Some Biotech Stocks Set to Get Booster Shots
By Nadine Wong
Special to TheStreet.com
10/03/2001 01:49 PM EDT
Considering all of September's events, it's not a surprise that many companies' valuations took a wallop, biotechs included.
But has the market hit bottom? I can't predict that, but there are some interesting signs to consider.
Immunex Doesn't Deserve to Get Slammed
Potential Winners in the Biotech Space
Gilead (GILD:Nasdaq - news - commentary - research), which I wrote about in late August, is an example. I thought highly of the company at the time, but suggested to investors that they wait for the hype to cool down before buying its shares. Well, its share price has dropped, but the story hasn't changed -- it's still an appealing company with promising growth, and now its share price is at an attractive entry point.
This week, though, Gilead's drug to treat HIV, Viread, will be reviewed by U.S. regulators. In tests, Viread taken together with other antiretroviral drugs has been shown to help reduce levels of the HIV virus. I expect Gilead shares to go up on positive news, and, once again, investors should wait till the frenzy has cooled and shares fall back on profit-taking.
The same goes for Immunex (IMNX:Nasdaq - news - commentary - research). It has a great product on the market, Enbrel, which treats rheumatoid arthritis. As I mentioned in late July, I believe the worst is over for the company and the downside risk is at a minimum. More importantly, it's still not too late to get in.
Then there is ICOS (ICOS:Nasdaq - news - commentary - research), which has Cialis, a male impotence drug awaiting approval from the Food and Drug Administration. ICOS' fundamentals haven't changed since the attacks, and the pullback in its share price is influenced by market sentiment. In my opinion, new money looking for growth should look closely at ICOS' share price under $50 as an opportunity.
A company that I haven't mentioned before is SangStat (SANG:Nasdaq - news - commentary - research), which is developing drugs to help in organ transplants. Its share price has remained steadfast, even though it's expected to post a loss for the remainder of the year. But 2002 is a different story: The company expects to be profitable, with an earnings estimate of 19 cents a share for the year.
It appears SangStat will reach that goal, as the company has beat expectations for the past three quarters. For the third quarter, analysts are expecting a loss in the range of 7 cents to 9 cents a share. At the current levels, though, interested investors should wait for its shares to pull back because I do think it's a bit expensive for a company whose year-to-date revenue is only about $41 million.
The question still remains, though -- have the biotechs hit bottom? In these uncertain times, investors will react negatively to biotech companies that aren't generating any revenue or earnings. Those companies will be susceptible to price drops as the market feels the need to rotate money in and out of sectors. Quality biotech stocks that generate revenue or have milestones pending in the near term will probably feel the stress, but they should recover rapidly.
For now, though, the focus is on earnings season, and all ears are waiting to hear news about third-quarter earnings. If the news is decent, then you can bet that sector analysts and Wall Street will announce that the biotech sector is alive and well. Therefore, I'm betting that values of top-notch biotech companies will climb back to the share prices they were at prior to Sept. 11. There will be volatility within the marketplace, but much of the economic disruption that is happening should already have been factored into the market.
We are in tough and uncertain economic times, but for the biotechs, the fundamentals remain in place as new drugs continue to be sought and developed.
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Nadine Wong is the editor, publisher and co-founder of the BioTech Sage Report and a biotech columnist for worldlyinvestor.com. At the time of publication, Wong was long Immunex, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While she cannot provide investment advice or recommendations, Wong invites you to send comments on her column to Nadine Wong. |
