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The Top Biotech Performers Of 2011
This has really been a year of the "haves" versus the "have nots" in biotechnology. Although a few dedicated biotech ETFs have done rather well and there have been some huge individual outperforming stocks, the sector as a whole has not necessarily been all that strong. Still, for those companies that could deliver encouraging data, particularly in the fields of hepatitis and cancer, the market was more than willing to reward the stocks with a higher valuation.
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Hepatitis C - The Story of 2011
If any one theme should leap out at biotech investors in 2011, it is the explosion of interest in companies targeting hepatitis C. It is not as though hepatitis C is a new disease, but a host of companies have finally developed compounds that look to offer major improvements in disease management and quality of life for the millions of people with this condition.
Two of the top three performing biotechs with current market capitalizations above $250 million are hepatitis C plays. Pharmasset (Nasdaq:VRUS) has delivered the sort of year that biotech investors dream about for 2011, with the stock up nearly 500% in the last year. The stock was already doing incredibly well on the basis of very strong clinical data in PSI-7977 trials - data that basically showed 100% response in early administration of the drug. This stock found another level, though, when Gilead Sciences (Nasdaq:GILD) stepped up and offered to pay a considerable premium to acquire the company.
Not far behind is once-tiny Inhibitex (Nasdaq:INHX) which has soared over 450% this year, largely on the hopes for the polymerase inhibitor INX-189 in Hepatitis C (and the hopes that the company will be acquired by a larger pharmaceutical company).
Cancer Still a Popular Target
Although some oncology stocks like Dendreon (Nasdaq:DNDN) have been major disappointments this year, investors are still very attracted to this market segment. After all, this is an area where there is still ample room for improved outcomes and the opportunity to charge breath-taking dollar amounts for a course of treatment. Medivation (Nasdaq:MDVN) has jumped over 200% this year on the promise of the company's MDV3100 drug for prostate cancer (which is partnered with Astellas). Not too far behind is Oncothyreon (Nasdaq:ONTY) with its 150%+ return and its late-stage non-small cell lung cancer drug Stimuvax.
But wait, there's more. Ariad Pharmaceuticals (Nasdaq:ARIA), Vical (Nasdaq:VICL) and Spectrum Pharmaceuticals (Nasdaq:SPPI) have all delivered top-10 performances this year, largely on the basis of cancer drugs in their pipeline. (For more, see Earning Forecasts: A Primer.)
Still Room for the Well-Established
It may not surprise experienced investors that any list of top biotech performers is dominated by small, largely unknown and unproven companies. That is the way of biotech - investors play for the grand slams and wait and hope on great clinical data. But there is still room for the proven outperformer. Both Biogen (Nasdaq:BIIB) and Alexion Pharmaceuticals (Nasdaq:ALXN) find themselves in the top 20, with returns of nearly 70 and over 60%, respectively. Biogen has generated a lot of enthusiasm with its experimental multiple sclerosis drug, while Alexion continues to generate good sales from the use of Soliris in some ultra-rare indications and the hope of further follow-on labeling.
The Bottom Line
Much has been written of the current risk averse Food and Drug Administration (FDA) and its unwillingness to cut any slack to companies in terms of safety and risk-reward trade-offs. What this year proves (or reestablishes) is that the FDA still cannot tamp down the enthusiasm investors will muster for companies that seem to have developed potential breakthrough drugs. While hepatitis C may well lose some of its luster in 2012, cancer will likely remain a hot area for many years to come.
Of course biotech investing carries above-average risk, as barely one in 10 drugs ever makes it to market and the odds seem to get worse as investors go down in market cap. But as 2011 shows, the potential gains are very real and the prospect of one-year multi-baggers will keep investors returning for more. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.
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Hepatitis C - The Story of 2011
If any one theme should leap out at biotech investors in 2011, it is the explosion of interest in companies targeting hepatitis C. It is not as though hepatitis C is a new disease, but a host of companies have finally developed compounds that look to offer major improvements in disease management and quality of life for the millions of people with this condition.
Two of the top three performing biotechs with current market capitalizations above $250 million are hepatitis C plays. Pharmasset (Nasdaq:VRUS) has delivered the sort of year that biotech investors dream about for 2011, with the stock up nearly 500% in the last year. The stock was already doing incredibly well on the basis of very strong clinical data in PSI-7977 trials - data that basically showed 100% response in early administration of the drug. This stock found another level, though, when Gilead Sciences (Nasdaq:GILD) stepped up and offered to pay a considerable premium to acquire the company.
Not far behind is once-tiny Inhibitex (Nasdaq:INHX) which has soared over 450% this year, largely on the hopes for the polymerase inhibitor INX-189 in Hepatitis C (and the hopes that the company will be acquired by a larger pharmaceutical company).
Cancer Still a Popular Target
Although some oncology stocks like Dendreon (Nasdaq:DNDN) have been major disappointments this year, investors are still very attracted to this market segment. After all, this is an area where there is still ample room for improved outcomes and the opportunity to charge breath-taking dollar amounts for a course of treatment. Medivation (Nasdaq:MDVN) has jumped over 200% this year on the promise of the company's MDV3100 drug for prostate cancer (which is partnered with Astellas). Not too far behind is Oncothyreon (Nasdaq:ONTY) with its 150%+ return and its late-stage non-small cell lung cancer drug Stimuvax.
Still Room for the Well-Established
It may not surprise experienced investors that any list of top biotech performers is dominated by small, largely unknown and unproven companies. That is the way of biotech - investors play for the grand slams and wait and hope on great clinical data. But there is still room for the proven outperformer. Both Biogen (Nasdaq:BIIB) and Alexion Pharmaceuticals (Nasdaq:ALXN) find themselves in the top 20, with returns of nearly 70 and over 60%, respectively. Biogen has generated a lot of enthusiasm with its experimental multiple sclerosis drug, while Alexion continues to generate good sales from the use of Soliris in some ultra-rare indications and the hope of further follow-on labeling.
The Bottom Line
Much has been written of the current risk averse Food and Drug Administration (FDA) and its unwillingness to cut any slack to companies in terms of safety and risk-reward trade-offs. What this year proves (or reestablishes) is that the FDA still cannot tamp down the enthusiasm investors will muster for companies that seem to have developed potential breakthrough drugs. While hepatitis C may well lose some of its luster in 2012, cancer will likely remain a hot area for many years to come.
Of course biotech investing carries above-average risk, as barely one in 10 drugs ever makes it to market and the odds seem to get worse as investors go down in market cap. But as 2011 shows, the potential gains are very real and the prospect of one-year multi-baggers will keep investors returning for more. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.
by
Stephen D. Simpson, CFA
Stephen D. Simpson, CFA, is a freelance financial writer, investor, and consultant. He has worked as an equity analyst for both sell-side and buy-side investment companies in both equities and fixed income. Stephen's consulting work has focused primarily upon the healthcare sector, while he has also written extensively for publication on topics pertaining to investments, security analysis, and healthcare. Simpson operates the Kratisto Investing blog, and can be reached there.
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