Biotech Values

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Biotech Stocks From BusinessWeek (not sure if this was posted here earlier)



Posted on May 27

By Aaron Pressman

The end of easy credit hasn't hit just banks and their borrowers. Smaller biotechnology companies seeking to develop their first new drugs are also voracious consumers of capital. But with the equity and debt markets preferring to focus on less risky fare, many of these outfits are facing a serious cash squeeze.


As many as half of publicly traded biotech companies have less than 12 months' worth of cash left, analysts say. Unless the capital markets free up soon, many won't survive. "It's more dire for many companies than we've ever seen," says Joseph Pantginis, a former drug researcher who is now a biotech analyst at Merriman Curhan Ford Group, an investment bank.

But amid the carnage are plenty of bargains for patient investors—companies that have advanced successfully through some or all required clinical trials to bring new drugs to market. The key is to find biotechs with products promising enough to attract funds from larger pharmaceutical companies or medical venture capital funds. "There's a big opportunity," says Jay Markowitz, biotech analyst at the T. Rowe Price Health Sciences Fund. "The risks of investing in biotech are really no different [than before the credit crunch]. Some companies are going to succeed, and many aren't."

Markowitz points to two of his funds' current holdings as undervalued and likely survivors. Incyte is looking for new drugs to treat cancer and diabetes as well as the human immunodeficiency virus. The company has several promising compounds but is laboring under a $400 million debt burden, he notes. The stock has dropped 33% in 2009 as investors fret about that debt load, but Incyte has too many potential winners simply to disappear, he figures.

Among larger, more established biotech players, Markowitz likes Celgene. The company's stock is off 28% this year as sales of its already approved drugs have proved less resistant to recession than expected. Earnings will still grow 25% this year, and a new treatment for hepatitis C could be a winner, even though new offerings from competitors Vertex Pharmaceuticals and Schering-Plough may beat Celgene to market, he says.

Merriman Curhan Ford's Pantginis is a fan of Dendreon, a company that until Apr. 13 might have seemed likely to run out of funds before getting a drug approved. That's when it announced a successful trial of its prostate cancer vaccine, Provenge. Shares shot up from less than 3 to 21, but Pantginis thinks the stock is still undervalued. After talking with numerous doctors in the field, he thinks Provenge will win substantial sales for the company and that the stock is worth 33 or more. He also likes the stock of Exelixis, a company that has partnerships with several Big Pharma companies. Another pick is Regeneron Pharmaceuticals, which is marketing a drug to fight inflammatory conditions and has several other promising products in the pipeline.

A less risky strategy than betting on a single biotech firm may be to invest in a basket of five or six, says Mike Havrilla, managing editor of the BioMedReports Web site. "It's obviously a high-risk, high-reward group," he says. "But one winner can make up for all the losers." Buying one of the specialized biotech exchange-traded funds won't work if you want exposure to smaller players, since the funds are dominated by the largest biotech companies.


BIOTECH BETS



http://www.businessweek.com/blogs/personal_finance/archives/2009/05/biotech.html?chan=magazine+channel_personal+business