What's in Store for Biotech Investors in the Second Half of 2012

This article is part of the Fool's Halfway Through 2012 series, in which we review how sectors have done since January and see what's coming for the rest of the year. Click here to read all of the articles.

With second-quarter earnings season in full swing, it seems like a good time to take a quick look back at the first half of the year and look at what's upcoming for the biotech sector for the latter half of the year.

Lessons learned

  • Drugs can still launch successfully. After lackluster launches by Dendreon's Provenge and Human Genome Sciences' Benlysta it sure looked like "short the launch" was a no-lose investment thesis. But Vertex Pharmaceuticals and Regeneron Pharmaceuticals with Incivek and Eylea showed us that useful drugs still sell.
  • The FDA is reasonable. I never thought I'd utter those words, but after both Arena Pharmaceuticals (Nasdaq: ARNA  ) and VIVUS (Nasdaq: VVUS  ) got their less-than-perfect obesity drugs approved, anything seems possible.
  • Pharma is back in love with biotech. After a bit of consolidation -- Pfizer (NYSE: PFE  ) and Wyeth, Merck and Schering-Plough -- pharmas are back to acquiring biotechs. Bristol-Myers Squibb bought Inhibitex and Amylin Pharmaceuticals; GlaxoSmithKline bought Human Genome Sciences.

Looking forward
In terms of FDA approval decisions, it's going to be hard to top the excitement of the obesity drugs from VIVUS and Arena, but the oral multiple sclerosis market will come close. Novartis' Gilenya has the market all to itself for now, but it has had trouble unseating the injected multiple sclerosis drugs because of potential side effects.

Sanofi's Aubagio and Biogen Idec's BG-12 are both up for FDA review before the end of the year. I like their chances, especially BG-12's, but don't expect an overnight change in prescription habits. Doctors will continue to stick with injectable drugs until they get comfortable with the risk-benefit profile of the oral medications.

Pfizer is also trying to use the convenience-factor angle to move in on entrenched leaders that require a needle to be delivered but in a different indication. Tofacitinib is up for approval of its oral rheumatoid arthritis drug next month. Again, unseating the megablockbusters won't be easy, but at least a small slice of the market will be meaningful.

Clinical trial results are the other major binary event for drugmakers, but their timing isn't as apparent to investors because there's a lot of variables in when the data is available: when the trial ends and how long it takes to compile the data being the most obvious.

Pfizer, Johnson & Johnson and Elan (NYSE: ELN  ) have said to expect the second clinical trial for bapineuzumab later this summer. The first Alzheimer's trial was a complete failure, so I wouldn't expect much, but that also means a positive result will cause shares to skyrocket. Eli Lilly also has a phase 3 Alzheimer's drug that should read out shortly.

There's data from hepatitis C drugmakers expected in the second half of the year; it seems there's always hepatitis C data being released. The data I'm most interested in is from a trial looking at Gilead Sciences (Nasdaq: GILD  ) GS-7977 and ribavarin for 24 weeks to see if that simple combo is enough to cure genotype 1 patients. If the trial works, Gilead won't need Bristol-Myers Squibb's daclatasvir, nor will it even have to combine GS-7977 with one of its own drugs.

There is bound to be more M&A in the second half of the year, but which companies and for how much remains to be seen. With very little in the pipeline and no marketing partners, VIVUS and Amarin seem ripe for the taking, but potential acquirers might just wait to see how the drugs perform before making a bid. Maybe they'll even partner, wait for a launch flop, and then pick up the company on the cheap; see GlaxoSmithKline's acquisition of Human Genome Sciences.

Onward and upward
The stock market is forward looking. Historical context is important to have, but companies are valued on their future prospects. Preparing for upcoming events, like the presidential election, is necessary to protect and grow your portfolio. You can get ideas for companies that will prosper depending on who wins the presidential election in the Fool's free report, "These Stocks Could Skyrocket After the 2012 Presidential Election." Get your copy for free by clicking here.

This article is part of the Fool's Halfway Through 2012 series, in which we review how sectors have done since January and see what's coming for the rest of the year. Click here to read all of the articles.

Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson and Dendreon. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, Pfizer, Vertex Pharmaceuticals, and Gilead Sciences. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 26, 2012, at 12:24 PM, WCoastGuynCA wrote:

    One stock that you failed to mention is Mannkind, MNKD.

    Mannkind offers substantial upside considering the potential worldwide market for its diabetes drug, Afrezza, which is currently in phase three trials will be over $200 billion dollars by 2017. The company also has a number of promising drugs in development for the treatment of various cancers. The next twelve months should be a continual uptrend for the share price as it moves towards an F.D.A. decision.

    With the short interest in Mannkind shares currently in the 30,000,000 range if the company announces that its billionaire C.E.O., Al Mann, will fund the company through approval or if the company has obtained a loan on corporate assets so that another secondary will not be necessary the resultant short squeeze could move the share price to the $8.00 range or higher.

    One important factor to consider is that the company is currently in partnership talks with several "big pharma" companies in regards to marketing Afrezza in the United States. The company has also stated that it will utilize its European partner to file for approval in the E.U.

Add your comment.

DocumentId: 1957983, ~/Articles/ArticleHandler.aspx, 4/20/2014 12:03:26 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement