CK Life on course for slaughterhouse
Cheung Kong Life Sciences certainly makes some big claims for itself.
Would you believe 'arguably developing the world's widest range of biotechnology applications'? How about 'will solve pressing problems of the world' or try 'has the potential to lead a revolution'. This little company's products, did you know, have 'great competitive edge to be the dominant players in their respective markets'.
My goodness, that should go a long way to solving the problem of Hong Kong's future economic direction and at a low cost too. CK Life is expected to spend only HK$115 million this year on research and development. That is HK$ in front of that 115, not US$ and it is million, not billion, just in case you were thinking of what R&D on biotechnology absorbs elsewhere.
But rest assured that CK Life has its priorities right. It has 108 patents in the works, three of them granted by the United States Patent Office and 105 in various stages of application.
Now do a little arithmetic. The company pays US$100,000 per product to apply for US patents and expects to incur costs of about HK$84 million in application fees this year. That is for the US alone and it is also applying for patents in other countries. Scientists bent over test tubes, was it? Hmmm . . .
What we have here is first of all an indictment of the patent system. The theory years ago was that people who came out with new ideas should have a period of exclusive rights to them. This theory has come unstuck. What we now have is a US Patent Office setting very low hurdles for patents and corporations filing for millions of them, mostly spurious, to obstruct competitors.
The result is that the patent system has frustrated innovation rather than enhanced it. Not only is a great deal of worthwhile research blocked from coming to the market but money that could have been used for real research is instead diverted to patent shenanigans.
What we also have here is Hong Kong confirming its new role as dedicated follower of fashion under the Tung administration. Biotechnology is the latest 'in' thing and every wannabe state around the world is spending money to develop 'clusters' of it on home soil. Time for Jake's Law of Investment Fashion - 'The only time the herd is all headed one way is when it is headed to slaughterhouse.'
What many people forget about biotech, however, is that it is crucially different from electronic tech. In electronics you devise your product and then make your money from manufacturing it. In biotech it is all in the research. Manufacturing is a fermentation tank and anyone can do it. Asia's skills in low-cost manufacturing will not help it here.
What people also forget is Tom.com - Cheung Kong chairman Li Ka-shing is quite happy to put a little pocket money into the latest thing if that herd destined for the slaughterhouse wants it and, more particularly, if he gets kudos from the boss for it.
The question for investors, however, is whether he expects money or political approbation. I shall go for the second of these two where CK Life is concerned.
This is not to say it will be a complete flop when it comes to the market. Mr Li has shown that he feels some responsibility for his progeny and has certainly put some effort into keeping Tom.com on the life-support system. It is one reason that he remains in favour with investors.
But you are not obligated to consider every new issue that comes to the market and you will not find me picking up a copy of the prospectus on this one.
Wrong business, wrong time and far too much public-relations hype. I stand to be proven wrong in turn about this but I am not in much fear of it.
