UTHR--some broad comments on biotech from Prudential in late August:
<<The biotechnology sector has experienced an impressive surge in value this year, capped by a strong run in recent days.
The BTK biotech index is up 50% year-to-date and has far out-paced the S&P500 (up 10.5%), NASDAQ Composite (up
26%), and DRG pharmaceutical drug (down 4.5%) indices. In the past month the disparity may be even more prominent,
with the BTK index up 20% versus the S&P500 (0%), NASDAQ Composite (4%), and DRG Drug Index (4.5%). It is
apparent to us that the early promise of newer, better drugs emerging from the biotechnology sector is paying off in
spades as Wall Street has increasingly recognized the commercial potential inherent in the biotech business models.
Additionally, we know of no other sector where the prospects of sustained 30%+ bottom-line growth are as evident as in
biotechnology. It is then important to note that, relative to their growth, biotech stocks should not be considered “pricey”
across the board. The average commercial biotech company trades at a forward PE of 1.7 times growth, slightly higher
than the average company in the S&P 500 index (1.5 times growth) but still below the average pharmaceutical company
(1.8 times growth). We believe that this valuation can be sustained and potentially increased going forward, which would
imply that the typical biotech stock could be expected to appreciate in accordance with its projected annual growth of
33%. We believe that this thesis will continue to attract new investor money into the sector with the prospects of their
investments in biotech substantially out-performing the general market. Additionally, we believe that the success of the
commercial-stage companies will begin to trickle down as investors seek out select late-stage development companies
with near-term prospects of transitioning to commercial-stage. As such, we are reiterating our Strong Buy rating on the
biotechnology sector and would emphasize those stocks that may have been under-recognized or inappropriately left
behind during the most recent value wave that has washed across the group. Specifically, we advise the purchase of
Celgene, Coulter Pharmaceutical, Genzyme, IDEXX Laboratories, ImClone Systems, Neose Technologies, and United
Therapeutics, each of which carries a Strong Buy rating.>> |
