Arqule (Arqule) Predictability Rank

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What is Arqule Predictability Rank?

Not Rated

Warren Buffett said many times that the companies he likes are:

1. Simple businesses that he understands
2. that have predictable and proven earnings and
3. with economic moat
4. those can be bought at a reasonable price.

It is hard to quantify "simple businesses that he (Buffett) understands", so we will focus on the other three characteristics instead. In GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank, we will show that the businesses that have predictable and proven earnings are usually also simple businesses that an average person could understand.

GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.

Arqule Predictability Rank Calculation

In our database there are 2403 stocks that have been traded from Jan. 2, 1998 to Aug. 31, 2008. We have the complete 10-year financial data and trading prices of these companies for this period. We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earning before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business.

Our study may be subject to these biases and assumptions:

Dividend yields are not counted for investment returns
Effects of price changes due to spin-offs may not be fully adjusted
Study is subjected to survivorship bias due to de-listing, bankruptcy, LBO, M&A, etc.

The correlation between business predictability and investment returns of a company is showed below.

Correlation Between Business Predictability and Investment Returns

	Predictables	Non-Predictable	All stocks
Total Number of stocks	570	1833	2403
Total Lost Money	61	830	891
Total Lost More Than 50%	18	412	430
Total Lost More Than 90%	4	86	90
Average Gain	260.6%	100.0%	138.1%
Median Gain	150.0%	13.0%	39.0%
Maximum Gain	2852.0%	11483.0%	11483.0%
Maximum Loss	-100.0%	-100.0%	-100.0%
Annualized Average Gain	12.7%	6.7%	8.4%
Annualized Median Gain	8.9%	1.1%	3.1%

For the 570 predictable companies, we have seen strong correlation between the predictability of businesses and the stock performances over the past 10 years, regardless of the valuation of business at 1998. Accordingly, we have ranked the business predictability from 5-star to 1-star, as shown in this table.

Predictability Rank	5-Star	4.5-Star	4-Star	3.5-Star	3-Star	2.5-Star	2-Star	1-Star (non-predictable)	Average among all
% Out of All 2403 Stocks	3.3%	2.9%	3.7%	3.3%	3.3%	3.7%	3.3%	76.3%	100%
% that are in Loss (10y)	3%	10%	8%	9%	11%	18%	16%	45%	37%
Average Gain (10y)	364.6%	330.9%	278.0%	235.1%	243.5%	227.8%	154.8%	100.0%	138.1%
Median Gain (10y)	238.5%	193.5%	171.0%	159.0%	132.5%	113.5%	87.0%	13.0%	39.0%
Maximum Gainer	2228.0%	2547.0%	2452.0%	2852.0%	2432.0%	1892.0%	1807.0%	11483.0%	11483.0%
Maximum Loser	-82.0%	-53.0%	-67.0%	-100.0%	-83.0%	-100.0%	-78.0%	-100.0%	-100.0%
Annualized Average Gain	15.4%	14.6%	13.2%	12.0%	12.2%	11.7%	9.1%	6.7%	8.4%
Annualized Median Gain	12.1%	10.6%	9.8%	9.3%	8.2%	7.3%	6.0%	1.1%	3.1%

For detailed information about each predictability rank, please go to GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank

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Arqule (Arqule) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Healthcare » Biotechnology » Arqule Inc (NAS:ARQL) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

N/A

Address

One Wall Street, Burlington, MA, USA, 01803

Website

http://www.arqule.com

Arqule Inc is a biopharmaceutical company, engaged in the research and development of therapeutics to treat cancers and rare diseases. The objective of the company is to discover, develop and commercialize novel small molecule drugs in areas of high unmet need that will dramatically extend and improve the lives of the patients. These drugs focus on the biological pathways implicated in a range of cancers and certain non-oncology indications. Product portfolios of the group include Tivantinib, ARQ 087, ARQ 092, ARQ 761, and ARQ 751. Geographically, the firm operates through the region of United States.

Executives

Patrick J Zenner	director	C/O DENDRITE INTERNATIONAL INC., 1405/1425 ROUTE 206 SOUTH, BEDMINSTER NJ 07921
Marc Schegerin	officer: CFO and Treasurer	ARQULE INC, 1 WALL ST FL6, BURLINGTON MA 01803
Brian Schwartz	officer: See Remarks	C/O ARQULE, INC., 1 WALL STREET, 6TH FLOOR, BURLINGTON MA 01803
Ran Nussbaum	director	C/O KITE PHARMA, INC., 2225 COLORADO AVENUE, SANTA MONICA CA 90404
Timothy C Barabe	director	C/O ARQULE, INC., 1 WALL STREET, 6TH FLOOR, BURLINGTON MA 01803
Susan L. Kelley	director	C/O DECIPHERA PHARMACEUTICALS, INC., 200 SMITH STREET, WALTHAM MA 02451
Michael D Loberg	director	C/O ARQULE, INC., 1 WALL STREET, 6TH FLOOR, BURLINGTON MA 01803
Paolo Pucci	director, officer: Chief Executive Officer	C/O ARQULE, INC., 1 WALL STREET, 6TH FLOOR, BURLINGTON MA 01803
Merck & Co., Inc.	10 percent owner	2000 GALLOPING HILL ROAD, KENILWORTH NJ 07033
Merck Sharp & Dohme Corp.	10 percent owner	ONE MERCK DRIVE, WHITEHOUSE STATION NJ 08889
Robert J Weiskopf	officer: Chief Financial Officer	C/O ARQULE, INC., 1 WALL STREET, 6TH FLOOR, BURLINGTON MA 01803
Mark N Lampert	10 percent owner	1 SANSOME ST, 30TH FL, SAN FRANCISCO CA 94104
Biotechnology Value Fund L P	other: See Explanation of Responses	44 MONTGOMERY STREET, 40TH FL, SAN FRANCISCO CA 94104
Bvf Partners L P/il	10 percent owner	44 MONTGOMERY ST., 40TH FLOOR, SAN FRANCISCO CA 94104
Bvf Inc/il	10 percent owner	44 MONTGOMERY STREET, 40TH FL, SAN FRANCISCO CA 94104