Companies I like: Starpharma

Disclaimer: All the information provided here is not financial advice. The information presented is my opinion and may be completely inaccurate.

Starpharma Holdings Limited (SPL) is engaged in the development of dendrimer technology.

From wikipedia:

Dendrimers are repeatedly branched, roughly spherical large molecules. The name comes from the Greek word “δένδρον” (pronounced dendron), which translates to “tree”. Synonymous terms for dendrimer include arborols and cascade molecules. However, dendrimer is currently the internationally accepted term. A dendrimer is typically symmetric around the core, and often adopts a spherical three-dimensional morphology. The word dendron is also encountered frequently. A dendron usually contains a single chemically addressable group called the focal point. The difference between dendrons and dendrimers is illustrated in figure one, but the terms are typically encountered interchangeably.

Dendrimer structure

Read more about dendrimers on wikipedia.

Key financial ratios: This company is not currently comparable to other companies I have commented on from a financial ratio perspective. I.e. Starpharma does not currently exhibit strong ROE, low DER and the like.

Qualities that attract me:

• Very significant patent ownership. Probably (at the time of writing) the largest share of dendrimer related patents. This was achieved by acquiring DNT. Notably these achievements stemmed from the work of Donald Tomalia and work he did at Dow chemical.
• Dow chemical still has a decent stake in Starpharma, via the DNT acquisition.
• Platform technology is potentially applicable to many different products, this lowers risk.
• Applications of the platform are developed in conjunction with experienced and well funded partner organisations (e.g. pharmaceutical companies), again, this lowers risk.
• Business model should be moderately resilient to a downturn, since healthcare products tend to be needed regardless of what’s happening in the economy. Caveat: deals may be much harder to come by and interest in niche technologies might wane if there is a serious meltdown, this is pure speculation on my part.

Things that concern me:

• Dendrimer patent applications are likely to continue rising. Starpharma needs to continue innovating. Other companies, with deep pockets, may push harder into this space and substitute Starpharma’s technology. This bit is completely unknowable, an inherent risk when investing in cutting-edge technology firms.
• The company needs to increase cash flow, the business model, in my mind, is therefore still not completely proven.

More on non-linear dynamical systems

I took a quick peek at dynamical systems theory on wikipedia today, following on from my last post about global warming and the CO2 hoax. Jokes aside, I think it’s a really important concept to come out of mathematics that we are only scratching the surface.

From wikipedia:

This branch of mathematics deals with the long-term qualitative behavior of dynamical systems. Here, the focus is not on finding precise solutions to the equations defining the dynamical system (which is often hopeless), but rather to answer questions like “Will the system settle down to a steady state in the long term, and if so, what are the possible attractors?” or “Does the long-term behavior of the system depend on its initial condition?”

And further down…

Chaos theory has been so surprising because chaos can be found within almost trivial systems.

The thing I love about chaos theorists is that they openly admit that we know very little. This humble standpoint is missing in large swathes of the scientific community where a humanistic behaviour seems to prevail. I think it is eminently scientific to, initially, stand in awe of what we don’t know (and what don’t know we don’t know). The study of chaos and related fields (think turbulence) are beautiful for this reason alone.

Read more about non-linear dynamical systems at wikipedia.

My (un-researched) thoughts regarding CO2 and global warming

About a year ago I watched a DVD (available in most video stores) called The Great Global Warming Swindle. It is a documentary featuring a number of notable climatologists who believe that CO2 is a *trailing* indicator of global warming and that solar flare activity is a *leading* indicator.

I think it depends on who you want to believe. Both CO2 and solar activity, appear to correlate with global temperatures when taken at face value.

In my humble opinion, the CO2 global warming theory is not a scientific consensus (put the pitchforks down).

There appear to be notable scientists, whose names appear on the global warming document often used as ‘evidence’ that 99% of climate scientists agree. However, some scientists are unable to retrospectively remove their names from this document even when they begin to question the CO2 premise.

But, what I am most fascinated by is that this might be a case of Extraordinary Popular Delusions and the Madness of Crowds. Taking this a step further, this could end up as the most costly fallacies of all time (just behind the idea that governments can solve their debt issues by printing money).

If we implement CO2 trading, and our premise is wrong, it will cost trillions – money down the drain for the sake of an otherwise harmless gas. If CO2 is the cause of the problem, then the laws of dynamical systems would seem to suggest that that we have very little ability to control the quantum and direction of potential side-effects. Basically, the system is *very* complex, and it’s best to admit, that at this point, we really don’t know what is going on. Also, we should continue to find all possible causes.

Remember the hole in the ozone layer?

I distinctly remember, when studying a course in environmental science as part of a Chemical Engineering degree, our lecturer displayed an utter contempt for the ‘hole in the ozone layer’ theory. This struck me as a very contrarian view, since, at the time, this idea was reaching fever pitch. This ozone layer hole was going to grow into the size of the earth and we were all going to be toast.

My lecturer argued that popular science only focused on a small number of chemical processes, but ignored many other potentially counter balancing processes. His main disagreement was that the full picture of scientific facts wasn’t being interpreted objectively by the media and the general public. Having said that, the reduction of CFCs was very likely an important solution to the ozone issue.

Again, it was an idea that the world believed and became fixated on as a collective. Kind of like a reinforcing mechanism based on the tendency for most people to believe the consensus. As the consensus view becomes more of a consensus, a kind of viral effect is spawned.

Equally, I find it interesting that there’s also always a small contrarian contingent. This group is, ironically, like the ignored atmospheric chemical reactions, and possibly the solar flares of today. Within the social dynamical system, contrarians tend to keep us honest, always being prepared to look at the other side of the coin. Admittedly, they also stick to their views religiously. This seems to create a kind of natural balance. Most of the time we have an evolution of ideas as the masses adopt the consensus idea, but often the contrarian after a long wait sees his or her vision realised – revolution in thinking occurs. I might call this a public revelation. In the case of the GFC, Peter Schiff was ridiculed on public television and YouTube for years before his grim predictions became a reality for America.

Regarding, CO2 and global warming, maybe this time it is different. Maybe us masses are right. I hope not.

I think we should hold off on implementing a CO2 trading scheme until we are more certain. We can spend a tiny fraction of the cost of a CO2 trading scheme to make sure we are right. The problem is, that – as a crowd – we may not come to our senses soon enough to support a collaborative and rigorously scientific effort to objectively search for the real cause(s).

Most people reading this, will think “what are you talking about Andrew, we have found the cause, there’s no doubt!”. I simply challenge you to think about where you are getting your facts from, and to what extent your belief is an instinctive reaction to the overwhelming consensus view, along with a dash of cursory confirmation bias. Be contrarian!!

If you really disagree, I would love to hear your thoughts. There is nothing more agreeable to me than a two sided, logical discussion.