worldlyinvestor.com Sector of the Day A Twofer Biotech Deal
By Nadine Wong, Biotech Stocks Columnist
Sangstat and SuperGen are biotechs that are still lukewarm in a sector that's begun to boil again.
The latest economic data indicates that the Fed may have finally put the brakes on the economy. But just like Goldilocks, the market is still looking for numbers that show that inflation is not too hot, not too cold, but
``just right.''
So which stocks do you want to own in these times? The answer is biotechs, of course. There are companies that have not participated in the general market rally, but could surge on their strong fundamentals, like Sangstat Nasdaq:SANG - news) and SuperGen (Nasdaq:SUPG - news).
There are companies and sectors that will feel the slowdown more than others and you don't want to get caught in those stocks when investors start to worry whether earnings are going to fall short of projections.
Prevents Organ Grinding
Sangstat has a great product pipeline specializing in the prevention of organ rejection in transplant patients. Although the company hasn't made a profit, misperceptions of its legal problems with Novartis (NYSE:NVS - news), which I've written about before (http://www.worldlyinvestor.com/index.cfm?fuseaction=main&silo=search&depth=
searchform.cfm&article_id=5259), is mostly to blame for the stock price remaining stagnant. Sangstat's major product is
cyclosporine, the leading immunosuppressive drug used to prevent graft rejection in transplants.
In the US alone, annual sales of cyclosporine amount to $480 million. No wonder Novartis wants to protect its turf. However, Sangstat is winning the legal battles and penetrating the market with its generic version of the drug.
Sales are improving with products like Thymoglobulin and SangCya liquid that are available in both the US and Europe.
Sangstat also has a major alliance in place with Abbott (NYSE:ABT - news) for Gengraf gel capsules along with the recent approval the company should approach profitability in the year 2001.
Besides Novartis, Sangstat's only other competitor is Eon Labs and the company has yet to launch their own cyclosporine capsule, which was approved in January 2000. So far, I believe that the Abbott/SangStat alliance still has the competitive edge with a strong sales force.
Tipping Lilly Over
Another company that I believe that has the potential to do well in this environment is SuperGen, the company's pipeline should begin to bear fruit in 2001. SuperGen's key strengths are its experienced management, an alliance with Abbot, $140 million in cash on hand and a deep product pipeline.
What piques my interest is SuperGen's key drug, Rubitecan for pancreatic cancer, which has great potential. Rubitecan is expected to be approved early next year.
Pancreatic cancer kills approximately 29,000 Americans annually, and is the fourth-leading cause of cancer deaths. The current treatment of choice for pancreatic cancer is Gemzar, which is marketed by Eli Lilly (NYSE:LLY - news) and generated revenue of $455.8 million in 1999.
Currently, SuperGen is conducting three separate Phase III trials for Rubitecan. One of the trials is the Rubitecan versus Gemzar comparison in patients who have not undergone chemotherapy.
If the clinical trials favor SuperGen, the company would have a huge competitive advantage over Eli Lilly. In addition, Rubitecan's once-daily oral formulation, mild side effect profile and anti-tumor activity could propel Rubitecan above the competition.
To Have and to Hold
Right now, the market has overlooked Sangstat and SuperGen, but that's okay in my book, as I consider both of them as buys. You can hold onto the stock and anticipate growth even in times of an economic slowdown. Unlike other sectors that are either economic or interest-rate sensitive, such as consumer-oriented companies, biotech companies are not dependent upon borrowing cost.
Instead, their key funding sources are from collaborations, under which meeting milestones triggers payments, secondary
offerings of its stock, government grants, licensing agreements and revenue sharing of commercialized products.
The nice warm summer rally for biotechs hasn't pulled back yet, especially for the genomic-related companies and those
companies that have products that are producing revenue and earnings. Nevertheless, this year has been a wild ride for
biotechs with many companies' charts looking like roller coasters -- going up and up starting late last year and falling haplessly in March and beyond.
How long the current rally will last, that I cannot predict, but a slowing economy won't dampen the demand for medicines.
Nadine Wong is editor and publisher of the BioTech Navigator Newsletter (http://www.biotechnav.com), the leading
biotech investment newsletter in the nation. Her weekly column looks at the hottest stocks in the biotech sector. Wong currently has a position in Sangstat. Positions may change at any time.
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