Forbes Magazine
The Payoff From Biotech
Wednesday December 24, 6:32 pm ET
By Shlomo Reifman Andrew T. Gillies, Matthew Herper
After a dreary 2002, biotechnology stocks have come back to life. Earnings aren't very relevant to this early-stage industry, but there are other reasons for the bull market: a more efficient Food & Drug Administration and new cancer therapies. Mark Monane, an analyst at investment bank Needham & Co., estimates that 42% of the medicines currently being developed are treatments for cancer, a disease that kills 555,000 Americans a year. Biotech companies are also working on promising therapies for cardiovascular disease (1 million deaths) and diabetes, which afflicts 18 million. Ernst & Young boldly predicts that the biotechnology industry could, in 2010, do what it has never done in the aggregate: Earn money.
Biotechnology stocks' sharp rise starting in late spring was due to encouraging news about several cancer drugs. Millennium Pharmaceuticals (NasdaqNM:MLNM - News) got FDA approval for Velcade, a treatment for multiple myeloma, a cancer of the blood, only four months after the application was filed. In June researchers presented data about two colon cancer drugs, Genentech (NYSE:DNA - News)'s Avastin and ImClone Systems (NasdaqNM:IMCL - News)' Erbitux. Analysts reporting to Thomson First Call expect biotech giant Amgen (NasdaqNM:AMGN - News)'s 2004 earnings per share to jump 23% to $2.39.
Genta (NasdaqNM:GNTA - News)'s Genasense could become a blockbuster (meaning annual sales of at least $1 billion). But as a treatment for malignant melanoma, a skin cancer, it has yet to prove it meets the gold standard of extending patients' lives. The company says that the survival advantage can be seen in patients who have been followed for extended periods. Alexandra Hauber, an analyst who covers Genta's partner, Aventis, for Bear Stearns, says that the ferocity of melanoma and the paucity of treatment alternatives may inspire regulators to give the drug a green light.
Amylin Pharmaceuticals (NasdaqNM:AMLN - News) is developing two diabetes injections that help control blood sugar without lowering it too much and may also help patients lose weight. One such compound, Symlin, could be approved before the end of 2003 and may reach up to $300 million in annual sales, says Michael King, an analyst at Bank of America. The company is also working with Eli Lilly on another diabetes drug, called exenatide, discovered in Gila monster spit. King expects Amylin's revenues to reach $950 million by 2008 but has warned that its shares look fully valued.
Angiomax, a new blood thinner for use in angioplasty, was developed by the Medicines Co. (NasdaqNM:MDCO - News), which has been buoyed by new data suggesting that the drug is cost-effective. Analysts expect the Medicines Co. to earn $1.08 a share in 2005. |
