Breakout

Actavis buy jolts pharma, here’s 3 big ways to trade the sector

Breakout

Even with another big acquisition making headlines in the space, it takes a certain degree of faith to invest in drug companies or just about anything in the biotech or pharma space. The Byzantine approval process for new medications, not to mention the seemingly endless unintended consequences related to Obamacare have made it easy to avoid the sector entirely in favor of index funds, ETFs or almost any other asset class.

Where others see nothing but murk, Divine Capital founder Danielle Hughes sees opportunity. In the attached video she explains that the first step in the research process is understanding the growing disconnect between the road to drug approval and modern medicine.

“The FDA process is this legacy issue of looking at one-size-fits-all” for every drug, Hughes says. Think in terms of the search for a vaccine for Polio or Smallpox. “The problem is we’re getting very specific in genetic testing and understanding what makes people tick.” Thus we have a macro process being applied to ever more focused treatments.

Hughes is optimistic that the system will slowly improve. Judging by the 80% one-year gain in the iShares NASDAQ Biotechnology ETF (IBB) there are other investors who share Hughes’ enthusiasm.

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Even after those gains Hughes says it’s not too late to get involved. Myriad (MYGN) is a testing company with “ok” performance (defined as up 30% in a year) with a fresh acquisition to juice future growth.

Her second pick is old-school Merck (MRK), an 800 lb gorilla that’s been doing a great job pruning its portfolio while filling its pipeline with growth. As Hughes points out, having the money to get through the approval process is a huge advantage in the current system. It’s a big “Big Heavy” to own for the long-term.

Finally she likes Hologic (HOLX) which is involved in 3D mammography among other businesses. It’s another that’s not necessarily a high-flyer but a good way to get exposure without all the risk in some of the crazier names reliant on the approval of one drug or product.

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