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Some thoughts to throw out in this very interesting discussion (forgive me if these have been offered elsewhere):

The reason I haven't invested in biotech is that it seems to be subject to variables/risks that I don't encounter in "high tech" (which in my mind may include biotech, but for purposes of this discussion I mean to include everything other than biotech). One variable is that, at least until now, biotech seems (to this lay person) to be a much more inexact science, relatively speaking. It seems that with digitally-based "high tech" products, you can more easily measure and explain their effectiveness (i.e. "when you input A, you get B every time, and we always know why"). It seems that with biotech, there is a higher degree of empiricism involved (i.e. "when you input A, you get B some of the time, depending on many unpredictable biological and behavioral variables, and we have an idea but we're not exactly sure why or when this will happen). Therefore, the ability to anticipate which products and/or companies will succeed and dominate seems to be diminished.

Another reason I've avoided biotech is the government regulation variable. Unlike CSCO, biotech companies have to obtain Federal approval for new products. The fate of even established companies can be seriously affected by this often unpredictable variable.

Another reason I've avoided biotech is the liability variable. Unlike CSCO, even after getting federal approval, biotech companies are vulnerable to potentially disastrous liability claims when their products fail for unforeseen (or undisclosed) reasons, or even when their products don't fail but some ambitious lawyer and/or quack scientist has a theory.

Another reason I've avoided biotech is the consumer/doctor preference variable. Biotech largely involves direct-to-consumer products - you manufacture a medicine and you market it to consumers (albeit through their doctors in most cases, who are often paid handsomely to favor one product over another) and it either succeeds or not in the often fickle healthcare marketplace. In "high tech", on the other hand, it seems to me to be easier to find and exploit a deeper value chain - that is, you can go three or four levels down and find the companies that provide the infrastructure and supply everybody and aren't as subject to marketing hype and consumer preference (a CSCO or JDSU, for example).

Anyway, my point is not to discuss my personal investing strategies, but to pose the question: What effect, if any, might these variables have on the application of the Gorilla model in biotech investing? Would they prevent it, or merely impede it, or have no bearing at all? I don't claim to know the answer, I'm just posing the question.

One thought that occurs to me is that the biotech field is changing in a way that might make it more amenable to Gorilla-style analysis. With the advent of digitized genetic mapping, it may become a more exact science (i.e. input A, and you always get B, and you always know why). As results become more predictable, so might the prospective success of one or another product or company, and so might our ability to pick Gorillas.

Another thought is that this creates a value chain that is better subject to exploitation by Gorilla investors. We now see "high tech" companies like Millenium and Celera that can supply all of the biotech manufacturers with information and infrastructure and aren't subject to the variables discussed above. They would seem to make money whether the government ultimately approves a product or not. However, would this chain operate on as many levels as the "high tech" chain that we're presently familiar with? Does it matter?

Just throwing these thoughts out to generate discussion among the more enlightened. If I'm being impertinent, by all means let me know.

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