Happy Fourth of July!
How to Found a Republic Right
Auxilium Pharmaceuticals (
) is a skyrocket
The United States has two days every year whose dates say it all.
The Fourth of July (technically Independence Day) and 9/11 are
familiar to everyone just from their calendar dates.
Some other holidays float around the calendar without a fixed date
(New Year's Day, Thanksgiving, Memorial Day) and others are named
for the person or group being memorialized (Birthday of Martin
Luther King, Jr., Washington's Birthday, Labor Day, Columbus Day,
Veteran's Day and Christmas Day).
The Federal government, the official keeper of the list of days
when everyone gets to sleep in, has chosen to ignore the
international festivals of chocolate and alcohol (Valentine's Day
and Saint Patrick's Day) and two major religious holidays (Easter
and The SuperBowl), because they don't involve paid time off work.
It's customary to use these holidays to take a moment to
contemplate the meaning of the lives and contributions of the
events and people that they commemorate. This is a good thing,
because we certainly manage to ignore what the others try to tell
us for the rest of the year.
I'd like to take a couple of paragraphs to make two observations
about what July 4th means to me.
First, I'd say that the United States is extremely fortunate to
have been founded by (and represent the philosophies and intellects
of) a group of Eighteenth Century rationalists. The Founding
Fathers had read widely about the nature of man, and they were a
skeptical and judicious lot. The central tendency that they
manifested in the founding documents of our country was a reasoned
mistrust of human nature.
Their understanding that people will tend to act in their own
interests made them leery of allowing anyone to get their hands on
too much power. It wasn't just George III and the Parliament that
they disliked, it was what happens any time coercive power goes
unchecked. And that's why we have a system that frustrates anyone
with big ambitions and a big agenda. The frustrations were baked
into our political structure almost 240 years ago by those
clear-eyed gents in the Age of Reason. The system leads to constant
fuming, feuding and perpetual warfare among our leaders, and I
thank our founders for it.
Second, I have twice sung with the Boston Pops Orchestra in the
Hatch Shell in Boston on the Fourth of July. That means I got to
stand about 15 feet away from the 155mm howitzers that punctuate
the finale of the 1812 Overture. Fabulous. I could feel my chest
compress with each blast. It also meant having a great seat right
on the river for the huge fireworks show, with both direct and
reflected views of the festivities.
But my personal relationship with fireworks, which used to include
sparklers, huge strings of Black Cat firecrackers, roman candles,
skyrockets, fountains, bottle rockets and plenty of heavy
artillery, including M-80s and cherry bombs, has long been robbed
of real joy.
I deeply regret the almost universal ban on fireworks--at least on
any fireworks that are any fun at all--in my corner of the country.
(I haven't done a systematic study of U.S. fireworks laws, so I'm
too ignorant to generalize.)
Yes, I know that fireworks are dangerous and that people get hurt
playing with them. People in general, and young people in
particular, do get hurt when explosives are involved. Part of that
is general ignorance of what it means to be around things that go
"boom," part is youthful (and not-so-youthful) malevolence, and
part is bad luck.
I didn't get hurt because my father, who had grown up with even
more powerful fireworks at his disposal, taught my brother and me
how to create the maximum of noisy chaos without losing any of our
fingers, toes, eyes, eardrums, etc. That's one benefit of having a
fireman for a father.
But while something has been gained in terms of safety, something
has also been lost. It's pretty much the same thing that has
happened with Halloween, the celebration of which has been robbed
of its real danger and scariness.
The lessons that fireworks used to teach were expensive, but the
rewards were substantial.
So, this year, as I do every year, I will seek out the biggest
fireworks displays north of Boston that I can find. Because
communities try to avoid scheduling their celebrations at the same
time, I can usually take in two or three shows.
But I swear, I used to get as much pleasure from sending a coffee
can 20 feet in the air with my own very personal cherry bomb as I
do from an entire professional fireworks show.
So, with a slight bit of wistfulness for the dangers of the past, I
wish you all a happy (and safe) Fourth of July celebration. We have
much to celebrate.
Speaking of safety, one of my favorite cartoons of all time showed
a little old lady in a supermarket produce aisle. She was looking
at two displays, one of which was labeled MUSHROOMS--$6 PER POUND.
The other had a sign that said MUSHROOMS?--$1 PER POUND. ---
It's the same with stocks, of course. A certified blue chip stock,
one with a long earnings history and an attractive product and a
host of institutional sponsors will sell at a premium and will have
a chart that shows slow, steady growth.
But if you're in the mood for fireworks in your portfolio, you have
to look for companies with a mixed bag of qualities. In the case of
Auxilium Pharmaceuticals (
, you will be looking at a company that hasn't booked a profitable
quarter in its entire life. And the stock's chart will look like a
roman candle, with a whole lot of hissing punctuated by occasional
moments of brilliance.
Auxilium has two FDA-approved products that have produced seven
years of revenue growth; during that time, revenue increased from
$8.8 million in 2003 to $264 million in 2011.
The first product, Testim, is a gel that replaces replaces
testosterone for guys who aren't producing enough. There are about
13 million men out there with this condition, but there are lots
more who just appreciate the muscle-building, fat-burning,
sex-drive stimulating effects, which creates opportunities for
off-label uses. The second product is Xiaflex, a drug that treats
potentially crippling contractions of hand tendons.
So why has AUXL, which spent three years dropping from 42 in August
2008 to 14 in August 2011, been soaring like a skyrocket since June
4? This rally has kicked the stock from 19 when June began to 27 in
The answer is that Xiaflex has had great results in late-stage
clinical trials for treatment of another condition (Peyronie's
Disease), and investors always like it when existing drugs find new
uses. Without increasing costs, such a move can have a big impact
on the bottom line. (I won't describe Peyronie's Disease here, but
any men who want to do the research will quickly see why a
treatment has high potential.)
Auxilium is, like fireworks, both high potential and high risk.
Investors are buying AUXL now, but pharmaceutical companies can
occasionally hit potholes when it looks like clear sailing.
All the best,
Cabot China & Emerging Markets Report