<p>As for Warren Buffett, although I think he has his shortcomings like all of us, there is no doubt that his holistic thinking is better than most. Buffett simply does not invest in things he does not understand. iBio Pharma (NYSEAMERICAN: IBIO) and IBIO shares would certainly fall into this category.
Here’s the thing: If anyone was interested in investing in companies that want to create a coronavirus vaccine, it would be an 89-year-old billionaire worth $ 77 billion, more than all but a handful of the world’s biotechnology companies.
Older adults are at risk of developing coronavirus. Other susceptible ones include those who suffer from heart disease, diabetes or lung disease.
As far as I know, Buffett does not suffer from any of these, but he is in the category that is likely to be affected. And yet you do not see Buffett buying iBio even though it works with a coronavirus vaccine.
Here are the reasons why.
Buffett has no edge
Berkshire Hathaway (NYSE: BRK.A, NYSE: BRK.B) could find and pay for the world’s most knowledgeable infectious experts. That still would not give Buffett an advantage over the average Joe when it comes to predicting which of the many companies that want to deliver a coronavirus vaccine will be successful – if any.
As I write this, a press release came to my inbox from Medicago Inc., a Quebec City-based biopharmaceutical company that has come up with a viable COVID-19 vaccine.
Production of VLPs is the first step in developing a vaccine for COVID-19, which will now undergo preclinical tests for safety and efficacy, ”the press release of March 12 states.
“Once this is clear, Medicago expects to discuss with appropriate health authorities to initiate trials with the human vaccine by the summer (July / August) 2020.”
According to the press release, Medicago uses plant-based technology to develop protein-based drugs. It does not use animal products or live viruses to create its products.
The company currently has a product under review with Health Canada. It is a recombinant quadrivalent virus-like particle (QVLP) seasonal influenza vaccine that would be used for pandemic influenza, rotavirus and norovirus. It is tested over preclinical and phase II clinical trials.
As a Canadian, I’m glad to hear about a potential home-grown solution to coronavirus. If Buffett was interested in investing in coronavirus solutions, wouldn’t it make sense for him to consider all the possibilities and not just iBio’s potential vaccine?
Of course it should.
But I doubt he will play a mug game, which is what everyone who invests in iBio does without significant health expertise.
There is a better place to put your money
After studying Oracle of Omaha for a while, I guess his preferred path would be to add to his existing stock positions, especially the four airlines’ shares he owns, which as a group decrease by 31% (including dividends) over the past month through March 11th.
Second, he may want to use some of Berkshire’s $ 130 billion in cash to stop one or more of these airlines if they need external funding to ride out the global pandemic. As previous investments have shown, he can expect to get convertible preference shares with a juicy return and an attractive conversion price on the attached warrants.
Regarding Occidental Petroleum (NYSE: OXY) 2019, he received 8% preference with warrants to buy 80 million OXY shares at $ 62.50. While OXY’s share price is currently well below water, he receives 8% interest to wait for the situation to improve. Worst case: Occidental goes under and Berkshire is out for $ 10 billion.
The $ 10 billion represents 1.2% of the company’s total assets of $ 818 billion.
Finally, in addition to airlines, cruise companies may have an even greater need for financial support as the coronavirus outbreak declines. This is because if people did not question their common sense to sit in a petri dish of 3,000 people before this outbreak, they were sure it would be in the future.
It may not hold. People tend to go back to their normal routines. But over the next 12 months, the number of cruises will decrease. Lower oil prices help keep costs down, but these ships will not be cheap. By 2020, Royal Caribbean (NYSE: RCL) is expected to spend as much as $ 384 million on its long-term debt and more than $ 1.3 billion over the next five years.
The Bank of Berkshire will be open to businesses.
The conclusion of the IBIO share
If I were to invest in a warehouse that seems to benefit from the coronavirus – and I do not – I would focus on those companies that do not change their entire business strategy to take advantage of this pandemic.
Do not invest in things that you know very little about. You thank me on the way.
Will Ashworth has been writing about full-time investing since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the United States and Canada. He especially likes to create model portfolios that pass the test of time. He lives in Halifax, Nova Scotia. At the time of writing, Will Ashworth had no position in any of the above securities.