To all
Nice biotech comeback last week. There is a battle going on for the hearts and minds of investors. The are those, like a Cramer at the Street.com who lump biotech with dot.com and believe the sector will decline significantly. Early in the week on CNBC he predicted a precipitous decline, and as usual he was a contrary indicator.
The other camp, and I include myself in this, believes that the biotechs (as a whole) have created, and will continue to create real and lasting value. While a few of the genomics companies achieved unsustainable and unrealistic valuations, many of the companies in the sector are deserving of the premium valuations they have been accorded. Unlike dot.com's where barriers to entry do not exist and margins are thin, a sucessful biotech can be enourmously profitable. AMGN, DNA, BGEN, IMNX and MEDI are a few examples. Once a biotech has an approved drug, patent protection and other hurdles create the 90% plus gross margins that are just not seen in other industries. There is a reason pharmacuedical companies have achieved the highest return on capital of any sector over the past 30 years. Yes it is difficult,expensive and risky to develop a successful drug, but when done right its the most inherently profitable business I know of. The key imo, will be to pick the ones that own intellectual property, provide information or own processes that are essential to (i)improving and accelerating the development of new successful molecules or (ii)improving the isolating and detecting the genetic casue of disease and aging. AFFX MLNM, VRTX, INCY, LEXG, WAT, CALP, ABSC, ABGX/PDLI/MEDX are a few that come to mind.
The road will continue to be full of potholes. Uniformed detractors like Cramer, will try and scare people and in the short run may be sucessfull. However, over the next 20 years more value will be created by biotechs than any other sector. Of that I am confident.
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