Watch for stocks with 'news'
By JENNIFER LANTHIER
Biotechnology Reporter The Financial Post
<Picture: TSE BIOTECH AND PHARMACEUTICALS SUBGROUP>ÿThis time last year it seemed everyone from Gidget to the Great Kahuna was riding a wave of biotech enthusiasm. Today, surf is up for a more select few.
ÿWith so-called momentum players mostly long gone from the biotech beach, investors should pick their stocks carefully, analysts say.
ÿThe most attractive biotechs will be those with milestones in 1997, such as getting drugs into or out of clinical trials, signing deals with pharmaceutical giants, or selling product.
ÿIt is not necessarily the best thing for an industry that tends to take as long as Hollywood to produce "overnight success stories."
ÿThe drug industry claims the average therapy takes US$300 million and 10 years to get to market, making biotech's perfect investor one with deep pockets and an even deeper supply of patience.
ÿBut after 1996's wild ride, most observers expect biotech investors to be keenly focused on companies with events that can give their stocks a boost in the near-term.
ÿ"Right now, it seems for a company to get a following and have a meaningful increase in their stock, they have to have lots of things happening," says analyst Ezra Lwowski of Toronto's Yorkton Securities Inc. "There has to be constant activity to attract investor interest -- retail or institutional. Nobody's willing to buy a biotech and put it away for a couple of years."
ÿOne company attracting interest is Allelix Biopharmaceuticals Inc., Lwowski says. Many analysts like the Toronto company's fundamentals, but its shares (AXB/TSE) spent the last half of 1996 on a downward spiral.
ÿThe stock climbed as high as $26 in May, thanks to a favorable review in Barron's. Shares in the company closed the year at $16.80.
ÿAllelix's products in developments include treatments for osteoporosis, AIDS, schizophrenia and migraine.
ÿLwowski and analyst Bin Huang, of Griffiths McBurney & Partners, both rate Allelix a "buy." The company already has three products in clinical trials, and the analysts expect another to be added during the year. Two more could follow by the end of the year, or early in 1998.
ÿ"In Allelix's case there almost always will be something happening with these products," Lwowski says.
ÿAnalyst Andr‚ Uddin of Montreal's Dlouhy Investments Inc. likes Allelix because of its partnerships with big pharmaceutical companies such as Eli Lilly & Co. and Hoechst Marion Roussel. As well as bolstering the smaller company's finances, such deals are widely regarded as a vote of confidence in the biotech's technology and business plan.
ÿCompanies on that list include: Allelix Biopharmaceuticals Inc. (AXB/TSE), Xillix Technologies Corp. (XLX/TSE), Napro Biotherapeutics (NPRO/nasdaq), Salix Holdings Inc. (SLX/TSE) and Inex Pharmaceuticals Inc. (IEX/TSE).
ÿAnalyst Cameron Groome of First Marathon Securities Ltd. holds a different outlook on Allelix, dubbing its AIDS product a likely candidate for abandonment, and the osteoporosis treatment unlikely to catch on with seniors, especially with stiff competition from Merck & Co.'s Fossamax.
ÿ"It seems like they're always trying to get a man on base," says Groome. "I'm not looking for huge things out of them in '97."
ÿAnalysts may differ on precisely which companies are the most undervalued, but most industry observers agree on a few basics. For example, therapeutics are hot, diagnostics are generally cold and vaccines are somewhere in between.
ÿAnd analysts are steering clear of several stocks that enjoyed strong runs in '96, despite being in the early stages of product development, such as Nymox Pharmaceutical Corp. (NMX/MSE) and Laboratories AEterna Inc. (AEC/ME)
ÿAnalyst Uddin issued a "sell" recommendation on Nymox towards the end of last year, pointing out the the market capitalization of the Montreal-based company exceeded that of Allelix, which is at a much later state of development. Shares in the company were then trading at $15.30, but closed the year at $15.40.
ÿNymox is focusing on Alzheimer's disease, but analysts complain details of its therapeutics are sketchy. As for its diagnostic test for the disease, Uddin criticizes its reliance on a tricky procedure known as a lumbar tap. That involves having the patient remain immobilized in a crouch position for at least two hours while cerebral spinal fluid is withdrawn, something "few elderly patients would want to risk," Uddin says.
ÿMDS Inc. (MHG/TSE), already regarded as a core holding for life sciences investors, remains a solid "low-risk investment," despite a strong runup in the stock during 1996, says Yorkton analyst Wayne Schnarr.
ÿ"They have successfully managed the transition from a lab service company to one with two high-growth divisions -- pharmaceutical services and Nordion," says Schnarr.
ÿTherapeutic companies targeting a profitable niche, such as gastroenterology operations Axcan Pharma Inc. (AXP/ME) of Montreal, or Calgary's Synsorb Biotech Inc. (SYB/TSE), won praise from several analysts. Uddin and Lwowski rate Vancouver's Micrologix Biotech Inc. (MBI/VSE) a "buy," with Uddin putting a 12-month price target on the stock of $6.50. Groome also likes the company's technology and its recent stock price. Shares in the company were trading at a 52-week low in late December, and ended the year at $3.35.
ÿMicrologix is developing two types of new antibiotics using naturally occurring pieces of protein, in a bid to overcome bacterial resistance. The enhancins are aimed at boosting the power of old antibiotics, while the other type, known as bactolysins, are being developed for use on their own.
ÿFrom Toronto's gene screener, Visible Genetics Inc. (VGINF/nasdaq), to Vancouver's QLT Phototherapeutics Inc. (QLT/TSE), various small- to medium-sized life sciences companies have their champions.
ÿHowever, QLT tends to be admired more for the longer-term potential of its eye disease treatment in the early stages of development, rather than for its lead product, the light-activated cancer drug Photofrin.
ÿBy contrast, valuations are already so high for Canada's biggest biotechs most Canadian analysts are unwilling to place a "buy" recommendation on them. Such stocks include Montreal's BioChem Pharma Inc. (BCH/TSE) or Toronto's Biovail International Corp. (BVF/TSE).
ÿHowever, both companies will continue to bring news to the sector in '97.
ÿInvestors will be watching for Biovail to deliver its generic version of Procardia XL, and will be ready to pounce on BioChem's long-awaited data on lamivudine, its hepatitis B drug. |
