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Berko: Stick with IBM over drug company

By Malcolm Berko

Published: July 8, 2017, 6:00am

Dear Mr. Berko: My stockbroker wants me to sell my 100 shares of IBM — which I bought in 2012 at $201 a share, meaning I now have a big loss. He wants me to buy 300 shares of Alkermes, which he thinks will double in a year because several of its drugs may be purchased by Johnson & Johnson. But I’m told that IBM is involved in quantum computers and that they will revolutionize the computer world.

— D.D., Buffalo, N.Y.

Dear D.D.: Alkermes (ALKS-$58.70) is a $740,000-revenue biotech company headquartered in Dublin, where corporate taxes are lower. ALKS has a specially designed 200,000-square-foot plant in Wilmington, Ohio, for commercial-scale manufacturing of its various products, using its proprietary technology platforms.

ALKS researches innovative medicines for central nervous system disorders and has a large pipeline of candidates to meliorate the effects of schizophrenia, depression, addiction and multiple sclerosis. Its key product, Risperdal Consta, is a long-acting injectable version of Johnson & Johnson’s drug Risperdal. Risperdal Consta is administered every two weeks for schizophrenia, which affects 1.5 percent of the world’s population. ALKS earns royalties from J&J’s Risperdal sales plus manufacturing-related revenues and royalties from AstraZeneca for an extended-release diabetes drug.

ALKS has a $600 million tax-loss carryforward and several drugs that management believes will be blockbusters. With 156 million shares outstanding and plenty of cash, it’s little wonder that Citigroup, Credit Suisse, Morgan Stanley, Barclays, UBS, Jefferies and Goldman Sachs are closely watching ALKS. Still, I wouldn’t care to own the stock, because knowledgeable research physicians I trust are unimpressed with ALKS’ pipeline.

I can’t explain why quantum computing works, but I can almost tell you how it works. The key features of ordinary computers — bits, registers, algorithms, logic gates, etc. — have analogous features in quantum computers. For example, a quantum computer has quantum bits, called qubits, which work in an intriguing way. Whereas a bit can store either a 0 or a 1, a qubit can store a 0, a 1, both a 0 and a 1, or an infinite number of values in between — and it can store multiple values at the same time so that they can be in two places simultaneously. And using the principle of superposition (two waves can be added to make a third containing both of the originals), a quantum computer can have a processing speed that is up to 100 million times faster than a conventional computer’s. Think of using a 6-inch ruler to measure a mile versus using a laser.

IBM wants to be the world leader in the quantum computing universe and hopes to produce a working quantum computer in the next three to five years. Nearly a year ago, using the cloud, some 40,000 users ran 280,000 experiments on IBM’s 5-qubit computer. The results are incredible.

Now International Business Machines Corp. (IBM-$155.58) is in the process of building a 50-qubit machine to handle infinitely more complex calculations than today’s supercomputers. IBM is the first big tech company to commercialize what will certainly become a revolutionary new form of computing. So IBM is now inking deals with customers seeking access to quantum computers. Scott Crowder, chief technical officer for quantum computing in IBM’s systems group, says, “We’re at a stage now where this is going from research plaything to where you really want to look at it from a commercial point of view.”

IBM is on the cusp of being the leader in the quantum computing world. And several analysts whom I respect believe that quantum computing could add 200 points to IBM’s share price within five years. However, you might consider selling your IBM now to establish a tax loss and then buy it back 31 days later.

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