellon's suggested longevity stock portfolios any good?

Portfolio review, news, and technical analysis...

In this Edition of Longevity Marketcap Telemetry, August 3, 2020:

  • What happened last week.

  • What to look for this week.

  • How are the suggested longevity stock portfolios from billionaire Jim Mellon’s Juvenescence: Investing in the age of longevity doing three years later?

  • Technical Analysis

*Disclaimer: None of this should be taken as financial advice. I am not a financial advisor. The information here is for educational purposes only.


What happened last week?

  • Biotech stocks pull back. XBI biotech ETF was down 2.5% for the week while the NASDAQ was up +4.3%, mainly from megacap tech stocks. Concentration in performance is worrying.

  • resTORbio (TORC) receives funding from NIH for a Covid-19 prophylaxis study in older adults. This makes sense. Rapalogs (drugs related to rapamycin) are believed to improve immune responses in the elderly.

  • Added ALX Oncology (ALXO) to LongevityMarketcap.com. Originally, I didn’t think this immuno-oncology drug company really qualified despite being backed by Laura Deming’s The Longevity Fund. However, I recently learned that the CD47 surface protein that the company is targeting for cancer is also being studied in relation to aging. Many biotech companies may in fact have secret anti-aging agendas despite marketing themselves as more generic and practical investments.

  • Added events section to LongevityMarketcap.com. The number of longevity conferences has been growing and many now include investing panels or are wholly focused on investing. One such conference is the Longevity Investors Conference, taking place online October 1st, 2020. Speakers will include David Sinclair, Nir Barzilai, Aubrey de Grey, Nils Regge & Alexandra Bause (Apollo Health Ventures), and many more central figures in the science and investing of longevity.

What to look for this week?

  • NASDAQ pullback? It’s been going straight up with no meaningful pullbacks since perhaps the beginning of June. Momentum indicators are pointing to a possible reversal within the next 3 weeks, which would affect biotech stocks as well. Will it be a brief pullback before surging even higher or something more substantial? Actually, I have discovered a truly marvellous answer to this question, which this margin is too narrow to contain.

  • Unity Biotechnology and Mesoblast possible breakouts? Both of these companies are getting closer to breaking prior swing highs / one-year highs. What has the market sniffed out? I will discuss this more in the Technical Analysis section.

  • AgeX Therapeutics entry? I like AgeX as a very speculative position. A certain confluence of technical factors are making it compelling as a trade / investment entry. (See the Technical Analysis section at the end of this newsletter)

Jim Mellon’s suggested Longevity Portfolios

In last week’s newsletter, I wrote a summary of the main takeaways of billionaire Jim Mellon’s book Juvenescence: Investing in the age of longevity. Jim is a brilliant investor and one of the most proactive in the longevity space — so you should read his book if you haven’t already.

In one of the sections of his book, Mellon gives the reader three suggested longevity biotech stock portfolios: Conservative, Moderate, and Speculative. Not all of the stocks in the portfolios are pure longevity biotech plays but most are related in some way.

Almost three years after publishing how have Mellon’s suggested longevity portfolios fared versus the S&P500 and the biotech sector (IBB)?

I tracked the performance of each of the longevity stock portfolios suggested in Juvenescence: Investing in the age of longevity since the publish date of September 25, 2017:

Results: Conservative Portfolio

The Conservative portfolio contains some bigger pharma stocks (Novartis, Amgen) as core holdings, so certainly not pure longevity plays. Pure regenerative medicine or longevity biotech stocks in the Conservative portfolio include Mesoblast (MESO), and Organovo (ONVO).

  • In less than three years Mellon’s suggested Conservative portfolio returned about 50%.

  • S&P500 returned about 31% in the same time period.

  • IBB (market cap weighted biotech sector ETF) returned about 25% in the same time period.

  • The biggest contributors to the portfolio gains were: CRISPR Therapeutics (CRSP) and Mesoblast (MESO).

Results: Moderate Portfolio

  • The Moderate portfolio also contains two traditional pharma stocks (Novartis and Amgen) but with lower weights compared to the Conservative portfolio.

  • The portfolio also includes ChromaDex, the maker of a nicotinamide riboside NAD+ supplement. I’m not a fan of the inclusion of this stock, despite the investment by Hong Kong billionaire Li-Kai Shing. Perhaps it is possible ChromaDex could see wild growth in a “detox tea” style fad, but I would rather pass on this stock.

  • The Moderate portfolio had a performance of about 31% in about 3 years.

  • S&P500 returned about 31% in the same time period.

  • IBB (market cap weighted biotech sector ETF) returned about 25% in the same time period.

Results: Speculative Portfolio

  • The Speculative portfolio drops the big pharma stocks in favour of smaller biotechs

  • The Speculative portfolio had a performance of about 32% in about 3 years.

  • S&P500 returned about 31% in the same time period.

  • IBB (market cap weighted biotech sector ETF) returned about 25% in the same time period.

Discussion of Jim Mellon’s suggested portfolios

  • All three suggested longevity portfolios either matched or outperformed the S&P500 and IBB biotech sector ETF. I chose IBB as a biotech benchmark as it is marketcap weighted, which is similar to how Mellon has allocated the portfolios.

  • Readers should be aware that Conservative, Moderate, and Speculative are relative descriptors. Investing in biotech is already generally considered to be risky so regular investors would probably consider even Mellon’s “Conservative” portfolio to be risky. Moderate and Speculative portfolios even more so.

  • Is it strange that the Conservative portfolio massively outperformed the Moderate and Speculative portfolios? No. Greater reward potential is usually coupled with greater risk. Nothing is certain in life except for… taxes. It’s also been only 3 years of performance so far.

  • Mellon’s book was published on September 25, 2017. This was before Unity Biotechnology (UBX) and AgeX Therapeutics (AGE) went public. I imagine if Mellon were to write the book today these two would certainly be included in the suggested portfolios. Mellon is invested in AgeX through his Juvenescence company. *I own shares of UBX.

  • Novartis seems like a good pick for a big pharma that has some current interest in longevity. Mellon interviewed Dr. Jay Bradner, President of the Novartis Institute for Biomedical Research, in his book and wrote that the company (along with AstraZeneca) are developing rapalogs that could be used to target aging.

  • Juvenescence: Investing in the age longevity includes an index of private and public companies related to the longevity biotech industry. Not all of the publicly traded companies listed in the book are included in his suggested portfolios. Not all companies are sufficiently investible (low liquidity etc).

  • The book does not discuss the specific rationale behind the inclusion or exclusion of every stock in the portfolios or the reasoning behind the allocation weights.

  • Jim Mellon is British so the portfolio does include some lesser known biotech stocks listed on the London Stock Exchange. Mellon also included SalvaRx, a company he was personally involved with at the time.

  • The biggest winners by weight included CRISPR Therapeutics (CRSP) and Mesoblast (MESO). Mesoblast is a stem cell company that is included on LongevityMarketcap.com. I like both stocks but have no position as of yet.

  • The biggest losers by weight included Organovo (ONVO) and Living Cell Technologies (ASX:LCT). Organovo is a 3D bio-printing company listed on LongevityMarketcap.com

  • Some of the stocks in the suggested portfolio are traded on OTC markets. I’m not a fan of OTC. The only OTC “stock” I have ever owned (and continue to own) is Grayscale Bitcoin Investment Trust: GBTC.

  • Several of the stocks in the portfolios were bought out by other companies. I did not do a full portfolio simulation to account for the reinvestment of the bought out companies. I also did not include dividends, which can be notable source of return from “blue chip” biotech stocks.

  • Kite Pharmaceuticals was acquired before the book could be published. I did not include its performance in the portfolio analysis.

Conclusions

Longevity investor billionaire Jim Mellon’s suggested portfolios performed well in the three years since he published them in his book Juvenescence: Investing in the age of longevity.

The Conservative portfolio performance was particularly good, with about a 50% gain in three years, outperforming the S&P500 and IBB biotech sector ETF by a wide margin. The Moderate and Speculative portfolios performed decently with around 30% gains, which is similar to the S&P500 and better than the IBB biotech sector ETF.

I don’t think any sane person would recommend going all in on any of these portfolios (Jim Mellon certainly is diversified in other investments in addition to longevity). Even if you are a believer in the longevity thesis — that it will be eventually become the biggest industry — we are still in the early early innings. Many of the promising companies are still privately held.

Personally, I would perhaps allocate a small percentage of my own speculative portfolio to a modified version of the Conservative portfolio — adding Unity Biotechnology and AgeX which were not public at the time of Juvenescence’s publishing.

As early adopters already watching the players in the space we will be in a prime position to take advantage of the explosion in trend when the signal is clear.

Until then I am staying prepared, vigilant, and patient — with some nibbling here and there.


Technical Analysis

I wanted to wait until market close today before commenting on the charts. Technical analysis on Sunday nights is not ideal in my opinion as you are basically prognosticating on two-day-old information. Going forward the newsletter will be released around or after market close (4:00 PM EST) on Mondays.

AgeX Therapeutics (AGE)

Let’s take a zoomed out view of AgeX Therapeutics. The stock started traded late 2018 with some wild volatility culminating in a what look like a quadruple top just below $5 a share in May 2019.

From there the stock has been in a brutal decline falling 86% in a year, bottoming out in May 2020. Recently, it has been in an upwards trend, with a COVID-19 therapeutics speculation pump as well.

We are at a critical level here, in my opinion. The stock has been clobbered in a relatively short period of time (1 year) and is now trending upwards. I am now looking at an entry for a speculative investment sometime this week. If the stock bounces on the trend line on a TD sequential 9 that would be a pretty clean entry signal for me.

Unity Biotechnology (UBX)

Unity Biotechnology (UBX) is looking like it is getting ready to break out from its prior swing high on June 2nd, 2020 — the day after CEO, Ned David, appeared on the Peter Attia Podcast. Coincidence?

We should expect a “light switch” event sometime this quarter as the company will release the results of its Phase 2 UBX0101 osteoarthritis senolytic drug. It looks like investors are getting bullish.

I like this stock and I hold shares of UBX. Will be looking for another entry to add to my position this week.

Mesoblast (MESO)

Mesoblast (MESO, ASX:MSB) is an Australian company that develops stem cell technologies. At a market cap of $1.69 billion it is certainly investible.

A lot of the recent price action has been driven by news regarding the use of one its products for treatment of COVID-19 (which biotech doesn’t have a COVID product these days?). Analysis of their interim data of the Phase 3 trial of Remestemcel-L for treating Acute Respiratory Distress Syndrome (ARDS) is due early September.

I am interested in taking a speculative position sometime this week. There was a momentum reversal indicator that appears to have been more or less rejected last week but I will need to wait one more day to confirm.