Best buy in biotech?
Tuesday, Aug. 22, 2000 08:40 PDT
siliconinvestor.com
By Paul Schneider, America-iNvest.com
Biogen Inc. (BGEN), the weak sister among the big-cap biotechs, is moving to beef up its thin pipeline through a joint development deal. And last month it reported better-than-expected second-quarter earnings. Is this undervalued drug maker the best buy in biotech? Perhaps not.
Last Thursday, Aug. 17, Cambridge, Mass.-based Biogen and Irish pharmaceutical Elan Corp. (ELN) announced they would collaborate to develop Antegren, a treatment for multiple sclerosis, a chronic degenerative disease of the central nervous system, and for Crohn's disease, a serious chronic and progressive inflammation of the colon. Antegren is currently in Phase II clinical trials, the FDA-required tests for drug effectiveness and side effects.
Right now, Biogen has a single product on the market, Avonex (Interferon beta 1-a), used to treat relapsing forms of multiple sclerosis. If it survives FDA trials, Antegren would expand Biogen's MS franchise.
However, Biogen hasn't had much luck with other products in development. Human trials of Antova, which was hoped to be a treatment for various autoimmune diseases, were halted late last year after patients suffered blood clots. Earlier this year, Biogen stopped testing Adentri, a drug to treat congestive heart failure, and went with a backup molecule. Its only drug in late-stage testing is Amevive, a psoriasis treatment, but competitors also have psoriasis drugs in trials.
Compare Biogen's situation to the multiple commercial products of big biotechs Amgen (AMGN), Genentech (DNA) and Immunex (IMNX). Investors have priced Biogen accordingly, given it a market cap of $10.1 billion as of its Monday, Aug. 21, close of $68.56. The bigger product lines command higher value: Amgen's market cap is $69.2 billion, Genentech's is $43 billion and Immunex's is $22.1 billion.
At 10 times book for the most recent quarter, 33 times trailing 12 months' earnings, and 12 times trailing 12 months' sales, Biogen is the cheap buy among the big biotechs. But one should consider its one commercial product (excluding partnership deals) and difficulty in bringing products to market as big red flags. And while Biogen beat second-quarter expectations, it fell short on the first quarter.
I suggest focusing on Amgen, arguably the best of the biotechs, or another market-leading health-care stock such as pacemaker ace Medtronic (MDT).
Or if you're not inclined to study individual biotech or healthcare stocks, you could opt for a mutual fund, which provides broad exposure to the sector. The biotech mutual fund choices include Monterey Murphy New World Biotech (MNWBX), Fidelity Select Biotechnology (FBIOX), Franklin Biotechnology Discovery (FBDIX), Orbitex Health & Biotech Fund (ORHAX) and Rydex Biotechnology (RYOIX).
MedImmune speeds up CEO switch
Another big-cap biotech, MedImmune Inc. (MEDI), moved up the start date for its new CEO, David M. Mott, to Oct. 1 instead of year's end. The Gaithersburg, Md.-based company, which has six products on the market, said it doesn't need as much time as previously expected to make the transition.
Mott, just 34, has been MedImmune's vice chairman and CFO since 1998. In 1992, he left a job as a Wall Street investment banker to oversee business development at MedImmune, joining the company as vice president. He is credited with getting FDA approval of RespiGam, a treatment to prevent respiratory infections in newborns, back on track after a flawed drug study prompted the agency to nix it. RespiGam finally won approval in January 1996.
By then, Mott had risen to president and chief operating officer. He will succeed Wayne T. Hockmeyer, who founded MedImmune and has led it since its start in 1988. Hockmeyer will continue as chairman of the board.
MedImmune is a good example of the premium on successful biotechs. At its Monday, Aug. 21, close of $69.94, MedImmune costs 20 times book in the most recent quarter, 176 times trailing 12 months' earnings and 32 times sales.
SciQuest down in dot-com decline
B2B hopeful SciQuest.com Inc. (SQST) hasn't escaped the stock market fallout in the dot-com world. The Morrisville, N.C.-based e-marketplace for scientific products went public in November 1999 at $16 a share and shot up to $91.63 two days after Christmas. However, it has since collapsed, trading as low as $6.63 a share in May, and closing Monday, Aug. 21, at $9.25 a share.
Even good second-quarter numbers haven't moved the stock SciQuest reported net revenue of $1.4 million, up 272% from the $301,862 in net first-quarter revenue. Also, it reported a loss of 35 cents per share, better than the loss of 38 cents per share analysts were expecting. As for burn, SciQuest should be able to hang in there for a while and see if it can bring its Internet vision to fruition ... or failure.
The company reported second-quarter operating expenses of $15.7 million and a second-quarter loss of $21.9 million. At quarter's end, SciQuest's reported $110 million in current assets vs. $20 million in current liabilities. Total assets were $262.7 million vs. total liabilities of $22.4 million.
Nasdaq Biotech Index double its year-ago level
Thankfully, SciQuest isn't holding back the whole sector. As measured by the Nasdaq Biotechnology Index ($IXBT), biotech prices are almost double what they were a year ago and almost four times share prices of two years ago. The NBI finished Monday,
Aug. 21, at 1,193.88, compared with an Aug. 20, 1999, close of 612.02 and an Aug. 21, 1998, close of 302.77.
Paul Schneider is biotech editor of America-iNvest.com.
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