Biotech: Cut to Size, but Maybe Out of a Hole [NYT]
By KENNETH N. GILPIN
IT has been a terrible time for biotech stocks.
Last year, the BioCentury 100 stock index of the biggest companies in the industry fell 49 percent. So far this year, the stocks have firmed a bit. Last week, two leaders, Idec Pharmaceuticals and Genentech, reported better-than-expected earnings.
Last week, Karen Bernstein, editor in chief of BioCentury, a weekly newsletter, assessed the year ahead. Following are excerpts from the conversation.
Q. Why are biotech stocks doing better?
A. There has been some good news, and this is a tremendously news-driven sector. At the end of last year, people paid attention to the F.D.A. approval Abbott Laboratories got for a new drug, because the drug was originally developed by a British biotechnology company. And this past week we had good news from F.D.A. advisory panels on two new drugs being developed by Genzyme and its partner, BioMarin.
Also, there are some investors who do seem to see value in these stocks. Some venture capital firms have the ability to buy into public companies, and they are doing that now. When you see that happening, you know the values are good, because they come in at the bottom of bear markets.
Q. What progress has been made in genomics over the last year or two?
A. People are still struggling with how to put our knowledge of genomics together with the fact that you are treating a whole organism. A patient is not a genome. The good news is that the patient is coming back into the equation, and people are starting to talk about that. But to deal with it will occupy our time for the next 10 to 20 years.
Q. What does the drug pipeline look like?
A. There is an awful lot in the pipeline that could go very well.
You have to remember that success rates in this area are low: one of every 10 compounds that enters human trials will be on the market. But some of the things that are coming have a higher chance of success than normal because they have already been approved in Europe. An obvious one is Risperdal Consta, a drug to treat schizophrenia that was developed by Johnson & Johnson and Alkermes. I have seen nothing to suggest that it won't be approved in the U.S.
The same is true for Cialis, an erectile dysfunction drug developed by Icos and Eli Lilly. Gilead has a product to treat H.I.V. and AIDS. And Meddimune has an influenza product that had a positive F.D.A. review.
But there is nothing in this business that is risk free. It is probably one of the things the American public understands least about the drug business. It is hard to explain just how risky and expensive drug development is. Right now, drugs represent about 8 percent of health care costs. If companies are successful in developing them, that percentage should go up because it would mean they are working. Treating untreated diseases is the whole point.
Q. What's the latest on Erbitux, the colorectal cancer drug that ImClone and Bristol-Myers Squibb are working on?
A. We should get data from Imclone's European partner in March. They are expecting to file this year for European approval.
Q. How strong are the finances of biotech companies?
A. It's a very mixed universe. There are probably more companies that are better financed than at any point in the industry's history because they raised so much money in the late 1990's.
On the other hand, there are companies that weren't able to raise as much money that are running short. But the industry is not in as much trouble as one might think, given that we have been in a bear market for going on three years.
Q. Do investors need to plan on holding biotech stocks for a long time?
A. This is not the place to put retirement money or college fund money. This is not for amateurs.
That said, when good products come on the market, they are growth companies, and the stocks do very, very well. A company like Idec Pharmaceuticals is a classic example. It was flat forever, and then shot up almost vertically when their first product came out. That means you can time these things by getting in after the drug is approved and riding it for a while. If they are good products, they become the standard of care.
Q. Do companies like Amgen and Genentech fall into this category?
A. Both of those companies have fairly large market capitalizations and have big drug pipelines. In that sense they behave more like Big Pharma. They are better for amateurs. Amgen is a great stock. Genentech is a wonderful company, but it is a little less clear what is going to happen this year. The top-tier companies are safer. Genzyme is another top-tier company.
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