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Needham & Company 2012 Biotech Preview

December 23, 2011 7:35 AM EST Send to a Friend
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Needham & Company 2012 Biotech Preview

Needham analyst. Alan Carr, said, "The NASDAQ Biotechnology Index has outperformed the broader NASDAQ Composite in 2011 with a respectable 10.5% YTD gain (vs. -2.0%). As can be expected with the biotech sector, there were some impressive wins and some dramatic high profile losses. Pharmasset (Nasdaq: VRUS)(NotRated) gained ~470% in 2011, helped by some strong PSI7977 Phase 2 results in Hepatitis C and ultimately a proposed $11B acquisition by Gilead (Nasdaq: GILD)(BUY). At the other extreme, Human Genome Sciences (Nasdaq: HGSI)(NR) and Dendreon (Nasdaq: DNDN)(NR) experienced declines of -69% and -78%, respectively, because of product launch disappointments. Cubist (Nasdaq: CBST)(HOLD), which we downgraded last month, led our coverage universe with a +87% gain after successfully defending its intellectual property in April. At the other end of the spectrum, Targacept (Nasdaq: TRGT)(HOLD) announced surprisingly disappointing results from two of four Phase 3 TC5214 trials in depression (-80%)."

"The FDA proudly announced in November that 35 new drugs were approved in FY2011, well above average for the past decade. Among the new drugs are Adcetris (Nasdaq: SGEN)(BUY), Dificid (Nasdaq: OPTR)(BUY), Incivek (Nasdaq: VRTX)(HOLD), and Complera/Edurant ((Nasdaq: GILD)(BUY); Johnson&Johnson (NYSE: JNJ)(NR)). Ironically, high expectations for some prominent drugs, including Incivek, were a challenge to meet and at times put pressure on the sector as a whole. If the regulatory environment improves, which we believe may gradually occur, increased M&A activity could follow. Big Pharma has traditionally shown an interest in commercial-stage biotech companies because of reduced development risk. M&A activity in 2011 was impressive, with some notable moves by mid- and large-cap biotech. Acquisitions included Adolor (Cubist), Calistoga and Pharmasset (Both Gilead)."

"Investors have avoided the biotech sector in periods of market uncertainty. Any improvement in general sentiment in 2012, however, may lift the group as a whole. Otherwise, small-cap biotech stocks may be driven primarily by company-specific events. We continue to favor Optimer because of the unmet need in C. difficile infection. Amongst our larger cap stocks, we believe Gilead is attractive because of its potential for growth with its new HIV drugs and expected news flow tied to HCV development efforts. Alnylam (Nasdaq: ALNY)(BUY) and Lexicon (Nasdaq: LXRX)(BUY), both under-appreciated in our opinion, have opportunities in 2012 to reach significant development milestones with products derived from differentiated internal R&D platforms. We recently initiated coverage of three companies with impressive hematology drugs, Micromet (Nasdaq: MITI)(BUY), Seattle Genetics (Nasdaq: SGEN)(BUY), and Pharmacyclics (Nasdaq: PCYC)(BUY)."




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