Biotech Companies and the case for 2008
In any election year, investors would and should be cautious of moving aggressively in the biotech stocks but this is no normal election year.
Last week at the JPMorgan Healthcare Conference in San Francisco, Genzyme, Biogen Idec, Amgen and Celgene all guided ahead optimistically ahead for the fourth quarter and they were all optimistic for 2008.
Yesterday, Genetech announced revenues and earnings essentially in line with Street expectations.
We are well aware of the fact that many Funds of Funds (FOFS) are withdrawing money from biotech funds. I was reading an interesting article at Minyanville which explains very accurately why the FOFS are currently leaving the biotech sector. However, we believe that this money will be replaced with institutional money leaving the techs and staying away from the financials until the bad news in the CMO market is behind us.
Many biotech investors have turned away from the sector because of a phenomenon which seems to be unique to this sector and this writer of this article knows only to well. In what other sector could you be so right about the fundamentals and even the technical analysis but ultimately be so wrong about the performance of the stock? Why? Because the life of the product in the biotech sector has no near term relevance to the financials of many biotech stocks. You could receive incredible news regarding a Phase II trial and smart money knows that you’re 3 years away from a product. So, unless biotechs are hot at the time that you experience your great trial results, your stock price may not react commensurate with the news. That’s disappointing to most investors.
That’s the bad news. Now, here’s the good news. With so many industries positioned for a gloomy 2008 and rich commodity pricing in gold and oil, where will the institutional money flow to in 2008? For the time being in 2008, the money will remain in the big boys such as Celgene and others. However, one announced licensing deal with a major pharma or one acquisition in early 2008 could make the year a great year for the loyalists. Everyone else will come running.
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