| July has been a good month for biotech investors. | | | | that biotech products offer the best solutions for |
| Share prices in the biotech sector as measured | | | | management of these diseases. |
| by the NYSE Biotechnology Index are up 24% | | | | Several biotech drugs like Roche's Avastin and |
| compared to the 6.6% gain for the S&P 500. | | | | Amgen's Enbrel have the potential of becoming |
| Earlier in the month, Amgen (AMGN) reported | | | | major blockbuster drugs by 2014. Biotech |
| better-than-expected results from a trial of its | | | | companies are seeking to expand uses of their |
| experimental bone-protecting drug denosumab in | | | | approved drugs to treat more diseases. And, |
| patients with advanced breast cancer. Amgen's | | | | unlike drugs made by major pharmaceutical |
| shares vaulted 16% on the news. | | | | companies, biotech drugs are to a degree |
| In the week just ended, the momentum in | | | | insulated from generic competition. Major |
| biotech shares has continued further. While a host | | | | pharmaceutical companies are also actively |
| of favorable clinical trial results was the bigger | | | | working to strengthen their biotech forte and |
| driver, a large buyout announcement added the | | | | increasingly acquiring biotech companies for their |
| icing to the cake. | | | | intellectual properties. |
| Clinical Trial Results | | | | Timing |
| Bringing back memories of the dotcom era, | | | | Equity prices have been strong across the board |
| shares of Human Genome Sciences (HGSI) rose | | | | since the market bottomed on March 9 and the |
| nearly 300% to $12.50 a share after the | | | | S&P 500 is up nearly 46%. Biotech shares |
| company reported favorable results for its | | | | are no exception. The market as well as biotech |
| experimental lupus drug Benlysta. Targacept | | | | shares could be due for a pull-back. From a timing |
| (TRGT) shares more than doubled to $7.25 a | | | | standpoint, it makes sense to put money to work |
| share after its depression drug candidate met its | | | | in the biotech sector on a pullback. |
| goals in a mid-stage trial. Onyx Pharmaceutical | | | | Investment Vehicles |
| (ONXX) reported encouraging results for its | | | | Stocks of established biotech companies like |
| breast cancer treatment Nexavar to push its | | | | Amgen, Biogen Idec (BIIB), Genzyme (GENZ), and |
| shares higher by 21%. Shares of Celgene (CELG) | | | | Gilead Sciences (GILD) typically move with little |
| jumped nearly 16% after the company | | | | correlation to the broad market. That said, such |
| announced significant improvement in | | | | shares carry some degree of event risk. Adverse |
| progression-free survival of patients taking | | | | results from key drug development efforts can |
| Revlimid as a first-line treatment for multiple | | | | cause such shares to swoon in a jiffy. As such, |
| myeloma. | | | | they may only be suitable for investors with |
| Buyout | | | | well-diversified portfolios. |
| Continuing the trend of major pharma-biotech | | | | Smaller biotech companies often promise riches |
| mergers, as in Roche (RHHBY.PK)-Genentech, and | | | | based on the success of one or two key drugs. |
| Eli Lilly (LLY)-ImClone, Bristol-Myers Squibb (BMY) | | | | They carry a high degree of event risk as failure |
| announced it is buying Medarax (MEDX) for $16 a | | | | in pivotal drug development activity can quickly |
| share. The Medarex takeover implies a net price | | | | break a company. Only the most risk-tolerant |
| tag of over $2 billion. Medarax shares jumped | | | | investors usually tend to court such shares. |
| nearly 90% on the announcement. | | | | Bundled products like biotech sector funds and |
| Is it too Late to Board the Biotech Bandwagon? | | | | ETFs are better suited for most investors since |
| Given strong gains in biotech shares in recent | | | | they reduce most of the event risk. And, there |
| weeks, it is logical to ask if it is too late to get on | | | | are plenty of biotech sector funds and ETFs to |
| the biotech bandwagon. I believe the answer, | | | | choose from. Investors looking for no load mutual |
| generally speaking, is no. Notwithstanding | | | | funds can consider Fidelity Select Biotechnology |
| uncertainties surrounding health care reform, the | | | | (FBIOX) or Rydex Biotechnology (RYOIX). |
| fundamentals for biotech companies are | | | | In the ETF space, iShares Nasdaq Biotechnology |
| reasonably favorable. Yet, one needs to take | | | | (IBB) and SPDR S&P Biotech (XBI) are |
| appropriate care in getting the timing right and in | | | | among the more popular ones. Investors looking |
| choosing proper investment vehicles. | | | | for a global investment vehicle can look at |
| Fundamentals | | | | PowerShares Global Biotech (PBTQ). |
| Several factors favor the long-term growth of | | | | Aggressive traders looking for explosive |
| biotech companies. These include an aging | | | | short-term returns can turn to Biotechnology |
| population, rising incidence of cancer and other | | | | UltraSector ProFund (BIPIX). This mutual fund |
| degenerative diseases, and growing recognition | | | | uses leverage to boost returns. |