Saturday, August 8, 2009

Spotlight On: Biotech

Spotlight On: Biotech

The U.S. biotechnology industry includes about 1,000 companies, of all sizes, with combined annual revenues close to $50 billion. Large companies include Amgen, Biogen Idec, Genetech, Genzyme, Life Technologies and Monsanto. Because so many drugs are now developed using biotechnology, the biotech and pharmaceutical industries overlap.

Demand for biotechnology products and services is driven primarily by the willingness of insurers to pay for new medical treatments. With the pending introduction of Obamacare, new uncertainties are introduced to this industry. Biotech products and treatments tend to be expensive and the drive to reduce costs through rationing will no doubt effect this industry. The profitability of individual companies depends on the discovery and effective marketing of new products. Because the market for potential products is so large, small biotech companies can co-exist successfully with large ones if they have expertise in a particular line of research.

The most successful uses of biotechnology so far have been in the production of therapeutic drugs (biologics); genetically modified plants and medical diagnostic tools such as DNA testing.

Biotechnology is a high risk venture. Failure may result from poor results during clinical trials, issues involving patents, competition from other companies and government regulation. Biotech companies burn cash until their product comes to market and even then if there is not widespread acceptance of the product. Investing in biotech companies is more often an act of speculation than one of investment.

We screened our database for biotech companies with market capitalizations of $1.0 billion or more and some degree of balance sheet strength. Of the companies mentioned below, we especially like Biogen Idec. We recommend that you perform your own due diligence of the following companies which we find promising:

Biogen Idec (BIIB): "Biogen Idec Inc. is engaged in the development, manufacturing, and commercialization of therapies. The Company’s products address diseases such as multiple sclerosis, non-Hodgkin’s lymphoma (NHL), rheumatoid arthritis (RA), crohn’s disease (CD) and psoriasis. The Company has four products: AVONEX (interferon beta-1a), RITUXAN (rituximab), TYSABRI (natalizumab) and FUMADERM (dimethylfumarate and monoethylfumarate salts). AVONEX is used in the treatment of relapsing forms of multiple sclerosis (MS). RITUXAN is one of the selling oncology therapeutics. In the United States, RITUXAN is approved for NHL. TYSABRI is approved for the treatment of relapsing forms of MS. FUMADERM acts as an immunomudulator. The Company also has product candidates, such as BG-12, which is a oral fumarate; ANTI-CD80 monoclonal antibody (MAb)(galiximab); ANTI-CD23 MAb (lumiliximab); Humanized Anti-CD20 MAb (ocrelizumab), Lixivaptan, an oral compound for the potential treatment of hyponatremia, and ADENTRI, which is an adenosine A1 receptor antagonist, being developed under a licensing agreement with CV Therapeutics, Inc."

Covance (CVD): "Covance Inc. is a drug development services company providing a range of early-stage and late-stage product development services on a worldwide basis primarily to the pharmaceutical, biotechnology and medical device industries. The Company also provides laboratory testing services to the chemical, agrochemical and food industries. Covance maintains offices in more than 20 countries. The services it provides constitute two segments: early development services, which include preclinical services and clinical pharmacology services, and late-stage development services, which include central laboratory, clinical development, periapproval and market access services. Covance Inc. provides product development services on a global basis to, among others, the pharmaceutical and biotechnology industries. During the year ended December 31, 2008, the Company served in excess of 300 biopharmaceutical companies. In March 2009, the Company acquired Swiss Pharma Contract, a 50-bed clinical research company based in Basel, Switzerland."

Forest Laboratories (FRX): "Forest Laboratories, Inc. and its subsidiaries develop, manufacture and sell both branded and generic forms of ethical drug products, which require a physician’s prescription. The Company’s products in the United States consist of branded ethical drug specialties marketed directly or detailed to physicians by its Forest Pharmaceuticals, Forest Therapeutics, Forest Healthcare, Forest Ethicare and Forest Specialty Sales. Its products include Lexapro, the Company’s selective serotonium reuptake inhibitor (SSRI) for the treatment of major depression and generalized anxiety disorder (GAD); Namenda, its N-methyl-D-aspartate (NMDA) antagonist for the treatment of moderate and severe Alzheimer’s disease; Bystolic, its beta-blocker for the treatment of hypertension, and Savella, a dual reuptake inhibitor for the treatment of fibromyalgia."

Genzyme (GENZ): "Genzyme Corporation (Genzyme) is a biotechnology company. The Company’s product and service portfolio is focused on rare disorders, renal diseases, orthopaedics, cancer, transplant and immune disease, and diagnostic and predictive testing. Genzyme operates in four segments: Genetic Diseases, Cardiometabolic and Renal, Biosurgery and Hematologic Oncology. Genetic Diseases unit develops, manufactures and distributes therapeutic products, with a focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders (LSDs). Cardiometabolic and Renal segment develops, manufactures and distributes products that treat patients suffering from renal diseases, including chronic renal failure and endocrine and cardiovascular diseases. Biosurgery develops, manufactures and distributes biotherapeutics and biomaterial-based products, with a focus on products that meet medical needs in the orthopaedics and broader surgical areas. Hematologic Oncology develops, manufactures and distributes products for the treatment of cancer."

Myriad Genetics (MYGN): "Myriad Genetics, Inc. is a healthcare company focused on the development and marketing of molecular diagnostic products. The Company has seven marketed products: BRACAnalysis (breast and ovarian cancer predisposition), COLARIS (colorectal and uterine cancer predisposition), COLARIS AP (colon polyp forming syndrome predisposition), MELARIS (melanoma predisposition), TheraGuide 5-FU (chemotherapy selection), PREZEON (chemotherapy selection) and OnDose (chemotherapy dosing). In July 2009, the Company announced the completion of the spin off of Myriad Pharmaceuticals, Inc., which comprised research and drug development businesses."

Novo Nordisk A/S (NVO): "Novo Nordisk A/S, incorporated on November 28, 1931, is a Denmark-based healthcare company. The Company provides diabetes care and is engaged in haemostasis management, growth hormone therapy and hormone replacement therapy. The Company manufactures and markets pharmaceutical products and services to patients, the medical profession and society. The Company is organized in two segments: diabetes care and biopharmaceuticals. Diabetes care includes discovery, development, manufacturing and marketing of products within the areas of insulin, glucagon-like peptide (GLP)-1 and related delivery systems, as well as oral antidiabetic products (OAD). Biopharmaceuticals includes discovery, development, manufacturing and marketing of products within the therapy areas haemostasis management, growth hormone therapy, hormone replacement therapy, inflammation therapy and other therapy areas."

Pharmaceutical Product Development (PPDI: "Pharmaceutical Product Development, Inc. is a global contract research organization engaged in providing drug discovery and development services, post-approval expertise and compound partnering programs. The Company’s customers and partners include pharmaceutical, biotechnology, medical device, academic and government organizations. It operates in two segments: Discovery Sciences and Development. The Discovery Sciences Group focuses on the discovery research segment of the biopharmaceutical research and development outsourcing market. The Development Group provides a range of development services, either individually or as an integrated package. In April 2009, the Company acquired Magen BioSciences, Inc. In April 2009, the Company completed the acquisition of AbC.R.O., Inc. (AbCRO)."

Techne Corporation (TECH): "echne Corporation, incorporated on July 17, 1981, along with its subsidiaries, is engaged in the development and manufacture of biotechnology products and hematology calibrators and controls. These activities are conducted through its wholly owned subsidiary, Research and Diagnostic Systems, Inc (R&D Systems). It distributes biotechnology products in Europe through its wholly owned subsidiary, R&D Systems Europe Ltd. (R&D Europe). R&D Systems Europe Ltd. has a sales subsidiary, R&D Systems GmbH, in Germany. Techne Corporation operates in three segments: biotechnology, R&D Systems Europe and hematology. The biotechnology segment consists of R&D Systems Biotechnology Division, Fortron Bio Science, Inc. (Fortron), BiosPacific, Inc. and R&D Systems China Co. Ltd. (R&D China), which develop, manufacture and sell biotechnology research and diagnostic products worldwide. R&D Systems Europe distributes Biotechnology Division products throughout Europe. The hematology segment develops and manufactures hematology controls and calibrators for sale worldwide. During the fiscal year ended June 30, 2007, the Company established a subsidiary, R&D Systems China Co. Ltd. (R&D China), in Shanghai, China, to distribute biotechnology products throughout China."

Teva Pharmaceutical Industries Limited (Teva), incorporated on February 13, 1944, is a global pharmaceutical company that develops, produces and markets generic drugs covering all treatment categories. The Company has a pharmaceutical business, whose principal products are Copaxone for multiple sclerosis and Azilect for Parkinson’s disease and respiratory products. Teva’s active pharmaceutical ingredient (API) business provides vertical integration to Teva’s own pharmaceutical production and sells to third party manufacturers. The Company’s global operations are conducted in North America, Europe, Latin America, Asia and Israel. Teva has operations in more than 60 countries, as well as 38 finished dosage pharmaceutical manufacturing sites in 17 countries, 20 generic research and development (R&D) centers operating mostly within certain manufacturing sites and 20 API manufacturing sites around the world. During the year ended December 31, 2008, Teva generated approximately 60% of its sales in North America, 25% in Europe and 15% in other regions (primarily Latin America, including Mexico, Israel and Central and Eastern Europe). In July 2008, Teva completed the acquisition of Bentley Pharmaceuticals, Inc. In December 2008, the Company completed the acquisition of Barr Pharmaceuticals, Inc. (Barr) In January 2009, Phibro Animal Health Corporation completed the acquisition of the Abic Animal Health business (Abic) from the Company."

Warner Chilcott (WCRX): "Warner Chilcott Limited is a Bermuda-based specialty pharmaceutical company focused on the women’s healthcare and dermatology segments of the United States pharmaceutical market. It is an integrated company with internal resources dedicated to the development, manufacturing and promotion of its products. Its operations are carried through its wholly-owned subsidiaries in the United States, Puerto Rico, the Republic of Ireland and Northern Ireland. The Companies franchises are comprised of complementary portfolios of established branded and development-stage products."

Disclaimer: Author is long FRX.

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