12:00 AM
Nov 14, 2005
 |  BioCentury  |  Finance

Ebb & Flow

Biotech companies valued at $2 billion and higher make up the best performing market cap band this year. However, some buysiders say they're starting to take some chips off the big cap table and are putting the money to work in smaller companies.

"We think that a lot of large caps are looking a bit tired right now," said Evan McCulloch of Franklin Templeton. "We currently can't put a finger on a large cap that we think will really outperform. Thus, we're absolutely pulling money out of large caps and putting them into smaller names."

Kurt von Emster of MPM doesn't think the big caps are out of gas. Nevertheless, he said, "we've shifted a lot of large cap exposure to the small cap group over the past few weeks. It's not that big caps will underperform, but that there's good values in companies like Human Genome Sciences andMedicines Co.They're both way down but have commercial prospects and an eventful 2006."

HGSI closed Friday at $9.21 with a market cap of $1.2 billion, while MDCO closed the week at $19.05 with a market cap of $944.9 million. HGSI's 52-week high is $15.50 and MDCO's is $29.95. HGSI's 2006 milestones include reporting full data in the first half from the Phase II trial of its Lymphostat-B to treat systemic lupus erythematosus (SLE). The company is planning a Phase III trial of the antibody that could start next year.

MDCO's big event will be Phase IIIb/IV data in mid-March from its 13,800-patient trial of Angiomax for treating acute coronary syndromes (ACS) in the emergency room setting. ER use represents a larger patient population than Angiomax's already approved use during angioplasty.

von Emster also said he's taking a basket approach to companies with PDUFA dates early next year. "You can make 5-10% based on such a portfolio," he said. "Those are good returns compared to what you can make in Amgen or Genentech." In the first quarter, there are no fewer than seven PDUFA dates for biotech therapeutics (see "Around the Corner").

McCulloch said his positions in smaller biotechs include Keryx (KERX), Threshold (THLD) and Panacos (PANC). KERX's sulodexide (KRX-101) is in a Phase III and a Phase IV trial to treat diabetic nephropathy. THLD has two compounds in Phase III: lonidamine (TH-070) to treat benign prostatic hyperplasia (BPH) and glufosamide to treat refractory pancreatic cancer. In the first half of 2006, PANC expects to begin Phase IIb testing of its PA-457 HIV maturation inhibitor.

Franklin Templeton also had added to its positions in Abgenix (ABGX) and Onyx (ONXX) prior to the strong moves by both cancer companies on Phase III data for panatumumab and Nexavar, respectively (see BioCentury, Nov. 7).

In addition to taking money out of big cap biotechs, Sven Borho of OrbiMed told Ebb & Flow that he's been "taking even more money out of the pharma space and putting it into small and mid-cap biotechs."

Laurence Blumberg of Blumberg Capital Management provided a different perspective, saying he hasn't really changed the market cap weight of his investments. "I'm not doing anything fundamentally different," he said. "I still have big cap positions and I still think there's lots of opportunity in the Amgens and Genentechs." He declined to disclose his current balance of big and small cap companies.

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