Encouraged by the appointment of a new Food and Drug Administration (FDA) commissioner and a push of...
Encouraged by the appointment of a new Food and Drug Administration (FDA) commissioner and a push of new products to the market, sentiment appears positive for the biotechnology industry in 2003.
Antony Milford, healthcare fund manager at Framlington, notes biotech stocks rallied from mid October to late November but gave up much of their advance in December. He adds for 2002 overall, large cap biotechs substantially outperformed mid and small caps, although this gap began to close in the fourth quarter.
He says: 'The lack of a strong year-end rally has left the biotech sector well positioned entering 2003. Fourth quarter 2002 earnings are expected to be good and the sales growth for biotech products in 2003 should be above 20%, a useful improvement on 2002.'
Dr Joe Anderson, head of health and biotechnology for First State Investments, says: 'This industry has a very clear set of drivers ' a demand for new and better drugs. The ability to supply products is key and over the past two years there have been problems in doing this with a lack of replacements for older products.'
Anderson adds this obstacle is due to a natural cyclical slowdown in innovative products as the big pharmaceuticals have not been as successful as before in getting new drugs out into the market.
Anderson sees the appointment of FDA commissioner Mark McClellan as a significant boost to the sector.
Milford agrees with Anderson on the benefit of the new commissioner. He says: 'The fact there has been a rush of FDA drug approvals since his appointment is probably more to do with the usual year end bunching of approvals than McClellan's arrival but the very fact of having a leader after a 20 month hiatus should sharpen the decision making process at the FDA.'
Milford adds there is further evidence that FDA advisory panels are taking a more positive approach to drugs that treat significant medical problems. It has been taking a harsher line with drugs that are currently under served, than with drugs in areas where there are already good products on the market.
He notes this trend is beneficial for companies in the biotech sectors, which typically tend to be developing products in areas of unmet medical need.
Anderson notes there are drugs awaiting FDA approval, which require investor attention this year. He gives examples such as FluMist by Medimmune, a flu vaccine that is inhaled, Fuzeon by Trimeris, a new drug which tackles HIV, and Iniplon from Neurocrine, a new type of sleeping pill. He adds: 'Financially things are looking positive and valuations are low but investors need to be selective, the focus should be on the products in development.'
Milford says: 'The stock market environment is obviously still unfavourable for raising funds, particularly for IPOs. This is already resulting in increased M&A activity with the larger public biotech companies taking the opportunity to acquire interesting products and technologies at favourable prices.'
Anderson says investors who want exposure to this market need to have a balanced approach as biotechnology is anchored to the fortunes of big pharmaceutical companies as well as to technology companies.
New FDA commissioner.
New products awaiting approval.
Evidence of good valuations.
Risk of drugs commercially failing.
Sector tied to fortunes of tech companies.
IPO environment remains difficult.
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