Meanwhile in Biotechs.... - John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids

Meanwhile in Biotechs….

Year to date, the Biotech sector has had an impressive upward trend. I was recently asked back to the George Jarkesy Show where I spoke in more detail about the sector.

An excerpt:

The biotech sector has seen consistent growth over the past ten years as compared to the negative growth in the overall private sector here in the US. (6.4% between 2001-2010 compared to a 2.9% decline in overall U.S. private-sector jobs). In fact, this year alone twenty-two new biotech drugs have been approved, including promising new drugs for breast cancer and obesity.

In addition the baby boomer generation is aging and they are the largest portion of the US population. The payoffs are tremendous in the biotech industry right now.

This industry push has resulted not only in numerous scientific breakthroughs but we are stating to see much faster FDA approval of new therapeutic drugs, especially in the cancer field.

However, the Biotech sector has not been getting a lot of attention during the past decade as the media has been focused on oil prices, the Facebook IPO, and Europe. So the sector is not yet overbought or over hyped yet and still has room to continue to grow.

In fact hedge funds and mutual funds are quietly becoming very active in biotech. Companies like Fidelity and Vanguard are bigger players than ever in biotech.

Funds have began to focus more on the industry as it has matured – numerous biotech companies have more late stage clinical products than ever before. This is important since large cap drug companies like Pfizer and Merck are starting to restructure as their high most successful patents begin to expire, which of course then allows their “blockbuster drugs” to be sold as a cheaper generic.

As a result they are on the hunt for acquisitions and we are starting to see a lot more mergers and acquisition activity lately.

Lastly, available capital for new startup companies is a lot less than it was back in the 90’s. Venture capital and angel investments have put their focus on the technolgy sector and mostly have ignored biotechs over the past 7 years. This means there are less biotech companies that can be bought out by larger pharmaceutical companies, which will create a “rush to buy” and cause prices of biotech companies to rise.

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