Researching Biotechs to find a cure for recession

Well the biotech sector is starting to get renewed attention. No real surprise as it’s one of the bastions that stock market investors go to when a recession hits. It’s part of the group that gets a boost every time the R-word is mentioned, along with Gold (which is already on a tear).

But recently there has been a few pot shots taken at a few of the industry standards. The big boys are not looking so good, according to some, and that leaves the question of where to go. Some think that the biotech’s that got a boost from the JPMorgan Healthcare Conference this year are where to go. Others are just trying to see what is next.

One place not to go may well be Pfizer. As noted on Motley Fool there are many reasons. One of the most important I feel is the question of the drug pipeline. In the case of Pfizer there really isn’t one. In fact they are running into the problem that is deadly to many successful biotech stocks, patent expiration. Without the protection of a patent, sales inevitably fall precipitously, no matter how big your company is or the nature of the drug.

For Pfizer they will be losing 2 of the biggest drugs in the last 15 years. In fact the most explosive and popular drug in perhaps 2 decades or more will be opening up to generic competition, namely Viagra [the other drug is Lipitor]. If anyone thinks that won’t kick the company in the seat of the pants, then you probably think gold is a sell right now.

Of course Pfizer is not alone, as Genentech is in a similar situation. Though they do have a few new innovations on their aging pipeline that may give them a small boost, or at least cushion the patent exiration blow. So where do you look instead.

Well Adam Feuerstein over at TheStreet.com (I read a lot of the information there too) posed a new outlook that may catch on, if it hasn’t already. His theory basically is that many feel the top names at the JPMorgan conference are the top picks for the year. To that end he is following them.

He’s selected a list of 10 names, some well known others not, that he will watch throughout the year. They are:

Pharmasset
Idenix Pharmaceuticals
Intermune
Allos Therapeutics
Incyte
Isis Pharmaceuticals
Nektar Therapeutics
Viropharma
Seattle Genetics
Biogen Idec

It’s an interesting group. Again the key is always the pipeline. To me that is the beginning and end of any choice of biotech stocks. Strong, growing pipelines are of interest. Lagging pipelines are not.

Will this list prove to be true? Are they a one shot deal? We will see, but the short term of one year is never enough to know. I will tell you one thing though; no matter which biotech’s lead the industry, and whether the industry leads the stock market, as fear of recession and the impact of the mortgage crisis continues to unfold, this will not be the last you hear about this.

What is better, rumor or a drug pipeline?

I recall back in the day when I was a broker, how everyone loved the Biotech sector. Everyone wanted to be in on the next new drug. There was massive research going on and stocks were doing far more than triple when they went from one phase in FDA trial to the next. Those were good days, and perhaps the anticipated approval and release of Viagra from Pfizer was the most expressive of those days.

But then the internet bubble broke, the market dropped, and then America was attacked in the most cowardly manner. After recovering from those back to back blows the market recovered, only to now be hit by all-time high oil prices, mortgage loans crisis, real estate sell-off, and a potential Democrat winning the 2008 election.

What is an investor to do?

Well there are still diseases out there. AIDS and HIV still have no cure, various forms of cancer plague men and women of all ages, and who knows what is next. Rather than chasing the next up or down sector, perhaps looking at the greatest potential good is the answer. That’s not a recommendation, it’s a philosophy I hold and am sharing with you.

There is always the hope of a takeover though, as has been rumored with Biogen Idec. But with such rumors we see volitant moves. In a little over a month the stock has soared to $84 and dropped to the current $69. Will it be taken over? Possibly.

The better question is what is going on in the pipeline. It can take a decade to go from Phase 1 to Phase 3 approval. New drugs can bring in revenues for years and without regard of other factors hitting the market.

But there is nothing like a rumor to get a stock moving, or so one investor apparently thought when he asked Adam Feuerstein

“Are you hearing anything about Icahn's plans or any interest in the sale of the company? As you know it popped to $84 and has pulled back on no news. Just would appreciate anything you are hearing on the company.”

I think the real question is what is in the pipeline for Biogen Idec. Like a recent post at Motely Fool, regarding the recent $380 million collaboration deal with Neurimmune Therapeutics that

“… demonstrates that Biogen's leadership isn't letting the distraction of putting itself up for sale get too much in the way of everyday business.”

Is a pre-Phase 1 deal worth more than a takeover? Better to ask, is a biotech without a pipeline worth investing in. Plus there is always the hope that they hit gold finding a cure to Alzheimer's disease.

But that is just a thought, not a recommendation.

**I also write for Bio Tech Stocks Blog**