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| Biotech
Stocks .... The Greatest Investment Opportunity or is
There a Bubble Ahead? |
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Ed Wijaranakula, Ph.D.
Director of Market Analysis, Infotix
Systems, Inc. - June 14, 2004
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The
40th Annual Meeting of the American Society of Clinical Oncology (ASCO), where the world's leading
professionals meet and present results on topics from
lung cancer and melanoma to pathology, held last week in
New Orleans, was a big success.
Biotech companies presenting at the conference, including Genetech
(NYSE:DNA), which develops
the
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cancer drug Avastin, had their stocks fall as much as 15 percent for
the week, despite good results showing improvement in
the survival rate of metastatic pancreatic cancer
patients who received treatment with Avastin and
chemotherapy.
Considering a drop of over 5.8 percent in AMEX Biotechnology
Index (AMEX:$BTK.X) over a one-week period, investors
may be wondering whether there is a bubble ahead. We believe that the short-term sell-off is
likely to be due to a rotation from the biotech sector to
the semiconductor
sector as may be seen in the comparison chart between
the $BTK.X index and the Philadelphia
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| Semiconductor Index (AMEX:$SOX.X)
for the week ending June 11. We believe that the
long-term growth trend for the $BTK.X index since June
2002 is still intact and the biotech sector is poised to
bounce
in the coming weeks.
One
of the stocks that could participate in the next bounce
is Biogen IDEC (NASDAQ:BIIB). The Cambridge, Mass.-based
company, which is in partnership with the Irish
neuroscience-biotech company Elan (NYSE:ELN), just filed
the Marketing Authorization Application (MAA) for
European approval of the multiple sclerosis (MS) drug,
Antegren. Antegren, a humanized monoclonal antibody, is
also found to be effective for treating Crohn's disease,
one of the most common forms of inflammatory bowel
disease. According to Elan's press release, Antegren is
being tested on patients with rheumatoid arthritis in a
Phase II trial. Mr. Frank DiLorenzo, a Certified
Financial Analyst at S&P, estimates peak sales of
Antegren to be at least $2 billion by 2014.
Biogen IDEC, Genentech and Roche Holding AG also
co-market a top-selling cancer drug, Rituxan, for the
treatment of patients with non-Hodgkins lymphoma. More
than 300,000 patients worldwide have been treated with
Rituxan thus far. The drug should generate sales outside
the United States and Canada alone in excess of $1.72
billion in 2004, said Reuters. |
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According to the SEC filing,
Mr. James C. Mullen, Biogen IDEC Chief Executive
Officer, has sold a total of 11,000 shares one week
prior to the ASCO meeting. This insider transaction is
considered to be insignificant when compared to his
remaining holdings of 112,827 shares. From the one year
uptrend line, we believe that Biogen IDEC shares could
continue to climb with a near-term target of $64.
We believe that Wall
Street overreacted to an opinion from an analyst at Sun
Trust Robinson Humphrey who cites "an apparent lack
of significant clinical events.." and downgraded
Abgenix (NASDAQ:ABGX) to neutral from a buy. This is
somewhat of a surprise to investors since Sun Trust had
just initiated coverage of Abgenix this April with a buy
rating.
Fremont, CA-based Abgenix,
who made an announcement at the ASCO meeting that in the
Phase II trial, its drug, ABX-EGF(Panitumumab),
co-developed with Amgen (NASDAQ:AMGN), has comparable
effectiveness to Erbitux, sold by ImClone Systems (NASDAQ:IMCL)
and Bristol-Myers Squibb Co. (NYSE:BMY), in the
reduction of tumors in colon cancer patients. Abgenix
also said that ABX-EGF causes less allergic reactions,
such as a reversible skin rash in some patients, than in
patients treated with Erbitux. ABX-EGF is also in the
early stage of a Phase II trial as a treatment for lung
and kidney cancers, the company said.
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Last October 2003, London,
UK-based AstraZeneca
(NYSE ADS :AZN) entered a multi-year partnership with Abgenix for the
joint discovery and development of therapeutic antibodies for up to
36 cancer targets. As part of the partnership agreement, AstraZeneca
will make a
$100
million
investment in Abgenix convertible preferred stock, initially
convertible into Abgenix common stock at $30 per share. Upon the
achievement of certain milestones, Abgenix may also require
AstraZeneca to invest an additional $60 million in Abgenix
convertible preferred stock. With over $300 million in cash, cash
equivalents and marketable securities, Abgenix should be able to
continue its development plan until the company becomes profitable
in 2008, said analysts.
We believe that a 26 percent decline in Abgenix's share
price last week is not the result of a bubble burst but
instead presents an investment opportunity and entry point. Based
upon the fact that there are no insider trading activities,
we believe that this stock could bounce back near-term to
the uptrend line at $14. The 12-month mean price target for Abgenix
as complied by Thompson/First Call is $21.
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About
NMS Research Analysis:
NMS Research Analysis is a service of Infotix Systems, offering
in-depth research analysis of high-tech companies and emerging
technology in sectors ranging from semiconductors, biotech,
nanotechnology, IT hardware and data storage to wireless, Internet
and consumer electronics. Dr. Wijaranakula's portfolio holds long positions
or controls in ABGX, BIIB and ELN.
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