Finding Value in Biotech Pipelines: An Expert Analyst Discusses the Disconnect in the Biotech Sector in How Companies are Valued Relative to What They Can Do

Wall Street Transcript

67 WALL STREET, New York - April 30, 2013 - The Wall Street Transcript has just published its Biotechnology and Pharmaceuticals Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Health Care - Biotechnology and Pharmaceuticals - Executive Officer Interviews - Biotechnology and Pharmaceutical Investing - Orphan Drug and Biologics Manufacturing - Biotechnology and Pharmaceutical Companies Valuation

Companies include: Celgene Corporation (CELG), Incyte Corporation (INCY), Eli Lilly & Co. (LLY), Neurocrine Biosciences Inc. (NBIX), AstraZeneca plc (AZN), Gilead Sciences Inc. (GILD), Theravance Inc. (THRX), GlaxoSmithKline plc (GSK), Biogen Idec Inc. (BIIB) and many more.

In the following excerpt from the Biotechnology and Pharmaceuticals Report, an expert analyst discusses the outlook for the sector for investors:

TWST: You're optimistic about the biotech sector. What are the primary factors fueling your optimism for 2013?

Mr. Somaiya: I think 2012 probably represented one of the first years where there was an absolute disconnect in how biotech companies are valued relative to what they could do, rather than from an earnings and growth standpoint. These stocks were for the first time trading in a discount, so they had long-term growth prospects, and they have got long-term growth prospects driven by products that are already on the market, so really, we had a very conservative view going into the year. And I think it sort of translates to the realization that a lot of these pipelines are going to make it to the market, were going to be successful. The growth rate had an upward bias, and as a result you saw the outperformance during 2012.

So moving into 2013, we are still very positive, but I would say we are definitely more selective than we were last year. Last year, we made the call for generalists to come back to biotech.

This year, we have recommended investors be more selective, focusing on companies where we feel there is an opportunity from a valuation perspective, specifically where investors are not factoring in a company's pipeline. So everything else the company is doing, it's getting zero value assigned to it, so that's where we have been focused.

Just to give some examples - our top large-cap pick for 2013 is Celgene (CELG), and the reason for that is having covered the stock since 1996, the focus has always been on their lead drug Revlimid, with the company getting very little credit for three drugs they are either in the process of launching or expanding their label.

So those three drugs, Pomalidomide for myeloma was launched earlier this year; Abraxane, which received FDA approval for nonsmall cell lung cancer last year. And while we saw positive pancreatic cancer data earlier this year...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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