Smaller biotechs shine while big names disappoint

While the stock performance of large biotech stocks such as Genentech Inc. and Amgen Inc. have disappointed investors over the last year, several lesser-known companies have bucked the trend and demonstrated that sometimes, smaller is better.

Biotech bellwethers Genentech and Amgen are down, respectively, 11 percent and 21 percent, over the last 52 weeks, but companies not as easily recognized, yet with promising candidates and deals with large pharmaceutical companies, have boosted their value.

Two of the best performing biotechs over the last year are involved in the burgeoning field of RNA interference, which involves silencing the expression of genes to treat diseases. Cambridge, Mass.-based Alnylam Pharmaceuticals Inc. and Carlsbad, Calif.-based Isis Pharmaceuticals Inc. are the two heavyweights in the field, though each company only has a market capitalization of $1.2 billion.

Over the past 12 months, shares of Alnylam and Isis have risen, respectively, 80 percent and 30 percent.

Both companies' performance is due in part to development deals. Alnylam in July brokered a major alliance with Switzerland's Roche worth a potential $1 billion. The company also formed partnerships with Novartis, Biogen Idec Inc. and Medtronic Inc.

Isis, meanwhile, has licensed nearly all of its early and midstage pipeline candidates to large pharmaceutical and biotechnology companies, notably Eli Lilly & Co, Johnson & Johnson, and Genzyme Corp.

In a note to investors Wednesday, Broadpoint Capital analyst Simos Simeonidis, who has a "Buy" rating on Alnylam and a $38 price target, said that he expects the company to ink another major agreement this year adding, "We would be surprised, given the interest in the RNAi space and the leadership position Alnylam commands in terms of technology and intellectual property, if we did not see another Roche-like platform deal announced this year."

Another biotech on a roll is Silver Spring, Md.-based United Therapeutics Corp., whose shares have run up 35 percent in the last year. The company, with a $2 billion market cap, is focused on cardiovascular health.

Shares surged to a seven-year high in November after the company reported that Viveta, its drug to treat pulmonary arterial hypertension, or elevated blood pressure in the lungs' blood vessel, met its goal in a late-stage trial. Viveta is an inhaled version of the company's lead product, Remodulin, which is given as an injection.

In an investors' note Wednesday, Cowen & Co. analyst Phil Nadeau, who has an "Outperform" rating, said the launch of Viveta "will be one of the most anticipated in biotech in 2009," adding he believes the stock can return 30 percent in more in the next 12 to 18 months.

Citi Investment Research analyst Lucy Lu is similarly bullish on United, noting recently it is her top pick this year. She has a $130 price target on shares.

Shares of Alnylam closed down 52 cents to $28.99 in afternoon trading, while Isis shares fell 26 cents, or 2 percent, to $12.69. Continuing the trend, United Therapeutic shares lost $2.94, or 3.2 percent, to $88.95.