Friday, April 2, 2010

Mutual Funds are Getting Brainy

What with all these developments in cognitive science, the same folks that brought you the Internet bubble are pondering a reprise of the same frothiness.  Like the bubble, there's going to be the good, the bad, the ugly and the sublime. After riding the Wall Street roller coaster on both the Internet, the housing bubble, the gold and the cash and carry bubbles (yes, even in the Great Recession, there is some froth, if you know where to look), some of us may be all the wiser for it  and some of us live up to the W.C. Field's maxim of "A Sucker is Born Every Minute.  Well, one of the next places to dip your hoop and blow bubbles, are brain-based businesses. And, the good folks on Wall Street are pleased to hand you the soapy water.  I am being a little more  cynical than what I should be as like the Internet, there is intrinsic value in many brain based technologies.   However, having just written a post about how our brains are wired for short term gain as opposed to long term gain (and we have the MRI studies to prove it), it will be interesting to see how this all plays out.  Maybe we should wire up the venture capitalists and quiz them about cognitive technologies and their profitability and see what parts of their brain light up!

On a more serious note, there are mutual funds that target brain based or cognitive technologies.  One of which is the NERV index.  The NERV (Neurotech Index) is a pure play modified market-capitalization weighted index designed to track the performance of the leading neurotechnology companies. According to the NeuroInsights Index Definition and Rules, in order for a security to be included in the Index, the security must be identified by NeuroInsights as significantly involved in researching, developing, manufacturing, and marketing pharmaceuticals, biologics, medical devices, and diagnostics for the brain and nervous system.Each security, according to a recognized market data vendor, must also have: a minimum market capitalization of $200 million,  a minimum three-month average daily trading volume of 100,000 shares,  and a minimum closing price of $3.00.

Companies making up the NERV index include:
The following are the companies included in the Nasdaq NeuroInsights Neurotech Index, (NASDAQ:NERV) (NASDAQ:NRVX) which  was  launched on September 25
Nasdaq NeuroInsights Neurotech index Components
Company Ticker Mkt Cap Weight
Acadia Pharmaceuticals (ACAD.O) 557 2.26%
Acorda Therapeutics (ACOR.O) 472 2.17%
Alexza Pharmaceuticals (ALXA.O) 272 1.08%
Alkermes Inc. (ALKS.O) 1,679 4.00%
Arena Pharmaceuticals (ARNA.O) 854 3.48%
Aspect Medical Systems ASPM.O 204 1.04%
Biogen Idec Inc. (BIIB.O) 18,940 8.00%
Biovail Corp. (BVF.TO) 2,786 4.00%
Cephalon Inc. (CEPH.O) 5,005 8.00%
Cyberonics Inc. (CYBX.O) 381 1.71%
Cypress Bioscience (CYPB.O) 501 2.11%
DURECT Corp. (DRRX.O) 366 1.50%
Elan Corp. (ELN.I) 9,439 8.00%
Endo Pharmaceuticals (ENDP.O) 4,301 4.00%
Forest Laboratories (FRX.N) 12,551 8.00%
Integra LifeSciences (IART.O) 1,283 4.00%
Javelin Pharmaceuticals (JAV.A) 274 1.10%
Medivation Inc. (MDVN.O) 539 2.06%
Micrus Endovascular (MEND.O) 354 1.55%
Natus Medical Inc. (BABY.O) 332 1.48%
Neurocrine Biosciences (NBIX.O) 402 1.61%
Neurogen Corp. NRGN.O 192 0.88%
Northstar Neuroscience NSTR.O 262 1.25%
Pain Therapeutics Inc. (PTIE.O) 420 1.76%
Penwest Pharmaceuticals (PPCO.O) 281 1.23%
Sepracor Inc. SEPR.O 2,998 4.00%
Shire Plc (SHP.L) 14,402 8.00%
Somanetics Corp. (SMTS.O) 259 1.09%
Somaxon Pharmaceuticals (SOMX.O) 205 0.96%
Valeant Pharmaceuticals (VRX.N) 1,470 4.00%
Vanda Pharmaceuticals (VNDA.O) 372 1.69%
XenoPort Inc. (XNPT.O) 1,001 4.00%

But, when I look around, at least, for now, there aren't any analysts reporting on this index except for Heather Bell who has this to say:

The Nasdaq has said that it has already seen widespread interest in the index from financial institutions eager to base products on it. However, the HealthShares Neuroscience ETF has failed to thrive, with assets that are only slightly above $2 million, so it is unclear what sort of reception something like an ETF based on Nasdaq's new index might find 

So, I think that the NERV index itself is pretty speculative  but it is worth tracking the field of neurotechnology as the likely to thrive as many of these ailments are age-related and the baby boomer generation is growing older. According to a report by NeuroInsights, brain-related illnesses cost the U.S. roughly $1 trillion annually; on a global level, that figure is about $2 trillion. Two billion people suffer from brain-related illnesses worldwide, and 100 million of them are in the U.S.