Wednesday, July 06, 2005

Value In The Biotech Sector?

I was just glancing through this weeks edition of BioCentury and they had a nice write up on the biotech sector. The sector hasn't done much this year, except for Genentech. There's actually been some M&A activity within the biotech sector. Here are some of the deals mentioned in BioCentury: Pfizer purchased Vicuron for a 84% premium, Shire purchased TKTX for a 22% premium and Glaxo Smith Kline will be purchasing the remainder of Corixa for a 48% premium. These firms obviously see some value based on the premiums they were willing to pay. One of the analyst interviewed says that there's not much fund flows into the biotech sector, a lot of the momentum players have moved into the real estate market. That was a very interesting observation, so what am I trying to say? The biotech sector is cheap right now, there's no hot money in the sector so you're unlikely to over pay for biotechs. Obviously, you have to do some homework in picking the right companies!

I personally would continue to focus on the big cap biotechs and one's that are close to turning profitable (within a year or so). I currently have positions in the following biotechs: Amgen, Genentech, Genzyme and Biogen Idec (I would not buy Biogen Idec until they clear up the Tysabri mess). If you're afraid of selecting individual stocks, go with the ETF's or mutual funds (IBB, BBH or Fidelity Select Biotech). We've entered the earnings season, so there's going to be a lot of action.


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