Here is another "one man's opinion" on the Bio sector(WSJ):
TIP SHEET: Amerindo's Slattery Sees Mid-Cap Biotech Surge
By Melanie Trottman
NEW YORK (Dow Jones)--Mid-cap biotechnology companies may soon have their day in the spotlight as their small- and large-cap peers take a seat backstage.
That's what Bill Slattery, a senior health-care analyst at New York money-management firm Amerindo Investment Advisors, expects to happen in the near-term.
"My bet is that the mid-tier biotechs will outperform small- and large-caps for the remainder of the year," he said.
The reason: Pharmaceutical investors will shop for alternative investments in the drug industry as looming widespread product patent expirations, increased drug-pricing scrutiny, and decreased numbers of new major products slow average top-line annual growth at these companies to 10% from 14%.
Investors' first stop will be companies with products approaching the market or newly released onto the market. A number of mid-cap biotechs fit this bill, and their stocks should increase on this basis, Slattery expects.
Some of his favorite picks are Cephalon Inc. (CEPH), Alkermes Inc. (ALKS), GelTex Pharmaceuticals Inc. (GELX) and ImClone Systems Inc. (IMCL). These companies all have market capitalizations from $250 million to $1 billion, which makes them mid-caps by Slattery's standards.
In the first quarter of this year, large-cap biotech stocks rose 12% while mid-caps and small-caps fell 8%, according to the performance of a group of about 200 biotech companies Amerindo tracks.
Through mid-April, however, large-cap biotechs fell 1.1% while mid-caps fell 1% and small caps fell 3%.
"You had an actual inversion," Slattery said, noting that large-cap biotech stocks have begun performing more like pharmaceuticals. That, he said, could lead to guilt by association, making the stock performance of the top-tier biotech group susceptible to the slowdown of the pharmaceutical group's performance.
"It's unfair, which I think will present an opportunity to invest in large-cap biotechs" toward the end of the year, he said.
As a group, the middle-tier stocks are starting to appreciate, Slattery said, noting that since the start of the second quarter GelTex's stock price has risen to about 17 from 13 while ImClone's has jumped to 18 from 14 and Cephalon's has risen to 12 from 10.
Slattery said part of Amerindo's biotechnology investment thesis is to buy mid-tier biotech companies with late-stage clinical programs, an indicator that revenue and earnings are in the not-too-distant future.
Typically, the summer doldrums in the biotech industry, when the slow stream of news flow causes liquidity to dry up, present an appealing buying opportunity, Slattery said.
"I expect that this summer will be no different."
Slattery also expects that as pharmaceutical companies look for ways to sustain growth, they'll continue to look for biotech acquisition candidates.
Earlier Tuesday, The Wall Street Journal reported that Johnson & Johnson (JNJ) is in talks to acquire Centocor Inc. (CNTO), according to people familiar with the situation.
Slattery expects Centocor, a large-cap biotech considered a top-tier name by most, will probably participate in the aggressive mid-tier rally because its marketed products are underappreciated. The company's flagship product, ReoPro, is used to prevent blood clotting in patients undergoing angioplasty.
A small-cap name Slattery expects to participate in the mid-cap rally is Creative Biomolecules Inc. (CBMI). The stock is currently trading at 2 5/8, a "significant discount to its terminal value," Slattery said. He expects it to appreciate significantly as the bone growth factor, OP-1, nears marketing review. The company sold its OP-1 manufacturing rights to Stryker Corp. (SYK) in November but would still get royalties from the product.
Jim |
