VM: Merck & Co. (MRK) is one of the few exceptions among the global pharma companies, as relative performance of most of the other global pharma will be uninspiring, if not downright painful. This may also be the case with some of the larger Japanese pharma companies.
WT: After an utterly disastrous 2007, we believe Amgen shares could be poised for a rebound in 2008, driven largely by anticipation of positive data from denosumab for treating bone disorders such as postmenopausal osteoporosis or osteoporosis that is secondary to cancer treatment. The lack of investors desiring to show Amgen as a holding as of YE:07 could give way to renewed interest in 2008. Concern over the safety of erythropoiesis-stimulating agents, though, should continue to be an overhang for the stock.
Back to business as usual for Biogen Idec (BIIB) hopefully entails more active marketing of Tysabri even if it were to mean cannibalization of Avonex. Over the next few quarters, for Biogen Idec stock to perform well, aside from speculation about being acquired, we believe investors will want to see increasing uptake of Tysabri especially as it begins to frame the reasonableness of 100,000 patients being treated with the drug in 2010. We believe Biogen Idec’s MS market presence with the top-selling injectable and infused therapies as well as a strong pipeline positions the company well to reshape the future MS market.
Elan (ELN) continues to be one of our top biotech picks. We believe 2008 could be a breakout year for the company. The single most important event would be the release of Phase II data for bapineuzumab (AAB-001) to treat Alzheimer’s disease (AD). Elan’s stock will also be impacted by continued commercial success for Tysabri to treat MS as well as the emerging Crohn’s disease opportunity.
Genzyme (GENZ) could dodge the last obvious bullet after full release of Phase II data of Amicus Therapeutics’ (FOLD) competing drug, Plicera, for treating Gaucher disease in mid March. Data from the Phase II trial of Amigal, Amicus’ small molecule chaperone for treating Fabry disease, showed that clinical efficacy appears to be modest at best. If those data are proxy for the effectiveness of the chaperone technology, it could be predicted that the Plicera data will not be overly encouraging. Genzyme’s Cerezyme for Gaucher and Fabrazyme for Fabry will account for approximately 40% of revenues in 2007. Thus, any competitive threats to those franchises could have a significant impact. We believe investors will continue to be attracted to Genzyme stock by virtue of the valuation and the company’s financial discipline.
We continue to believe that Gilead Sciences (GILD) is the best managed large-cap biotech company and that 2008 will be another solid year. The HIV franchise continues to expand, and European approval of Atripla should create new commercial opportunities.
Additionally, we suspect that investors will look to evidence of the commercial expansion of other businesses, particularly in the cardiopulmonary area with the continued uptake of PAH drug, Letairis, and approval of astreonam lysine for treating pulmonary infection in patients with cystic fibrosis. The only negative, a minor one we believe, would be the extent to which sales of Tamiflu decline on a year-over-year basis as the result of less pandemic flu stockpiling.
RR: Life science stocks will do as well as if not better than 2007, so a 10% return is achievable with the right mix of stocks. The wild card for 2008 will be trading in stem cell stocks with scientific developments such as the use of skin cells to bypass embryonic stem cells. My investing model is a balanced portfolio with a core position in exchange-traded funds (ETFs) and large caps.
25% in the S&P ETF XBI: I don’t know how S&P does it, but they consistently out perform mutual funds and other ETFs.
50% in large-cap biotech and pharmaceuticals: I am going with a Dogs of the Dow type of strategy, with these beaten-up large-cap picks, all of which are 2007 losers—Amgen, Celgene, Genentech, and Pfizer (PFE). Growth stocks that are core long-term holds are Abbott Laboratories (ABT), Becton Dickinson (BDX), Biogen Idec, Cephalon (CEPH), Elan, Genzyme, and Gilead.
25% in small- and mid-cap life science and diagnostics firms: Alnylam Pharmaceuticals (ALNY), Sangamo BioSciences (SGMO), Cubist Pharmaceuticals (CBST), Celera (CRA), Epix Pharmaceuticals (EPIX), Isis Pharmaceuticals (ISIS), Martek Biosciences (MATK), Seattle Genetics (SGEN), Myriad Genetics (MYGN), and Viropharma (VPHM).
Speculative micro caps: Gene Logic, which is now Ore Pharmaceuticals (ORXE), Micromet (MITI), and Genelabs Technologies (GNLB).
NM: Amgen lost 31% during 2007, as the FDA slapped its toughest warning label on its anemia drug, Aranesp. Also, Vectibix failed to show increased survival in colon cancer, and 1,500 people were laid off. Hence, it may be a good time to accumulate, since the company has a great pipeline of products in clinical stages through its recent acquisitions, and sustained earnings will be maintained by cost-cutting measures.
Biogen Idec’s gross margin is more than 91% of other companies in the biotechnology and pharmaceutical industry, which means it has more cash to spend on business operations as compared to its peers. As indicated by the operating margins, Biogen Idec controls its costs and expenses better than 94% of its peers. Tysabri, its expensive treatment for MS, will continue to gain momentum in 2008. With the failure of Biogen Idec to find a buyer for itself, the stock has been depressed, yet it earns over $3 a share. This stock may be a bargain if it continues to slide while looking for a buyer.
Generex Biotechnology (GNBT) is an undercover gem. It is engaged in the development of technologies and formulations of large molecule drugs delivered to the oral cavity, using a hand-held aerosol applicator.
Genomic Health’s (GHDX) first test, Oncotype DX, is already covered by government insurance plans and many private insurers. It is used in early-stage breast cancer patients to predict the likelihood of recurrence, patient survival within 10 years of diagnosis, and chemotherapy benefit.
Gilead had a great run up in 2007 and it could see more upside as the products continue to expand market share.
The past five years has seen Illumina’s (ILMN) stock grow 250%, making this another good stock pick.
La Jolla Pharmaceutical’s (LJPC) lead product in development, Riquent, is designed to treat lupus renal disease by preventing or delaying renal flares. The company represents a valuable investment.
Pharmasset (VRUS) has three product candidates to treat viral infections. It is developing two of these alone and one with Roche (ROG.VX). The firm has a small market cap of $300 million, so good news and good data should help propel the stock. The company is sitting on approximately $65 million in cash and a big pharma partner to take on the clinical costs. This was one of the best IPOs of 2007.
Sirtris Pharmaceuticals’ (SIRT) stock was recently hit with venture selling and is in the low end of its range.
Repros Therapeutics (RPRX) is developing Proellex for the treatment of uterine fibroids and endometriosis and Androxal for secondary hypogonadism with the potential for use in metabolic syndromes and diabetes. Based on these two compounds with multiple indications, Repros appears undervalued and looks to be an attractive investment.
Wyeth Pharmaceuticals’ (WYE) value has been falling on concerns that its blockbuster heartburn drug, Protonix, could face generic competition sooner than expected. On December 24, Wyeth said that it plans to sue Teva Pharmaceutical Industries (TEVA) for patent infringement. Teva launched a generic version of Protonix, even though Wyeth’s patents are not due to expire until July 2010. This could make for unrest in the stock.
BC: We continue to believe diagnostics will factor prominently in the future of healthcare and so would favor stocks such as Quidel (QDEL), Inverness Medical Innovations, and Meridian Bioscience (VIVO). We also like many of the pharma services companies including Covance (CVD), Pharmaceutical Product Development (PPDI), Charles River Laboratories (CRL), and ICON Clinical (ICLR), which we believe will benefit from current industry trends.
We would tend to stay clear of big pharma names as well as certain big biotech firms such as Eli Lilly, Wyeth, Bristol Myers Squibb (BMS), Schering Plough (SGP), Abbott Laboratories, and Amgen. While we believe these companies’ efforts to retool discovery may ultimately be rewarded, their exposure to the crosshairs of presidential politics likely leaves them vulnerable through this year.