Don’t worry, this is not about turtle soup, or about chopping up leatherbacks and making acne cream out of them … this is about a whole different kind of sea turtle.
The “Hai Gui” or “sea turtles” of China are the returning scientists and businessmen that are driving, in part, the resurgence of the Chinese economy. These are the students who were sent abroad (adrift on the waves, like baby sea turtles — get it?) in the 1980s and 1990s, sent to European and American universities to get advanced degrees and business experience and exposure to capitalist systems, and now, as adult sea turtles, they’re coming back to lay their eggs in their homeland.
Or that’s the romantic version of the story, at least. I’ve seen these “sea turtles” referred to in a teaser before, Robert Hsu talked about them one of the many times that he teased New Oriental Education shares (which have certainly been worth buying in the long run this year — though his short term calls on the shares weren’t always right).
New Oriental Education was more of a play on creating new Sea Turtles — and about people wanting their kids to get English lessons so they can get into overseas universities. This Hai Gui teaser is the back side of that, the old sea turtles coming back.
And in this particular case, the sea turtles of import are the biologists and geneticists and scientists that are coming back to start up various contracting companies in pharmaceutical research and clinical trial management.
Apparently, according to the folks at Stansberry’s Phase I Investor ($5,000 a year, if I remember correctly), these folks are being wooed right and left by the Chinese government, because the government wants to build up high tech industries that create their own value, or that add intellectual development. They want to move up the product development cycle a few steps, essentially, getting their hands into research and design to develop businesses that rely less on outsourced contract manufacturing from Japanese and Western companies.
So, Rob Fannon and the Phase I Investor folks think that there’s potential for 550% returns in 18 months from the work of these Hai Gui — he says it’s the “one China opportunity that’s still new–and cheap.”
He gives several examples of these government-encouraged companies in the sciences, particularly in medical areas — including Mindray Medical, the medical equipment company that I know a lot of newsletters have recommended (though I’ve never seen them “tease” it in an ad, so I haven’t written about it), and a few other high tech companies that have been tremendous performers. No mention of the companies that haven’t performed well, of course, though I assume that even in a hot area like Chinese biotech there must be a few that have found ways to collapse.
And going beyond this, the tease is that some of these companies can get the returns of biotech without the risk of drug development (ie, they won’t collapse if a drug fails to get FDA approval). These kinds of companies are Contract Research Organizations, CRO’s, and there are certainly quite a few of them, in China and elsewhere.
So, the argument goes, these CROs should make money hand over fist because scientists are paid much less in China (and, in some cases at least, have somewhat comparable educational backgrounds), and because the government is supporting these companies through tax subsidies and/or direct investment.
And we can add in, though this part is largely unspoken, that it’s probably much easier to do human testing in third world countries and many of the big pharmaceutical companies run many clinical trials in Africa, Asia, anywhere there are poor sick people and friendly governments … so why not have the contractor do this reasearch in those countries, too? (that last part is clearly my surmising and connecting the dots, it’s not coming from these companies or from the Stansberry ad).
So what are the specific companies that will be covered in this analyst report? (The report won’t be released until December 27, by the way, so we’ve got some time to complete our research if we’re interested.)
Well, they sound pretty compelling in the ad, of course:
“with the backing and incentives of the Chinese government, they can make investors an absolute fortune. These companies will dominate this industry for years and years to come-but right now, not 1 in 1,000 investors has heard of them.”
And then the good stuff …
“But there’s one CRO business with operations in China that offers you the opportunity to make more money than any of the others, by far.”
So what is that one? We want the best one, right? No also-rans for the Gumshoe faithful!
Well, I can’t say that this is one I can definitely pick out for