Monday, January 10, 2000
For the past two years, investors have made great returns in
the top tier biotechs, driving them up 79 percent in 1998 and 53 percent in
1999. Now the rotation into companies with real products, real earnings and
significant market capitalization is pretty much complete, as many investors
agree that the big cap biotechs are just about fully valued.
Thus while the big cap biotech names remain must-haves in any
health care portfolio, investors last year were already starting to look down
into the tier two companies valued between $501 million and $1 billion. Those
companies were up 102 percent last year, and it looks like investors will spend
much of this year looking for their big gains by prospecting among the middle
tier of companies that will form the next generation of top tier companies,
as well as on down into the lower tiers for potential winners.
This mid-tier theme coincides with a second theme: the coming
of age of genomics and antibodies. Antibodies have proven their worth, with
some of the biggest products of the last few years, while genomics is catching
a second wave of investor fancy. The combination is made more potent by investors'
realization that some of the first products coming out of genomics-based discovery
will be protein and antibody therapeutics.
Looking down a tier
"Looking at the large cap companies, it's hard to see where to invest to make any money in them given their current valuations," said Anders Hove of BB Biotech, who sees continued rotation into the mid-cap biotechs as everyone tries to spot the next winner. He looks for companies with potential to have a dominant product in a therapeutic category that will command a sustainable pricing premium.