Here is a not so optimistic outlook for biotechs that makes some interesting points.
>>NEW YORK, Dec 31 (Reuters) - In 1998 biotech will become
even more of a stock-picker's game as the overall sector is
likely to underperform but with solid strides expected among
some of its 300 publicly traded U.S. companies, analysts said.
"Growth in the sector in 1997 has been disappointing, a
goose-egg," said Morgan Stanley analyst Doug Lind, as reflected
by a 3 percent fall in the Nasdaq Biotech Index and an 8 percent
rise in the Morgan Stanley Biotech Index.
By contrast, Lind said average share prices of large U.S.
drug companies rose over 50 percent in 1997 while the Standard &
Poor's index of 500 stocks jumped 27 percent.
"I think the biotech sector will continue to underperform in
1998. Most products will fail and many companies will fail.
There will be big winners and big losers, but the net effect
will probably be dead-in-the-water zero growth," Lind said,
adding investors should tread warily in the always volatile
sector.
"Investors will have to be selective," he said, adding that
players unwilling or unable to do their homework on individual
biotech companies would be better advised to invest in a biotech
mutual fund.
Karl Thiel, managing editor of BioVenture View newsletter,
said one of the most striking developments in 1997 was that
individual biotech companies began to clearly rise and fall on
their own merits.
By contrast, he said biotech stocks in previous years tended
to move in concert with sector leaders such as Amgen Inc.,
Chiron Corp. and Biogen Inc.
"If one of the leaders went up or down, it would pull the
whole sector with it. But that's not happening anymore as the
sector moves toward maturity," he said, adding that valuations
of traditional leaders had fallen or edged only negligibly
higher in 1997.
Meanwhile, some smaller companies such as Transkaryotic
Therapies Inc., MedImmune Inc. and Immunex Corp. have seen their
valuations double or triple in 1997 on positive developments,
including initiation or progress in clinical trials.
And other development-stage companies saw their valuations
topple on failed clinical trials or regulatory setbacks --
including DepoTech Corp., AutoImmune Inc. and Amylin
Pharmaceuticals Inc.
UBS Securities analyst Eric Schmidt agreed that a sea change
in 1997 was the "decoupling" of the fortunes of sector leaders
and smaller biotechs.
"Stocks that had bad news saw price corrections, but they
didn't pull the whole group into malaise. That was evident for
the first time in 1997 and will continue."
Schmidt said the U.S. Food and Drug Administration had
approved 20 new biotech products so far in 1997, nosing ahead of
the 19 approved in 1996.
The Biotechnology Industry Organization -- whose more
limited criteria include vaccines, monoclonal antibodies and
products made by recombinant technology but exclude medical
devices -- counted nine new FDA approvals in 1997 vs. 11 in
1996.
Schmidt predicted BioChem Pharma Inc. was well on its way to
becoming a new sector leader thanks largely to the success of
its anti-HIV drug, the reverse transcriptase inhibitor 3TC.
He noted the drug, whose chemical name is lamivudine, had
also shown efficacy in clinical trials against Hepatitis B and
would likely be launched for that indication in China by
marketing partner Glaxo Wellcome Plc in the first quarter of
1998.
Schmidt said Gilead Sciences Inc. was another emerging
leader, adding that data from Phase III trials of its influenza
drug, the neuraminidase inhibitor GS 4104, were expected by the
end of 1998. Roche Holding AG is its marketing partner for the
drug.
Thiel said another development seen in 1997 and likely to be
continue in 1998 was the increased difficulty of U.S. biotech
companies to obtain financing for ongoing operations and to
launch initial public offerings.
"People are confused what to invest in within biotech
because the companies are more confusing," he said, with
investors having a difficult time mastering arcane subject
matter such as bioinformatics and functional genomics.
But financing has become more readily available in Europe,
he added, "where people are hungry to invest" in a biotech
sector having far fewer publicly traded companies than the
more-mature U.S. group.
Schmidt said passage of legislation in 1997 reforming the
FDA would bode well for some U.S. biotech companies, especially
one provision allowing companies to promote "off-label" uses of
already marketed drugs.
Off-label use refers to the use of a drug for indications
other than those for which the drug was originally approved by
the FDA -- for example, prescriptions by doctors of a breast
cancer drug for treatment of lung cancer.
The off-label provision goes into effect in late 1998.
The new provision, however, will allow them to quickly
derive revenues from new uses of the drugs which can be used to
finance ongoing clinical trials.<< |
