Note: Descriptions are shown in the official language in which they were submitted.
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PORTFOLIO SELECTION FOR (HEALTHCARE) TECHNOLOGY INVESTMENT
Reference to Related Application
The present application claims the benefit of U.S. Provisional Patent
Application No.
60/539,331, filed January 28, 2004, whose disclosure is hereby incorporated by
reference in
its entirety into the present disclosure.
Field of the Invention
The present invention relates to selection of portfolios and their management
and
more particularly to a system and method for investing in a 'vertical' market
sector in
healthcare or other research-intensive fields. The present invention has
general applicability
to forming investment vehicles.
Description of Related Art
Portfolio investing is generally considered to mitigate risk. Various
methodologies
for selection of elements of a portfolio as well as allocation of resources
and maintenance
have been developed and are in widespread use. Numerous strategies are
described in an
extensive literature and practiced broadly in the fund management industry. It
is common
practice to create, using various selection strategies, field or sector-
specific investment
portfolios. Such portfolios require classification within the sector from
which companies are
drawn according to generally agreed upon criteria. As examples, portfolios may
be drawn
from 'the financial sector', 'manufacturing', transportation, energy, defense,
healthcare,
mining and so forth. The rationale for such structuring of investment choices
generally is
related to what are believed to be shared attributes / responses of companies
grouped within
such portfolios. Within such broad classifications, it is also common to
create sub-groupings
according to attributes such as 'product', end-user, technology base etc.. The
terms 'vertical'
and 'horizontal' are often used to characterize markets which in the first
instance are
particular to a cluster of companies selected according to basic technology
and end-user (such
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as supply chain companies in relation to the energy sector) and in the second
instance are
related to sector characteristics of companies (such as energy retailers). It
is obvious that the
designation of axes is an arbitrary but useful convention.
Managed investment vehicles known in the art include but are not limited to
UITs
(unit investment trusts) ETFs (exchange traded funds), private equity funds
such as venture
investment pools, mutual funds etc.. Generally such vehicles allow investors
to buy small
pieces of the vehicle as "units" or shares. A purchaser of such units or
shares seeks to gain
from management of the vehicle and the ability to diversify at relatively
small scale.
Managed investment vehicles may be listed on an exchange and trade just like
stocks. They
are not usually a vehicle for capital formation but rather a derivative
investment. However
they may also be used for capital formation. In creating such vehicles,
segmentation of the
universe of possible investments is commonly used to attempt differentiation
of the vehicle
for marketing purposes as well as portfolio structure and management knowledge
and
expertise.
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Summary of the Invention
The objects of the present invention are to provide for a novel method of
selecting
investments in an investment portfolio selected from within a broad area of
economic activity
(such as healthcare) and to provide for (market and management)
differentiation of such
portfolios from those selected by other means. Current practice for portfolio
creation and
management includes segmentation or analysis of the space consisting of
possible
investments according to criteria which define regions of the space and its
geometry. For
complex economic activities including but not limited to healthcare, energy
industries,
electronics and communications, the space is commonly organized into sets of
planes for
presentation and discussion and common terminology refers to horizontal and
vertical
segmentation within these planes. Since there are often more than three
criteria for
segmentation it is possible to have multiple sets of planes. Common practice
is to define a
principal axis or criterion and then group/analyze according to one or more
'dimensions' in
the space.
The present invention concerns a novel method of definition of a principal
axis or
regional boundary within such space for analysis, selection and management
purposes.
Specifically, in the field of healthcare, it is proposed to organize
investment portfolios
according to diseases. This differs in several significant aspects from
conventional methods
of segmentation such as horizontal healthcare delivery portfolios (e.g.
hospital industry) or
vertical portfolios such as 'the surgical supply chain'. Specific diseases,
defined as a 'vertical'
for the purposes of portfolio selection have novel and unexpected utility and
confer
properties on the portfolio in an unanticipated manner. In fields other than
healthcare we
propose other methods for creating novel classifications with similar general
attributes as will
be discussed later. The following examples should be seen as illustrative
rather than limiting.
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Diseases as an 'axis' for defining portfolio selection have some relevant
properties
including but not limited to:
~ They can be viewed as a social and economic problem in the context of
healthcare and its
delivery, however they can also be viewed as a personal issue. When seen from
the latter
point of view 'relevance' or motivation (value) is a steeply decreasing
function of
distance from the afflicted observer
~ They create clusters of research and development based on academic focus and
scientific
progress
~ They provide specific insight into and measurement of companies' development
programs and define markets as to size and competition
The present invention can be implemented in conjunction with any portfolio
selection,
management and trading system and is not restricted to public securities or
any type of
portfolio management or trading structure. It may be implemented via direct or
indirect
investment methods and can allow user participation via implementations which
provide for
client participation in purchase decisions.
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Brief Description of the Drawings
A preferred embodiment of the invention will be described in detail with
reference to
the drawings, in which:
Fig. 1 shows a flow chart for forming an investment vehicle according to the
preferred
embodiment; and
Fig. 2 shows a schematic diagram of a system for implementing the preferred
embodiment.
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Detailed Description of the Preferred Embodiment
A preferred embodiment of the present invention will be set forth in detail
with
reference to the drawings, in which like reference numerals refer to like
elements throughout.
Fig. 1 shows a flow chart of the method steps used in forming an investment
vehicle
according to the preferred embodiment. In step 102, companies are selected by
involvement
in specific categories which define sub-regions in the economic area of
interest. For example,
in the area of health care, categories are defined by specific disease
applications. In other
fields of endeavor, they could be selected by involvement in hydrogen fuel-
cell research or
the like. In step 104, the selection of companies is restricted to additional
criteria such as
stage of economic development, e.g., those companies which have not yet
brought products to
the relevant markets. Steps 102 and 104 can be performed through a database
search on a
server. In step 106, the selected set is organized according to the
requirements of an
investment vehicle such as a mutual fund, a private portfolio, ox a portfolio
that is the basis of
a derivative such as a future. The liquidity of such an investment vehicle can
be limited but
'15 need not be constrained to a tune frame comparable to the development time
of the products.
In step 108, the investment vehicle is managed or made available to a trading
system.
By way of specific example and without in any way intending to limit the
generality of
the invention or its applications, let us consider 'prostate cancer' as a
defining criterion or
axis for portfolio selection. For simplicity this axis will be referred to as
a 'vertical' hereafter.
It should be noted that this is not a biological definition, but rather a
patient-relevant disease
definition. Using this criterion a portfolio of companies can be selected as
per the following
example:
Abbott
Abgenix
Advanced Magnetics
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Bayer
Bristol
Celgene
Cell Genesys
Cytogen
Dendreon
Genentech
ISIS
Medarex
Myriad
North America Scientific
Praecis
Varian
These companies are all (as of the date of this filing) involved in
development or
marketing products which satisfy the criterion of 'related to prostate cancer
disease'; in some
cases diagnostic, in others therapeutic. Obvious but relevant is that the list
is time sensitive
and not necessarily complete.
As a further example of the invention's relevance to portfolio construction
and
management, by deletion of those companies from the above example which are
either not
involved in the development of therapeutic drug products directed towards
prostate cancer or
classified by a separate economic sort as large phaima, the following list is
generated:
Abgenix
Advanced Magnetics
Celgene
Cell Genesys
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Cytogen
Dendreon
Genentech
ISIS
Medarex
Myriad
Praecis
This list has significantly different economic characteristics and is an
example of the
situation of a portfolio which is likely to reflect the economics of product
development and
scientific progress with respect to the field more directly than a portfolio
comprising large
companies which, while they may fall within the space as defined by the
'disease' criterion,
are more likely to have numerous other value drivers of comparable impact.
By way of clarification, a portfolio comprising the companies:
Abbott
Amgen
B ayer
Genentech
Varian
while falling within the region defined by the 'disease' criterion arguably
lacks economic
weighting or leverage according to this criterion.
Portfolio management considerations such as economic leverage, volatility,
liquidity
etc. will be relevant to the selection and management processes as will the
nature of the
managed portfolio (private, UIT, ETF, mutual fund, portfolio that is the basis
of a derivative
such as a future, etc.).
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In fields other than healthcare, there are analogs to 'diseases' which may be
used to
define novel portfolio selection criteria. Specifically, and without limiting
the generality of
the invention, it is intended to create 'axes' based on the development of
basic technologies
and applications within broadly defined fields. It should be noted that an
essential and
common feature of these selection methods is the existence of fundamental
technological
change within the field. This results in linked behavior of companies within a
selected
portfolio and is an important and non-obvious result of the present invention.
For simplicity we will refer to this axis as 'Vertical' hereafter.
As examples of vertical markets as defined in the present invention, consider
prostate-
cancer or Alzheimer's disease. A specifically focused vehicle for investing
according to this
selection criterion has not existed until the present invention.
Examples of vertical markets within healthcare will be described more fully.
Other
examples will be given below, and still others will be realized by those
skilled in the art who
have reviewed the present disclosure. Therefore, the following examples should
be seen as
illustrative rather than limiting.
1- Companies (in the field of healthcare) can be grouped by specific diseases.
Individual companies may be engaged in respect to more than one disease
indication. Within
that classification, portfolio candidate selection may be carried out by
additional sorts
according to a number of conventional analytical metrics such as financial
condition.
Grouping by disease as a method of candidate selection is novel and results in
a number of
unexpected and useful properties of a portfolio selected in that manner.
Advantages include
market differentiation, portfolio size restriction and the ability to create
portfolio management
tools that are specific to value drivers related to underlying technology
development.
2- If a portfolio of companies selected in the manner described in '1' is
created with
the further restriction that only companies which have not yet brought
products to the specific
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designated markets are included, a development-stage portfolio can be created.
A portfolio
structured in this manner can reflect scientific progress and the economic
consequences of
technology development. Multiple portfolios of this type can be created both
within a given
disease category and across several different disease categories. For example,
within a given
disease category, such portfolios may be selected according to stage of
development or other
criteria which allow segmentation and management of the category according to
other
investment criteria. The definition of 'disease' may be broadened or narrowed
according to
related selection criteria. Within the practice of the invention the n-space
from which (these)
portfolios are selected, and the boundaries and shape of a region may be
varied significantly.
An important emergent property of such portfolios relates to their relevance
to the
personal interests of individual investors and consequently to the market
characteristics of
such portfolios. That property is unexpected and novel for an investment
vehicle.
The present invention is not limited to healthcare. It can be used to create
investment
vehicles in any area of economic activity where it is possible to define
spatial regions which
have a common 'investor-observable' definition which determines multi-
factorial boundary
criteria and where there is a related (high) rate of change which results from
the definition.
For example, within the 'energy production' field, segmentation by technology
could yield
portfolios organized by (for example) solar conversion, fuel cells and turbine
generators;
segmentation by source could yield solar, petrochemical, hydrogen and solids.
However an
example of an 'investor-observable' definition as above could be 'portable
power generation'
- this creates a region within the general space of 'energy production' in the
manner
described. Examples from other areas of economic activity can readily be
generated. The
invention can be generalized to any form of portfolio such as private equity,
mutual fund, unit
investment trust (UIT) or exchange traded fund (ETF) which may be specific in
respect to
other criteria such as the type of security or management structure permitted.
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The invention also permits selecting and managing an investment portfolio in a
specific (the healthcare) sector comprising: selection of companies according
to their
involvement in development of products for specific applications (diseases),
which selection
shall be a dominant but not sole criterion for inclusion in a 'sectoral
portfolio', and of limiting
the liquidity of such a portfolio to a timeframe comparable to the development
time of such
products. By such limitation, it is possible to modify trading and management
characteristics
of a portfolio to match, more closely, development of economic values which
are related to
the portfolio selection criteria.
The invention permits creating investment portfolios which have a specific
relevance
for individual investors based on their personal (health) interests.
A suitable trading system is shown in the schematic diagram of Fig. 2,
although any
other suitable trading system can be used instead of, or in addition to, the
system 200 of Fig.
2. In the system 200, trading information concerning the investment vehicles
is loaded onto a
server 202, which is accessible over the Internet 204 by traders using
personal computers 206
from their homes or offices, or any other suitable Internet access devices,
e.g., third-
generation cellular telephones. In particular, the system 200 of Fig. 2 has
utility in carrying
out steps 102 and 104 of Fig. 1, in which case the server 202 can be
configured to implement
the required database searching capability. The specifics of the technological
implementation
of such a system 200 are known in the art and will therefore not be described
in detail here.
While a preferred embodiment of the present invention has been described above
in
detail, those skilled in the art who have reviewed the present disclosure will
readily appreciate
that other embodiments can be realized within the scope of the invention. The
trading system
can use a proprietary network or stand-alone system. Therefore, the present
invention should
be construed as limited only by the appended claims.
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