New products and other factors drive growth in health care/biotech, despite a cautious regulatory environment, analysts say.
RBC Capital Markets
Outlook: Fundamentally, I don’t think the biotechnology sector has ever really looked much better. We’ve got a lot of high-growth products in the market and a lot of new products coming to market. We’ve got more profitable companies than ever before. We’ve got an increase in the amount of M & A activity with big pharmaceuticals buying smaller biotech companies. All of that is very positive.
Counterbalancing that is a more cautious FDA and a very skittish market. In a skittish market, high-risk stories like biotech tend to under perform.
My outlook is positive. I think the industry is going to adapt to the new regulatory environment; and certainly right now we are at a low point in valuations, so there’s a lot of room for the sector to do well from here. When it will turn around is a more difficult question for which I don’t have an easy answer.
My outlook is positive based on the commercial successes of a lot of different drugs and different companies and historically low valuations.
Outperforms: Adolor Corporation (ADLR), Alexza Pharmaceuticals (ALXA), Cubist Pharmaceuticals (CBST), Genentech (DNA); Genetope Corp (GTOP), Gilead Sciences (GILD) and Panacos Pharmaceuticals (PANC)
Top Pick: Gilead Sciences
Why Gilead Sciences (GILD): Gilead has the dominant market position in HIV with the first and only one pill once a day for HIV therapy. The company also has some of the best margins in biotech, an exciting pipeline, a great track record and good management.
Outlook: Fundamentally biotechnology is probably the strongest it’s ever been. We have an increased number of products being approved and an increased number of companies that are becoming profitable.
In terms of innovation, we’ve just had a pretty decent run over the last three years due to the emergence of what we call targeted cancer therapies. These are therapies that are going after specific signals responsible for the proliferation of cancer cells.
This represents everything biotech has to offer in the sense that it is extremely innovative and it takes a dramatically different approach from that which pharmaceutical companies have taken for the last 100 years in treating cancer. It really represents a perfect marriage between basic biology and pharmacology.
Biotech’s next big innovation will be in the field of hepatitis where certain companies are taking a radically different approach to treating that disease. Now biotech is really going after the ability of the virus to replicate. This new approach represents everything biotech has to offer. It will, if successful, change the treatment paradigm for Hepatitis C.