Top Biotech Stock Picks for Q4 2012 and Beyond: Interview with UBS Investment Bank Expert Analyst Identifies Equity Winners and Losers

Wall Street Transcript

67 WALL STREET, New York - September 20, 2012 - 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, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Biotechnology and Pharmaceutical Valuations - Oncology Drug Development - Orphan Drugs - FDA Approval Process - Reimbursement Trends

Companies include: Amgen Inc. (AMGN), Biogen Idec Inc. (BIIB), Celgene Corporation (CELG), Gilead Sciences Inc. (GILD), Alexion Pharmaceuticals, Inc. (ALXN), Merck & Co. Inc. (MRK), Vertex Pharmaceuticals Incorpo (VRTX), Seattle Genetics Inc. (SGEN), Bristol-Myers Squibb Co. (BMY), Idenix Pharmaceuticals Inc. (IDIX), Pharmacyclics Inc. (PCYC), Incyte Corporation (INCY), Pfizer Inc. (PFE) and many others.

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

TWST: You don't expect federal health care reform to have a significant impact on the companies in your group. Please tell us your reasons for that view.

Mr. Roden: So if you look back to 2010, when it was clear that the Affordable Care Act was going to have some impact on biotech companies' P&Ls - largely just the large-cap companies that I'm speaking about here - it was fairly obvious that there was going to be a number of changes that would impact the P&L. One would be an increased rebating, so that impacts the top line. Another would be the industry excise tax, and that would be reflected in SG&A, and then, of course, it would be a tax effect as well. So when that happened, companies in our space made efforts to quantify what those changes would be in the P&L, and to reflect that in guidance. That was an uncomfortable time for investors in large-cap biotech, because there was a cyclical rally in 2009, and these are countercorrelated stocks to the S&P. So not only were they out of favor, but on top of that, you were seeing some pressure on the year-over-year comps in 2010 and 2011. And so it just made year-on-year growth look even less attractive than it already was.

So in that process, the effect of the Affordable Care Act, which is not insignificant to this group - and by the way, was effectively reflected in numbers - became reflected in company guidance, and is reflected in expectations. And by now, in 2012, it is basically the new normal, and it's completely baked into expectations going forward.

So the fact that the Supreme Court decision meant that the status quo would prevail translated to really no fundamental change as a result. There was a little bit of trading activity around the Supreme Court decision. If the ACA were to be overturned by the Supreme Court, then there would be an upside to our companies by basically getting back a lot of what they were giving up for the Affordable Care Act.

But it was also seen as sort of a safe trade. People were avoiding the hospitals, avoiding managed care, but you were safe in biotech and pharma, so that's where people put the money, and our stocks ran up into the decision. Once the decision was rendered, hospitals were the winners, managed care were the losers, biotech and pharma came off a bit, simply out of sector rotation. But at the end of the day, the fundamentals were unchanged, and really the stocks were unchanged.

TWST: What are some of the most promising products currently in development or recently brought to market by your companies that investors may want to keep an eye on?

For more from 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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