Headline: Cancer-Cure Craze Has Investors Buzzing About Biotech Firms Again
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By Jennifer Fron Mauer, Staff Reporter
ÿÿ NEW YORK -(Dow Jones)- You don't have to cure cancer to make money in
biotech these days.
ÿÿ Indeed, recent investor frenzy over promising treatments for cancer
has refocused attention on the sector, sending shares of previously
unheard-of companies, such as EntreMed Inc. (ENMD), through the roof.
But savvy market watchers see a lot more in the industry for investors
to consider, despite the high risks involved.
ÿÿ Dethroned as the darlings of Wall Street in the early 1990s, biotech
companies are again gaining favor - and for good reason. Many of these
development-stage companies are finally coming of age.
ÿÿ "The opportunities are huge, but the odds are very long," said Linda
Miller, who manages the $200 million John Hancock Global Rx Fund. "The
rewards can be substantial if the companies are successful."
ÿÿ Quantum leaps in technology and equipment mean there are more than
200 new drugs in late stage, or phase III, trials, up from 25 in 1991,
according to Mort Cohen, founder and chief investment officer of
Cleveland-based Clarion Partners L.P. More than 12 highly anticipated
commercial-product launches are expected in 1998, analysts said.
ÿÿ A slew of patent expirations at big pharmaceutical companies makes
these products even more attractive. Big companies are on the lookout
for drugs that will help them retain earnings growth in the years ahead
and so are establishing an increasing number of collaborations with
small biotech companies. These linkups lend at least some stability to a
rather risky sector.
ÿÿ As a group, biotech stocks are cheap, Cohen said. The AMEX biotech
index, which hit a high of 256 in 1992, has hovered between 160 and 180
since February. In the past few days, it has been around 178. And
analysts noted that with its domestic focus, biotech can provide a haven
from the turmoil plaguing investments with Asian ties.
ÿÿ But investing in biotech isn't for the faint of heart, market
watchers warn.
ÿÿ Picking stocks in "the biotech field is like picking your way through
the Bermuda Triangle - there are a lot of shipwrecks down there," Miller
said.
ÿÿ Many companies still lack meaningful earnings, sufficient cash
reserves or even products approved for sale. Some of these cash-starved
companies can't shake the habit of issuing new shares whenever biotech
stocks start showing signs of improvement, thus diluting investors'
holdings. Many still have trouble becoming more than just one-product
companies.
ÿÿ Miller, who invests just 7% to 8% of her fund's money in biotech
stocks, tries to strike a balance between companies that are close to
introducing a product to market and ones that appear to have a promising
knowledge base but no product yet.
ÿÿ Miller said she likes Inhale Therapeutic Systems (INHL) which is
developing a device that allows diabetics to inhale insulin rather than
inject it. Another favorite, Incyte Pharmaceuticals Inc. (INCY), is
building a database of human-gene combinations that can be used as a
research tool in the development of new drugs.
ÿÿ Jay Silverman, an analyst with BancAmerica Robertson Stephens & Co.,
thinks the best time to invest in biotechs is either right before or
right after a product gets approval from the FDA. Before approval,
investors are betting on whether the product in question really will
work. Those who invest after approval are looking for the rapid gains in
sales and earnings that a successful drug would bring.
ÿÿ Silverman likes MedImmune Inc. (MEDI) and thinks its Synagis drug,
used to treat respiratory syncytial virus, or RSV, the leading cause of
pneumonia and bronchiolitis in infants, could become "the next big
blockbuster drug to come out of the biotech sector." He expects the drug
will receive FDA approval by September.
ÿÿ Silverman also likes Cor Therapeutics Inc. (CORR), another company
that is poised to launch what he said could be a blockbuster drug. Cor
Therapeutics' Integrilin, for the treatment of unstable angina and
angioplasty, could receive FDA approval in the next few weeks, he
predicted.
ÿÿ Jim McCamant, editor of the Medical Technology Stock Letter, said
there are lots of stocks that are in late-stage clinical trials that
aren't well followed by Wall Street. He likes ISIS Pharmaceuticals Inc.
(ISIP), which is in a pivotal trial for its ISIS 2302, used in treating
Crohn's disease. McCamant also likes Shaman Pharmaceuticals Inc. (SHMN),
whose AIDS-related diarrhea treatment Provir recently received
fast-track designation from the FDA.
ÿÿ Cohen says investors should treat biotech concerns like
emerging-technology companies rather than as health-care companies.
Cohen likes Pharmacopeia Inc. (PCOP), which creates libraries of
molecules used for drug research and recently acquired Molecular
Simulations, which designs software that models chemicals and proteins
and simulates chemical and protein interaction. Cohen is also bullish on
Scios Inc. (SCIO), which recently submitted a new drug application with
the FDA for Natrecor, an acute congestive heart failure therapy.
ÿÿ - By Jennifer Fron Mauer; 201-938-5287
ÿÿ Copyright (c) 1998 Dow Jones & Company, Inc.
ÿÿ All Rights Reserved.
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