Factual Stock Report | March 29, 2014
Geovax Labs Inc (GOVX) OTCQB
GICS Sector: Health Care
Sub-Industry: Biotechnology
Summary: GeoVax Labs, Inc. (OTCQB: GOVX), is a biotechnology company developing vaccines that prevent
and control human immunodeficiency virus (HIV).
Sub-Industry Outlook
Our positive fundamental outlook for the biotechnology sub-industry for the next 12 months reflects favorable
prospects for new and novel therapies to reach commercialization. We are encouraged by what we view as a
strong period for the reporting of late-stage clinical results, and a more accommodating U.S. FDA for
approvals. Although the FDA approved 27 new therapies in 2013, down from 39 in 2012, we think many of these
newly approved drugs have significant commercial prospects and represent major advances in therapeutic
areas such as hepatitis C, multiple sclerosis and cancer. We expect wider adoption of biomarker research and
genetic-targeted clinical studies to help bolster long-term R&D pipeline productivity. In late 2012, the FDA
introduced "breakthrough therapy" designations, intended to speed development of promising programs, and
granted this designation 35 times, and has approved three drugs with this status as of January 2014.
We expect a favorable M&A (mergers and acquisitions) climate, as large pharmaceutical firms move to offset
lost revenues from expiring drug patents and large biotechs bolster their drug pipelines amid maturing
products. We note an uptick in M&A speculation and announced deals recently after a subdued first half of
2013. We also see large cap biotechs generating cash flows supporting larger scale acquisitions of their own.
In 2011, industry bellwether Amgen became the first biotech company to initiate a regular dividend.
The 2010 health care reform law established the FDA's authorization to govern "biosimilar" drug approvals and
set a 12-year exclusivity to branded drugmakers. However, we see biosimilars advancing at a slower rate than
initially anticipated. Several firms have abandoned biosimilar plans due to high development costs and a lack
of regulatory clarity. Once marketed, we expect biosimilars to sell at more modest price discounts than in the
pharmaceutical industry due to higher clinical, manufacturing and marketing costs, and we expect branded
drugs to retain significant market share due to a lack of interchangeability among these options.
We recommend that investors concentrate core holdings in established, profitable companies, as smaller
biotechs tend to be more volatile. We would seek companies with at least two years of operating capital and
multiple pipeline value drivers, as those with smaller pipelines typically suffer significant share price declines
on an unfavorable outcome. In 2013, the S&P Biotech Index rose 74.2%, versus a 30.1% gain for the S&P 1500
Composite Index. In 2012, the sub-industry index rose 40.5%, versus a 13.7% gain for the S&P 1500.
--Steven Silver
AI
