This is Part 2 of a series. See Part 1 here and Part 3 here.
If you’re of a certain age and grew up in America then you’ll recognize this photo.
It’s a photo of the superhero duo Batman and Robin. Batman controls the motorcycle as his sidekick, Robin, sits in the sidecar. Batman is a near-indestructible superhero. Robin is … actually, I don’t remember what he’s good at. And that’s the point. As long as Robin has Batman, and Batman has the wheel, then Robin can sit in the sidecar, confident that Batman won’t lead him astray.
A common mistake I see among investors is that they think they have to know it all. In my experience, sometimes you want to delegate certain aspects of the investment process to individuals with extraordinary skills. This theme recently came to light on social media when Elon Musk’s text messages were revealed in discovery relating to his proposed acquisition of Twitter. Some in the media, who likely don’t understand what it means to take risk, thought the text messages revealed a group of investors who were not so smart because they were investing in Elon Musk, no questions asked. This post does a good job explaining how the media got it precisely backwards. As an investor, you don’t have to know how Elon is going to pull it off. You can look at his track record of success, and correctly identify an individual who has exceptional problem-solving skills and the fortitude to overcome any obstacle in his path. From there, you can decide if it’s a good bet to give him money. Historically, it’s been a great bet.
Sidecar Partners (@SidecarCap) refers to betting on extradorinary people as “sidecar investing” and he lays out his thoughts in this excellent twitter thread. Through Sidecar Partners I learned of Richard Zeckhauser, a professor at the Harvard Kennedy School, who calls sidecar investing “free riding on the superior capability of others” and I can think of no better way of explaining it. If this topic interests you, do yourself a favor and read Zeckhauser’s 36-page paper Investing in the Unknown and Unknowable. It opened my eyes to a new way of thinking, and I hope it does the same for you.
If you’re still with me, I’m going to tie this back to Liquidia and explain why investing alongside CEO Roger Jeffs is a compelling sidecar investment . Here’s what I wrote about Jeffs in my initial post:
Martine Rothblatt, motivated by her daughter’s PAH diagnosis, founded United Therapeutics in 1996. Rothblatt, a lawyer by training and founder of SiriusXM radio, brought on Roger Jeffs, a Ph.D. in pharmacology, in 1998 as Director of Research, Development and Medical of UTHR. Together, Rothblatt and Jeffs grew United Therapeutics into a PAH powerhouse by their decision to commercialize treprostinil in 2002. Today, treprostinil is sold under the brand names Remodulin for infusion, Orenitram for oral, and Tyvaso for inhalation. All three brand names are owned by United Therapeutics.
After an 18 year career, Jeffs retired from UTHR as co-CEO (a title he shared with Rothblatt) and President. In January of 2022, Jeffs became CEO of Liquidia. Jeffs owns 2.7% of Liquidia’s shares outstanding, approximately $10M worth.
To lay it out more explicitly, Jeffs’ scientific know-how enabled United Therapeutics to start from nothing and grow into the pulmonary arterial hypertension powerhouse that it is today. Before Rothblatt and Jeffs entered the scene, there wasn’t even a company working on the problem. If anyone knows this industry, it’s Roger Jeffs.
After retiring as co-CEO of United Therapeutics, Jeffs became a director of RareGen, a company focused on rare disease pharmaceutical products that acquired the right to promote Sandoz’s first-to-file generic of Remodulin (treprostinil) for the treatment of patients with PAH. Liquidia bought RareGen in 2020 and brought Jeffs along as a board member. In January of 2022, Jeffs was appointed CEO of Liquidia. Would someone with his knowledge of PAH take this position if he didn’t see potential for the company? Here’s what I think. He would not take the position if he thought the technology was a flop. This is what I mean by outsourcing my technical due diligence to Jeffs. It doesn’t mean the company is going to be a success, or that the stock will work. It simply means that there is significant enough potential in the technology for an expert in the field to take a large bet on it. Of course, I’ll continue my due diligence to identify any potential red flags with the technology. For example, I’ve already identified another expert that I would like to speak with on the topic (whether they want to speak with me is another question altogether). If I’m successful on that front, I’ll write it up for you.
As a reminder, Jeffs is heavily invested in the success of Liquidia to the tune of $10M. He has been buying in the open market. Most recently, he purchased ~$250K worth of shares at $5.57, above today’s price of ~$5.20. Below is a snapshot of his open market purchases this year, which occurred in the middle of the ongoing litigation between Liquidia and United Therapeutics.
Thanks for reading and I hope to have more updates in the near-future.
Thanks for the writeup. Super interesting.