Actual - Finance

The "best of both worlds" is one way to look at it. Sophisticated equity risk-management tools previously available only to the Institutional investor can now be used by savvy individuals. Coupled with financial

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

products designed to minimize market risk, they enable investors to eliminate two huge sources of worry. The realistic concern that some unforeseen (accounting, geopolitical, demographic, budgetary, terrorist, et

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

.) event will have a dire negative impact on your stock portfolio? Gone. Worries caused by financial products designed to limit your upside to a mere fraction of the Market's? Gone. How is this possible? Read on.

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

.

It's actually a simple two-step process. In step 1, the investor uses equity holdings as collateral for a non-recourse loan, provided by a national financial services firm. The investor still owns the stock(s)

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

along with the ongoing upside potential. Inasmuch as this is not a stock sale, there are no tax consequences to this part of the transaction. Further, the loan is expressly designed so there are NO lender penalt

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

es should the investor later decide to cede the collateral. If the stock's value declines, the investor simply "walks away" from the loan.

In step 2, the investor uses the loan proceeds to establish the hedge ac

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

ount. One particularly low-risk strategy entails the purchase of a non-equity financial instrument guaranteed to provide both return OF principal and return ON principal. Should the stock market go "down the tube

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

", the investor cedes the collateral and retains the hedge account, subject to some capital gains taxes. If the market shoots skyward, the investor can keep both the hedge account, and the gain on the collaterali

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

ed stock holdings. The loan can even be restructured so as to capture the gains in the stock, and establish a new hedged account value.

Conceptually, this strategy can be likened to putting your money to work in

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

two different places at the same time - in the equities market, AND in a "hedge" account. Models using the 3-year performance of the S&P 500 under four hypothetical scenarios ("Hedge" vs. "Buy and Hold") are avai

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

able upon request.

Even in a "Strong Bull" market with 30% returns per year (akin to Q2 1995 thru Q1 1998) the hedging strategy can show >100% upside capture!
In a "Historical Average" market wi

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

th 11% per year performance, your upside capture can still be >100%.

Performance in a "Flat" market with 0% per year returns is nearly equivalent.

In a "Savage Bear" market with NEGATIVE 14% per

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

ear returns (akin to Q2 2000 thru Q1 2003) the hedging strategy strongly outperforms as a result of its loss minimization structure. While the equity Buy and Hold strategy results in a nearly 33% cumulative loss

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

ver 3 years, the hedged account still grows. Applicability is extensive. Say you loaded up on Google (for example) at the IPO. You don't want to sell, because you'd have to pay the capital gains tax. Be

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

ides, Google might go up to infinity! Conversely, there is always the possibility of a meltdown. Using this strategy, you can take your money off the table, and still retain your upside potential. This strategy c

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

n also dramatically enhance the performance of a diversified portfolio. Using this technique you can, in effect, hang on to your winners, and cull your underperformers without any significant loss. Perhaps you ha

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

e a concentrated stock position. You recognize the inherent risk thereof, but for whatever reason do not want to sell. Use this technique to minimize your exposure. Or, you remember back to the early part of this

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

century, 2001. You can protect yourself...

Bottom Line: Every pension manager, professional money manager, and institutional investor on the planet avoids the breach of their fiduciary responsibility that would

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

esult if they did not take steps to mitigate financial disaster. You owe it to yourself and your family to do the same. Do you want to eliminate the possibility of losing money in the stock market, or not? Using

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

trategies such as I've described, there is no reason for you to have money "at risk" in the market. The question then becomes - "How much money would you invest in the stock market, if you knew you wouldn't lose?

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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It takes courage to examine what we are doing and where we are going. But if we honestly stop and think about it and then pull out of those non-productive activities and rectify those poor decisions we have made in the past, we will never look back.

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