Word: biotechs
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...claims to have one or more wonder drugs in research. Those claims make terrific investment pitches, and on the heels of a successful new drug launch--Pfizer's impotence pill, Viagra, in this case--investors can get, uh, excited. The reality, though, is that maybe 10% of today's biotech companies will ever bring a blockbuster drug to the market. Those that do will enrich shareholders. But casual investors face long odds trying to be in the right stocks...
That said, there are reasons to invest in the wonder-drug business. A potential huge payoff certainly is one. Last July, MedImmune's infant-pneumonia drug, Synagis, passed a significant clinical hurdle, and the stock shot from $15 to $55. More fundamentally, though, biotech stocks as a group have been woeful laggards for three years, and may represent the broadest base of value in today's sky-high stock market...
...past, I've written about biotech investing with far more pessimism, mainly because of the risks, which haven't changed much. But some other things have changed, a lot. The overall market has roared ahead while biotech stocks barely budged, creating a vastly wider gap in value, and the biotech industry has had more time to mature. It will probably turn net profitable next year, and, notes money manager Stephen Flaks in Scottsdale, Ariz., "there are now hundreds of drugs that will be on the market within two years." Companies with such drugs are among Flaks' favorites: Matrix Pharmaceuticals (cancer...
This new-product cycle has a number of pros bullish on the sector. Sensing opportunity, New York investor Stuart Wiesbrod founded Merlin Biomed, a private health-care fund, just three months ago. He estimates that the entire biotech industry has a stock-market value of about $110 billion. That's less than the market value of one big drug company like Merck or Pfizer, each with market values around $140 billion. Yet the biotech industry has 600 drugs in advanced development, vs. maybe 20 for each big drug company...
...Biotech companies are notorious for moving ahead with tests too quickly. But, Weisbrod notes, "that still doesn't account for this huge discrepancy." His top picks, too, expect to have drugs approved within two years: Biochem Pharma (hepatitis) and Centocor (blood clots). Another fan of companies with late-stage drugs is Evan Sturza, editor of Sturza's Medical Investment Letter, whose top picks are Aviron (flu), Gilead Sciences (HIV, hepatitis) and Sepracor (side effects from Prozac, Claritin and others...