Biotech Stock Report - Looking Ahead

Biotech Stock Report - Looking Ahead

The first week of earnings season arrived and the market reacted by bidding up stocks with good, but unexpected news and dumping those with disappointing news. From here on out, companies are going to have to show strong top line growth to justify higher valuations. For the biotechs the sector it is in the midst of multiple new product launches, and we expect a steady flow of new approvals extending at least over the next several quarters. Earnings growth for the large-cap biotech names remains significantly greater than for the pharmaceutical industry and the overall S&P 500. With strong expected news flow and solid growth, the biotech industry has had a strong performance thus far this year.

Long-term trends continue to favor the industry and valuations, while not out of whack, are toward the high end and the group can continue to generate positive momentum. What is required is continued positive newsflow to perform so we would focus our efforts on stock picking.

In our small and mid cap industry, our top picks remain Millennium (NASDAQ: MLNM), Telik (NASDAQ: TELK), Dendreon (NASDAQ: DNDN), Repligen (NASDAQ: REGN), Abgenix (NASDAQ: ABGX) and Tularik (NASDAQ: TLRK). These biotechs represent attractive near-term trading opportunities as they each have a story yet to be unfolded.

Moving forward to the large-cap biotechs, we expect FDA approval of Amgen’s (NASDAQ: AMGN) Enbrel in rheumatoid arthritis for a once a week dosing versus the same total weekly dose which is administered twice weekly on its October 23rd PDUFA date. This approval should help put Enbrel’s dosing regimen with the same level as Abbott’s Humira, which can be administered either once weekly, or once every other week, depending on the patient’s response. Amgen’s share price has been weak lately, but we foresee it as a buying opportunity. (See October 7, 2003 email update and the October 2003 BSR for additional details.)

After listening to Genzyme’s (NASDAQ: GENZ) third quarter conference call, Genzyme’s Renagel franchise, one of its primary growth drivers, we are encouraged with Renagel’s outlook. As we had mentioned back in our March 2003 issue of BSR, Genzyme could face additional competition with the anticipated approval of Shire’s Fosrenol. Fosrenol is scheduled for an FDA decision by year-end. Whatever, noise is made of this event would be a modest negative for Genzyme and the commercial impact is more likely to be subdued. Renagel benefits from a very clean side effect profile as compared to long-term toxicity of other metal-based phosphate binders such as Fosrenol and calcium phosphate binders.

Back in our July 2003 report, we discussed Chiron’s (NASDAQ: CHIR) ability to become a leading flu vaccine franchise, and with the pending flu season Chiron stock price could appreciate near-term as Chiron sales its injectable vaccine, Fluvirin. But with a limited therapeutics pipeline and the nice run that Chiron’s share price has had the past year we would currently book the gains at its current price.

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