Biotech Stocks: A Future for Biogenerics
By Ann Sosnowski
Taipan Financial News
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In this article:
The biotech industry is looking forward to another year of growth in new project starts.
Current legislation doesn’t allow the approval of generic biotech drugs in the United States.
New legislation introduced last month could pave the way for big success, especially for a small cap biogeneric company…
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Every week, I do the same thing: I scan for promising micro- and small-cap stocks with low price entries and high profit potential. Usually, I come up with about 400 “good” candidates that I have to whittle down into “great” candidates, and then into actual worthwhile investments.
Yesterday’s scan turned up an interesting trend: A crowding in of biotech micro- and small-cap stocks, more than I’ve ever seen before. The only industry that was comparative in the amount of possible investments my search drummed up were commodities companies, mostly all obscure oil and gas companies and gold and copper miners from not-so-stabile countries.
This can become a hard task to undertake: With so many biotech micro-cap companies out there, how would you ever be able to pick out the ones with the right stuff? Do you choose companies with Phase II or Phase III drugs, or just hop on a bunch of low $1 biotech stocks that have the possibility of being acquired by a larger drug manufacturer?
It’s astounding… it would take me weeks to research all of these biotech companies before deciding which was the better investment. It would be even harder for an individual investor to pick a biotech stock because of its promise, and not based on basic hope.
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Biotech Stocks: New Legislation to Allow Biogenerics
There’s a movement in biotech drugs that may very well indicate some early winner.
Currently, the United States does not allow generic versions of biotech drugs to be sold. Biotech drugs are made using organic material, which is why it costs tens of thousands of dollars per patient… as opposed to regular drugs that are manufactured using basic chemical compounds.
Generic biotech drugs will most likely be known as "follow-on protein products," or FOPPs.
Currently, the FDA lacks the ability to regulate biotech generic drugs, but that may soon change due to recent legislation introduced last month (although it may take until 2009 to be approved.)
Lawmakers will most likely pass the legislation, making it not a matter of if, but more a matter of when it will be approved and what levels of testing the drugs will undergo in order to be approved for generic status.
Increasing the access and lowering the price of biotech drugs will most likely take away from larger companies, but improve the profits of smaller companies already operating in that area. Traditional generic drugs can save customers up to 70%. Upcoming biotech generics won’t offer that much of a cost discount, but analysts expect it to be at least 50%.
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Biotech Stocks: An Overall Booming Industry
Biotechnology is a simple concept really: it’s essentially using parts of living organisms to modify products for specific uses, mainly pharmaceuticals. Biotechnology can also be used for environmental reasons, like cleaning up hazardous waste, as well as improving our food supply through safer biopesticides.
Biotechnology has ballooned in the United States. In 1992, biotech revenues were $8 billion… by 2003 revenues increased 388% to $39 billion. Global biotech revenue in terms of pharmaceuticals hit $60 billion in 2005.
Of course, it’s hard to get a direct gauge on biotech companies. Amgen Inc. (AMGN:NASDAQ), the world’s most profitable biotech company, reported on January 25 that its revenues were flat for the fourth quarter of 2006. Since then, AMGN has shed almost 19% of its share value.
On the other hand, Genentech, Inc. (DNA:NYSE) reported its earnings two weeks before AMGN, showing that earnings soared 75% due to demand for its cancer-fighting drugs. Its fourth-quarter earnings were up 38% over the same a year prior, and investors responded with a buying spree that took the stock up almost 6% in seven days.
In my opinion, investing in the big biotechs is an old game. It’s just like being lazy and investing in blue-chip stocks that your grandfather owned.
But new biotech, small micro-cap outfits could be extremely profitable to these bigger companies. They’re the ones to watch out for, and invest in. They’re the ones that Amgen and Genentech will acquire to undertake their generic biotech manufacturing.
Overall, the biotech industry has some serious legs: According to Industrial Info Resources, the pharma-biotech industry will see healthy project starts in 2007. 429 active projects with investments of $16.6 billion are planned to start in the United States in 2007, most for vaccine production in both public and private research facilities.
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Biotech Stocks: A Special Generic Small-Cap Stock
One small-cap biogeneric company that may pave the way for bringing generic biotech drugs to market is Momenta Pharmaceuticals Inc. (MNTA:NASDAQ).
Momenta has a market cap of only $443 million, and has actually found a way to sequence and design complex sugars to make improved versions of existing drugs. The company’s products include M-Enoxaparin (a generic version of Lovenox, a blood thinner).
Lovenox’s approval by the FDA last year made it the most complex drug ever accepted. It was certified because it’s not quite a generic, since it’s made of different components.
Making generic drugs of current biotech drugs is no doubt a hard deal, considering a generic must be made of the same material, whether it’s traditional or biotech. Organic material can be hard to come by, which is why this company’s discoveries of making drugs similar to generic form could be shattering to the biotech giants.
The company plans to tackle protein sequencing for biogenerics in the future, which will open up a huge market.
At a little more than $12 per share, Momentum could really reap the benefits of generic legislation in the United States. Of course, we may have to wait until 2009 for that, but it’s well worth keeping the stock on your radar screen.
For the short term, the company expects total revenue to grow from 30-60% in 2007 compared to 2006.
I’m on the lookout for smaller outfits attempting to make generic versions of drugs, and will keep you updated in the future.
Ann
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Related Resources
Biotech Stocks: Learn more about Momenta Pharmaceuticals and their capacity to make generic biotech drugs.
Biotech Stocks: Follow the movement of the AMEX Biotech HOLDRs Index (BBH:AMEX).
Biotech Stocks: The case for allowing generic biotech research and marketing (via The Seattle Times)