Biotech article:
nytimes.com
<<After Pruning, a Chance to Pick in Biotechnology
By LAWRENCE M. FISHER
Boom and bust.
After a staggering cycle, the biotechnology sector is back to just about where it was at the beginning of the year. And some longtime investors, who could only watch in awe as money poured into the sector and then rushed out again, now say there are some buying opportunities. The key is to prune away the most speculative stocks and concentrate on those with the stronger growth prospects.
A review of recent history may be in order. After languishing for nearly five years, biotechnology stocks took off last August as a new set of investors piled in. The market warmed earliest to mature companies like Amgen and Genentech, but the boom was really prompted by the genomics players, companies that have piggybacked on the multinational effort to identify all the genes in the human body. Momentum investors entered the game, and soon most any company with a gene, a protein or an antibody attached to its name was bid through the roof.
But then comments by President Clinton and Prime Minister Tony Blair of Britain -- who together suggested after a meeting that genetic discoveries might not be subject to patent protection -- sent the stocks skidding. President Clinton later qualified the statement, but the damage had been done, and the very buyers who had sent genomics stocks up tenfold could not sell them fast enough.
When the Celera Genomics Group announced in January that it had finished mapping 90 percent of the human genome, its shares bounced, and so did those of most of its rivals. But then academic researchers heaped doubt on the company's announcement, and the shares retreated.
Finally, when the Nasdaq composite tumbled in the week beginning April 10, biotechnology stocks, whether in the genomics companies or long-established concerns with successful drugs, collapsed, too. The Amex Biotech index lost 25 percent that week. And last week, while the Nasdaq composite rose 9.7 percent, the biotechnology index was up just 4.9 percent. It closed at 428.31 on Thursday, still down 46 percent from its high.
But what has changed? Longtime biotechnology investors -- people who have been buying these stocks for 15 years or more, say not much. At the end of the day, biotechnology is all about producing successful drugs, among the few products on earth that can be sold at a premium for many years. The industry has produced about 75 successful drugs in its first 20 years; with more than 300 drugs now in trials, there will be many more in the years to come.
"Biotech has a lot of products in late-stage trials, some of which will be coming to market very soon," said Jim McCamant, editor of the Medical Technology Stock Letter and manager of a small biotechnology fund for wealthy investors. He notes that more than 25 percent of the drugs in trials are new cancer therapies, and that data on several of them will be presented on May 20 at the American Society of Clinical Oncology meeting in New Orleans That will likely give certain stocks a bounce, he said.
McCamant's top picks include Imclone Systems, which expects to be granted an expedited review of a new drug for head and neck cancer. "This is a company with a drug that could be one of the biggest-selling cancer drugs," he said. "It went from 50 to 172 and back to 60; you couldn't recommend it at 172, but you can now." He rates Imclone a buy under $110, with a 12-month target of $200. It closed on Thursday at $75.50.
Another stock on his recommended list is Isis Pharmaceuticals. The company withdrew plans in December to seek approval for a key drug for Crohn's disease, but will be presenting data on a new gene-based drug for a form of lung cancer. McCamant says that Isis is a buy under $20, and that his 12-month target price is $50. The stock closed at $10.625 on Thursday.
He also likes Maxim Pharmaceuticals, which has a histamine-based drug, Maxamine, that appears to increase the potency of antiviral and anticancer drugs. He said Maxim is a buy under $55, with a 12-month target of $100. It closed at $47.9375 on Thursday.
Biotechnology stocks "got back to basically even for the year, but I think they will be back to old highs by the end of the year," McCamant said. Viren Mehta, a money manager with Mehta Partners, advocates a flight to quality, but that does not necessarily mean buying only mature biotechnology companies, several of which have obvious problems, he said. Amgen's core product, Epogen, for anemia, is threatened by Transkaryotic Therapies' GA-EPO, which delivers the same protein in a different way. He said Biogen's sales have slowed, Genzyme remains a confusing conglomerate and Chiron continues to search for new opportunities.
One standout among mature biotechnology companies is Genentech; although Roche is its majority owner, the company trades as a separate stock. "Genentech is a stock that everybody has to own if they invest in mature biotech companies," Mehta said. "They do more things right than anybody else."
Genentech has two successful new cancer drugs, with several more in the pipeline, and will soon seek approval for a new asthma treatment.
Otherwise, Mehta is buying more earlier-stage companies, including Transkaryotic; Cor Therapeutic, with an approved drug for dissolving blood clots; Emisphere, with an oral form of insulin in clinical trials; and Maxim. But he balances these with investments in large-capitalization pharmaceutical companies and biotechnology companies based in Europe and Asia.
The key lesson of the price plunge is that biotechnology is, after all, a place for patient money. "If you're going to be in biotech at all, the reality is you have to buy a basket of stocks and sit on them for a decade," said Cynthia Robbins-Roth, a consultant.>>
Morgan |
