Neopharm (NEOL) up 52% on the day

When I turned on my computer this morning it was like getting a belated Christmas present. Neopharm (NEOL) a stock I convinced my portfolio manager to buy was up 47% by the end of the day it was up 52%. In the press release, Neopharm said that the review committee was allowing their phase III cancer drug trial would proceed as planned. The significance of this news was that the stock had recently been pressued by rumors around Wall Street that the trial was under powered. In addition it was rumored that two of their significant investors had given up on the stock and sold their shares which caused the short interest to sky rocket. To add more flames to the fire, the company was pretty short on cash and while the burn rate was not high they would likely have to raise more money before the end of 2006.

You might be wondering why with all these negative forces at play, did I advise my portfolio manager to buy it? I took a stock casting approach. When I first started looking at Neopharm I prayed and I believed that God was directing me toward investing in them. In addition, I particularly liked that this drug was actually having a tangible impact on the extension of these patients’ lives. The drug was for a small population of patients and not very important for the overall U.S. healthcare system. However, the drug would have a significant impact both on this company and, on the lives of these patients.

I conducted my traditional financial due diligence but soon after we bought the stock, bears started giving me all these negative reports. My faith started to waiver. It is hard to have confidence that God is directing you when all you hear and read are negative reports. During this time, I decided to pray and focus on what the word of God says. I read the chapter in the Bible where Moses sent spies into Canaan (Numbers 13) to explore the land and the spies came back with a negative report that the land was full of giants instead of the positive report of the financial bounty the land contained. This reminded me that God wants us to be optimists not necessarily realists in every situation. A realist is a person that looks at the circumstances as they are today and offers very little room in their decision making for faith.

My portfolio manager is a big believer in averaging down, so as Neopharm's share price dropped we bought more stock. The more he bought the more I sweated. The more I sweated the more I prayed. I never used to believe in averaging down, but in retrospect I realize that averaging down is actually a faith move. By averaging down you are in fact saying that despite the circumstance I still believe. That is the essence of faith.

Please do not mistake me, my faith was not blind faith. As I prayed, I also did my work rigorously and conducted more due diligence, seeking insight from doctors who use the competing drug on the market, talking to the company, speaking to other analysts, etc. This additional due diligence gave my portfolio manager the added confidence he needed.

Just a week ago I was telling a good friend of mine who is a talented sell side biotech analyst at a major global investment bank that he should consider looking at the stock and pick up coverage. He basically told me I was crazy. I left him a very nice voicemail on his cell phone this morning reminding him of our conversation. I have a feeling I won't hear from him for awhile.

Disclaimer: This blog is not intended to indicate a recommendation to buy or sell any stock or other investment vehicle, but its sole intent and purpose is to demostrate how prayer and faith can work in your professional/investment life .